Aflac Stock

Good morning, everyone. I'm Ryan Krueger from KBW, and we're going to get started with the next session. It's great to have Max Broden, the CFO of Aflac, up on stage with me. Also wanted to recognize David Young from Investor Relations and Capital Markets at Aflac in the front row. Unfortunately, Ben Affleck, their new spokesman, was unable to join us for the fireside this year, maybe next year.

So yes, maybe just to start -- I just want to start with Japan. Certainly, hard to not notice that interest rates are the highest they've been there in 25 years. And you had done some investment repositioning in the second quarter. I think you had indicated maybe more in the third quarter. So hoping to get some sense of, kind of, how much more opportunity there could be to do investment repositioning and take advantage of these higher rates?

Yes. So in Japan, we find ourselves in a situation, obviously, with the yen yield curve being as steep as it is, both in terms of the level of the steepness, but also the absolute levels of yields that we haven't seen for a very, very long period of time. So what we have sort of been looking at for quite some time, and we've been able to execute on in the second quarter is a number of repositioning trades.

We, at Aflac, we hold a pretty significant U.S. dollar portfolio on our Japanese balance sheet. And what that means is that when we then run this through our capital level in Japan and when we run this through our local statutory earnings, it creates pretty significant FX, either gains or losses depending on where the dollar-yen rate is. And as the yen has weakened pretty substantially despite, obviously, what's happened over the last week, that means that we have found ourselves in a pretty significant FX gain position.

And that's all well and fine, but this coinciding with the steep yield curve has meant that, obviously, our JGB portfolio has found itself in pretty significant unrealized loss position. And what we've been able to do is to transact and reposition the dollar portfolio generating loss -- sorry, gains and reposition the JGB portfolio generating losses, and they, kind of, more or less offset each other.

And that means that without leaking anything in terms of taxes out of the company, we've been able to reposition those 2 portfolios now yielding higher yields. So even though the earnings impact on a local statutory basis is essentially neutral from these transactions, it means that going forward, the net investment income of the total portfolios will be on an annual run-rate basis, $50 million higher.

The other thing is that it reduces risk overall for us as well. So in Japan, you have an impairment test. So even if you have purely -- even if it's purely driven by rate, if you are down 50% on a security, you have to impair it for local statutory purposes. That -- and the local statutory earnings is predominantly the main driver for your ability to then send dividends out of that entity up to the holding company.

So for us, if you have significant impairment risk, that also means that down the line, there could be impacts to your ability to send dividends. And we have greatly with this reduced our total unrealized loss on the JGB portfolio and therefore, also significantly reduced that impairment risk as well. So this was partly an exercise in reducing future risk, but also an exercise in increasing future earnings.

And then just to -- I think it was 5% of your portfolio that you repositioned. Like could you do -- is there an opportunity to do as much as that again? Or any sense of the magnitude that -- of the opportunity that's left?

Yes. So transacting 5% of our total portfolio in 1 quarter is a lot. It's a lot. So our team was very, very active executing on this. When you start a process like this, you should expect that you begin with what is the most impactful and what is sort of the easiest to do. And some of that is behind us. I definitely expect that our investment team will continue to execute on this in a good way. So there is more to come, but I would just keep in mind that 5% is a very, very significant number.

And then the higher rate environment is also driving more demand for savings-oriented products. In Japan, you sell a first sector life product called Tsumitasu, which has had good sales growth recently. I guess, can you talk a little more about what your first-sector strategy is at Aflac in Japan, the risk return profile of the Tsumitasu product and just how much you're willing to grow there relative to your more legacy kind of core third-sector business?

Yes. I'll take the word legacy. Yes, our core business, it is really our cancer and medical business in Japan. And our life insurance and our savings business, I would define as more opportunistic. And the reason why is because now we're exposing ourselves much more to macro risks. That means that there are times where we want to push the gas and there are times where we're going to hit the brakes.

Right now, specifically, not only -- I'm coming back to not just the yield level, but more importantly is the steepness on the yield curve is making life insurance very, very attractive from a savings vehicle standpoint in a way that you have not seen for the last 30, 40 years. And it's really the steepness that is doing this because most other savings products, like, for example, CDs or savings accounts, well, they price off of the short end of the yield curve. And the life insurance products, they are priced off of the long end of that yield curve.

So that means that the steepness, that is really what defines the relative competitiveness of these products relative to other savings products. So I think from a total demand standpoint, we have a real opportunity in the marketplace right now. That's not just Aflac, it's the whole industry that is benefiting from this.

The other angle to it is that the higher yields mean that we can now engineer products with actually very good returns. So right now, I'm seeing new business IRRs that are extremely good for us. We have, on top of that, also designed over the last couple of years, reinsurance solutions and capacity internally that further reduces those returns. So when I look at the IRRs on a post-reinsurance basis, they're highly, highly attractive.

So we -- right now, we do want to grow this business. There will be a time where my answer is completely different. And that's what I mean by this being opportunistic. The other angle to it is that Tsumitasu also gives us access to a younger clientele that we can grow into. And that has very significant strategic value to us because that means that 1 year or 2 down the line, we can then cross-sell our cancer and medical policies into this younger cohort of policyholders. So there's both economic and strategic value to grow our life insurance business right now.

And shifting to the third sector. So you grew sales 24% in 2025. A lot of that was driven by the strength of the Miraito cancer product. Now you have a refreshed medical product, too, but you're also lapping the tougher comps with the cancer product. How are you thinking about sales growth for third sector in the second half of this year? And then just any further thoughts on just your strategy to grow the third sector business?

Yes. So our cancer product, Miraito, is fully through its refreshment cycle. It has been out in the market for 1.5 years at this point. That means that it's meeting that sort of maturity level. So we would expect that from a growth standpoint, that will flatten out. And from now on, we're still looking for that product to sort of grow a little bit, but sort of defend the levels it is at.

As it relates to our medical business, so Anshin Palette, we refreshed that product. It came out late last year. We had a full first half with obviously, from a growth rate standpoint, very significant growth of that product year-over-year. But in terms of absolute volumes of yen sold, it's still at a pretty low level. So that's a business that we really need and want to take to that next level.

Historically, I think we've done pretty well selling that product through our exclusive agency channel. We have not done so well selling through the nonexclusive agency channels. And that's actually a part of the marketplace that has grown a lot in medical over the last 10, 15 years. So I think that's an opportunity for us to strengthen our positioning in that distribution channel with our medical product.

Got it. So third-party reinsurance out of Japan is a newer opportunity for Aflac. You've done one transaction so far with Japan Post. What types of liabilities are you pursuing there? Any early indications on counterparty conversations? And how meaningful do you think this business can become for the company?

So we would not get into a business unless we think it has the opportunity to become meaningful, not just to Aflac Re, but overall to the totality of Aflac as an enterprise. The liabilities that we are looking for is we have capabilities across the spectrum. That means that we can underwrite -- we're willing to take on both biometric risk, longevity risk, and we are willing to take on asset risk as well.

If I were to define where I think our sweet spot really lies is really in taking on mortality, longevity, and spread risk. And this may come a little bit as a surprise to you given that if you think about what Aflac generally is, which is a morbidity company, i.e., we're very, very long morbidity. But the fact of the matter is that is what gives us this opportunity.

So when we co-mingle our reserve and liability risks that we have, and we are very, very long morbidity and we add a small level of mortality risk to that balance sheet, we add a small level of longevity risk to that balance sheet and a small level of spread risk to that balance sheet, we get very significant diversification benefits, both through an economic lens, but also from a regulatory capital lens.

And that is significant competitive advantage for us. That packaged with us having an AA rating of our reinsurance entity means that we have some real core competitive advantages relative to some other players in Japan. And that is something that we're pushing pretty hard on as we continue to have conversations with cedants.

And your Japan benefit ratio has been trending towards the higher end of the 60% to 63% target for the year. Can you, I guess, go over a little bit more details why that's happening, what your outlook is going forward? And then is the general trend of downward movement in the Japan benefit ratio due to favorable claim patterns and mix shift still something you expect longer term?

Yes. So I would generally divide our benefit ratio. And here, we're talking about Japan for a second. It's a combination of the claims incidence rates that are coming in, and it's a function of what we're seeing on the back book. And in our case, lapsation of the back book has a pretty significant impact on our benefit ratio from a quarter-to-quarter basis.

When we look at claims trends, they're actually coming in, in line with our expectations. So in the first half, we have seen a reported U.S. GAAP benefit ratio a little bit higher than what we expected. It is not driven by incidence trends. It's not driven by the severity trends in terms of claims. It's really driven by what's happening on the back book in terms of lapsation.

Total lapsation is actually in line with our expectations. But what we have experienced is a little bit higher lapsation of younger policies and a little bit lower lapsation of older policies. Why does this matter? Well, if you have a young policy, that means that -- and keep in mind that we are selling regular premium products, that means that the reserve builds up over time.

So there's a relatively small reserve that has been built up on, for example, a 5-year-old policy that is now lapsing through our results. When that is lapsing and it runs through the results, that full reserve gets released. And if you have a relatively small reserve being released through the benefit ratio, it pushes the benefit ratio only down just a little bit.

If you have an old policy that's been on the books for 20, 25, 30 years, there's a very significant reserve that has been built up. That full reserve gets released through the results, pushing down that benefit ratio quite significantly. So that mix impact between old and younger policies being lapsed is really the key component to it.

Now the thing is that when you actually go in and you look at, has there been a significant shift in the number of old policies being lapsed, not really. And part of the reason is that the reserve per policy is actually very, very high. So it doesn't take that many policies to not lapse to actually have an impact on our benefit ratio.

So that's been a little bit of an impact over the first half. We would expect this to normalize in the second half of the year and going forward. That's why we do expect that for the full year that our benefit ratio in Japan will still remain at the upper end of our target range of 60% to 63%.

Got it. I guess there have been some encouraging recent developments in cancer treatment with the Moderna mRNA vaccine and there's the Revolution pancreatic cancer drug. I mean I know it's early, of course, but like how are you thinking about the potential impacts of those types of advancements if they continue to be successful over the longer term?

Medical advancements for treatment of cancer is very important from a societal standpoint. And it's also been very good to us. The way our products are designed is that we pay benefits for a specific trigger or a specific treatment. We don't pay for the treatment. What that means is that if you have more use of new treatments coming in, it generally has meant historically that you have less use of some of the benefits that we have written 20, 25 years ago on our in-force block.

So what's happened then is that we actually have seen that very favorable claims experience of those older policies being written when there's been new medical advancements or new treatments coming out. What it also means is that it increases demand on the front end to our new policies as we incorporate coverage for these new treatments as well. And that is what's triggering some of this lapse and reissue activity that we talk about pretty much every quarter that policyholders are refreshing their coverage as well. So generally speaking, we view this as positive drivers, both short term and potentially even long term for our business.

On the expenses in Japan, a couple of...

Sorry, I do want to mention one more thing. As it relates to when we get more personalized treatments and personalized vaccines, obviously, the cost of that is likely to be quite high. The way our products are designed, we do cover vaccines, but it's a very limited benefit. So generally speaking, I'll give you one example that we would have a treatment benefit that may be $200 to $300. And it doesn't matter if the vaccine treatment is $500 or if the vaccine treatment is $150,000. We're going to pay the same amount on that. So that means that even though the severity or the cost of the treatment is very, very high, it doesn't necessarily hit the severity claims cost for us.

I had a question on Japan expenses. A couple of years ago, you had guided to a somewhat higher expense ratio going forward as you were making strategic investments in the business. It has picked up some, but it has still also been trending towards the lower end of the target that you have provided. Can you unpack that a little bit? And I assume there's some maybe efficiency actions that are also going on that have kept it lower.

There has been -- and there's also been good work by -- well, maybe I do hope that our Japan colleagues are listening into this, that they should have some credit for good expense management because it is tough to run a business when you have revenue decline. And when you continuously have to cut expenses, it's a difficult environment to operate in. But they've been successful in managing that over time.

The other angle to it that have also helped is that we've been driving higher net investment income in Japan relative to the overall income statement. So your proportion of revenues coming from net investment income has increased as yields have increased. And that obviously helps your reported expense ratio. So even though we've done some improvements in terms of absolute expense management, that you've had a further benefit pushing the benefit ratio lower by higher net investment income driven by higher yields as well. So some of that has been given to us, but it's also been good execution. Long term, I do think the right level for our business is in that 20% to 23% range.

Okay. Then broader question just on AI and how is Aflac going about using AI to -- across the company? And what do you actually think it's going to ultimately result in as a benefit for the company?

So obviously, we are deploying use cases across the board in many different areas right now. There is a little bit of a shotgun approach. You have to have that at this point in time. We know that some of these use cases will work out really well and some of them will fail. And it's important that we get those use cases because we don't know exactly what's going to work and what's not going to work. So it's important to try many different areas, but make sure that we fail fast where it's not working.

Fundamentally, I absolutely believe that we will achieve significant operational efficiency driven by AI. There's no doubt about that. I am not convinced that it will lead to expense efficiency, though, and that it will ultimately lead to lower expense ratios for us. When you go back and you look at technology advancements in the past, you have seen significant improvements, but it turns out these fantastic technology companies, they want to charge for their products as well.

So it sort of comes through in the shape and form of higher IT expenses overall. So we are not banking on or planning necessarily that we will drive or get significant expense efficiency driven by AI. If we get that, that would be fantastic, and that will be upside for us. But we are not assuming that, that will happen, and that sort of will bail us out.

If it's one area where I think we and to some extent, the industry could have some pretty good results over the next couple of years, it's really on the policy administration platform side. So we and the industry generally sit on legacy systems. And what AI technology is really giving you the opportunity is migration off of those systems onto either in-house built solutions or other platforms is going to be a lot less risky, a lot cheaper and a lot quicker. And when you add those 3 up, it makes it very, very attractive. So I think when I look at our business today, and from what I've seen in terms of AI use cases that we are deploying, that is probably the area that I think we're going to -- we -- in the near term, over the next couple of years, probably going to see the most impact.

Since I asked about AI, there have started to be some questions from investors about just exposure in the investment portfolio to data centers and hyperscalers. Do you have any update there on Aflac?

So we hold. If I combine data centers and hyperscalers, they represent about 1% of our investment portfolio. And this is on average single-A-rated. The way we think about this is that we have more exposure towards what I would call traditional cloud computing and less so to data centers in very remote areas that are for single-use only -- that's something that is -- we are somewhat concerned about because we don't know necessarily where all these new technology advancements will go.

We don't know necessarily what our energy need is 5, 10, 15, 20 years from now. And to build that in an area that you don't know if you're going to use it or not, that we find to be maybe a little bit risky. And so you do need to get pretty significant credit spreads on these type of deals right now. And obviously, there's dramatic supply coming on to the market. And generally, I would say that in -- there are some areas where the risk reward is good from a credit standpoint, but there's certainly plenty of areas where it does not look so attractive to us.

Moving over to the U.S. business. Can you give an update on the progress building your newer product lines, traditional group, Dental, Vision, Direct to Consumer? And are those close to reaching scale at this point?

We are getting there. We are not there yet. We still need some time. And if you ask me what is some time? Well, it's probably in the 2- to 3-year time frame that we need. And when it comes to group life and disability, we have a good platform. We have good solutions, and we're happy with how that is progressing. And that business is running in line with our expectations, both in terms of what we see in the marketplace, how we price new business, but also how our back book has performed.

On Dental and Vision, obviously, we are behind on our original plan. But as we continue to grow that, we see very good traction, especially as it relates in the small case market. So that is predominantly driven by our Aflac sales force that is doing very well. A little bit weaker on the broker channel as that is a much more competitive area.

On the Direct to Consumer side, continues to gain traction. Profitability is good on that channel, but we need to sort of push that a little bit harder. We would like to see a little bit more growth come through, but there's also a more direct trade-off between growth and profitability in that channel. So as you push for growth, you immediately then eat up higher acquisition expenses that sort of impacts your profitability. So it's you need to be a little bit careful how hard you push in that channel.

I think there's the sales side, another initiative has been improving persistency in the U.S. Can you give an update on that and how that's going?

Yes. We're happy with how that is progressing. We've been able to improve that by a couple of -- we've almost been improving by 20, 30 basis points per year over the last couple of years. So that's progressing well. The real kicker for us is really when we, at greater scale, can bundle multiple products. And I think the real area and opportunity for us is on the group side. And as we get to fully building out those capabilities and getting to scale in the group business, and we get that bundling happening, that's really when we're going to see the next kicker.

And then when you put it all together, you have a 3% to 6% premium growth target in the U.S. over the next few years. How are things tracking towards that?

So obviously, we mentioned on the second quarter earnings call that for this year, we would expect to be slightly below that 3% level. As some of our higher growth areas become a bigger proportion of our total in-force and a greater proportion, therefore, of earned premium, the mix impact as they continue to grow and they become bigger, that naturally pushes us up into that range.

So that's why we feel comfortable about us on a CAGR basis for the years '25 through '27, we should still be in that 3% to 6% range. But gradually, we would expect that overall earned premium should continue to accelerate throughout that period at the low end in the beginning of the period and at the higher end at the end of the period.

And then on the U.S. expense ratio, it's been trending lower as you've been getting closer to scale in some of the newer businesses, but do you still see more room for improvement there as you reach further scale in the next few years?

Yes, I do. We have, as I mentioned, a number of businesses that are not at scale today. So they're running with expense overruns. As they get to scale, that will bring a tailwind for us as it relates to pushing that expense ratio lower. And it's also the fact that we are growing in businesses with a lower expense ratio structurally as well. So that combination of growing in low expense ratio businesses and the mix impact should, over time, continue to further push that expense ratio lower.

Now at the same time, that also means that our benefit ratio will see the same impact, right, because we're growing in high benefit ratio businesses. So that will have a little bit of an impact pushing that benefit ratio higher. But net-net, that means that we should be able to defend our pretax margin in that 17% to 20% range.

Just one more on the benefit ratio. You mentioned the mix shift impact. But if we step back from the mix shift component, how have claims been coming in relative to your expectations there?

We generally see actual-to-expected very much in line with our expectations. There's nothing really that has stood out this year. We had a -- last year, we had little bit higher claims, especially on our accident and our hospital product. That turned out to be a blip. And we have -- this year, it's looking better and very much in line with our expectations. So nothing specifically to sort of call out on the claims side.

I want to get your current views on M&A. Aflac has never been a company that has really done large M&A transactions. But I think when we look at the company, you do have a lot of characteristics where it would at least theoretically make sense, strong capital position, low leverage, high valuation multiple and lower growth. So it seems like a company where it could make sense, but I know it's not something you've really done much of. So what are your current views now?

Yes. If you go by the MBA textbook, I would say that we absolutely should make acquisitions because we have those -- all those characteristics. The thing is that you always have to keep in mind that we find ourselves, we are very, very strong in what I would call a pretty narrow niche business. And when you are in this very narrow niche at very significant scale, it means that we don't necessarily -- for most of the business that we do, we don't need more from a strategic standpoint. We have all of that. We have the products that we need. There are some gaps in terms of capabilities, but this is predominantly more on the technology and the platform side rather than something more sort of bigger like distribution or product gaps.

So what that means is that the hurdle rate for us to do any sort of larger M&A is actually quite significant. It also means that the very second that we are looking at something and most of the things that, trust me, bankers are aware of, they do the same analysis that you just made, right? So yes, we do get approached and we get pitched a lot of different opportunities. But the problem is that a lot of it is outside of our core business.

When we step outside of our core business, that introduces to me a lot more risk because now you're into products that you don't necessarily know or are used to underwrite. You also step into a business that your current management team may not have the capabilities and knowledge how to manage. So the risk associated with that type of acquisition is very, very different, especially for a company that does not have the track record and the history of doing so. And I would argue, do not necessarily have that type of acquisitions in its DNA.

There are certainly companies that have that, and they're experts in doing so. And that's part of what those companies are. But that is not us. And that's why it means that both from a strategic standpoint, it becomes difficult to find what those right targets are. And it also means that the financial hurdle rate for us may be higher than what it may be for somebody else despite us having obviously significant financial firepower.

I guess one follow-up would be, so it sounds like if there was -- maybe you would consider something if it were right in your niche, but you have a pretty high hurdle rate to do it because of the execution risk?

Yes. I mean, it would have to advance the ball strategically for us as well. If it's something that is purely financial, it rarely works. If it's something that would advance the ball strategically and make the value of Aflac significantly higher, well, of course, we would look at something like that.

Got it. Then another new development from last quarter was you announced a new framework for the internal reinsurance limit from Japan to your internal reinsurance company in Bermuda. Can you give a little more color on like how did you come up with that amount with the JFSA? And then should we expect kind of the same type of gradual timing in terms of moving up towards that target like you've been doing in the last 5 years? Or would you ever consider accelerating it to an extent?

Yes. We like to do things on a gradual basis. We initially started with a 10% limit. And that was sort of -- that was a meaningful number, but it gave us something to hold on to, something that we could use to communicate to all our different stakeholders. We since then come back and we looked at what is sort of a more realistic or a reasonable counterparty risk exposure between Aflac Japan and Aflac Re Bermuda, given the size of the balance sheet there, both from a Japan standpoint and an Aflac Re Bermuda standpoint. And that's sort of how we landed at this 30%.

We also think that it fits the bill in the sense of it being a meaningful number. But it may not necessarily be obviously the end game as well. So we don't feel that we have pushed the limit to the extreme by any means. But it's still -- it's a reasonable number given where these companies are at this point in time. If Aflac Re was a much bigger company, which we would expect over time, that would help that counterparty assessment.

It's also the fact that since we introduced this in early July, the JFSA came up with communication where they are now strongly recommending that collateral trusts are part of every reinsurance transaction when you are ceding business. Well, what does a collateral trust do? Well, it sort of increases the -- or reduces the risk overall in the transaction, and it significantly reduces that counterparty risk exposure. In theory, that means that you over time could have greater capacity. So these are some of the things that we sort of will evaluate over time. But this is -- we just introduced this new limit, and we feel like we have significant runway for the next couple of years.

And just a couple on capital. So one is, do you still view the underlying free cash flow generation of the company in the $2.5 billion to $3 billion range, but then we should view capital that's freed up through the Bermuda internal transactions as incremental upside to that number?

Yes. That is the way to think about it. It's a good way to sort of think about these sort of different building blocks because the total number will be very volatile over time. But there's an underlying number and then what we can do both in terms of internal reinsurance transactions, freeing up capital will come on top of that.

I would also recognize that we are currently operating with capital levels in all our legal entities above our target operating ranges. So our ESR is operating above our target operating range. Our RBC is operating above the target operating range and our BSCR is operating above our target operating range. That also gives us opportunity to do further management actions in order to sort of rightsize those capital levels.

Over time, there is no reason why any of these companies should be above that target operating range for an extended period of time. If that was the case, we should not have defined those target operating ranges in the first place if we didn't think that they were actually appropriate. So over time, we would expect that we will be inside of those ranges and possibly in the middle of those.

And then the last piece to it is that we operate, obviously, with low debt leverage as well. We're at the low end of our leverage corridor. And I would argue that we have an overall risk profile that is very low, primarily driven by the low risk of the underwriting risk that we take on through product design that we have. And that means that in theory, we should be able to, over time, take on a higher debt leverage than what we have today. So across the board, I think there's certainly more to do for David and his team to continue to drive further efficiencies.

Excellent. Well, I think that's a good place to wrap it up. Thank you very much, Max, and the Aflac team for attending.

Thank you.

Good day, and welcome to the Aflac Incorporated Second Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.

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

Good morning, and welcome. Thank you for joining us for Aflac Incorporated Second 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 of Aflac Life Insurance Japan; Shinsuke Morimoto, Deputy President and Director of 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 joined us. The second quarter added to the first quarter's solid financial start. Aflac Incorporated reported net earnings per diluted share of $1.63 and adjusted earnings per diluted share of $1.75. These results reflect the focused execution of our strategy, thus creating long-term value for the shareholders.

Starting with Aflac Japan. As we told you, we were up against a strong second quarter in 2025 sales comparison following the launch of Miraito Cancer Insurance. As a result, sales declined 5.6% to JPY 11 billion in the quarter, but sales were up 7% for the first half of the year. This reflected strong sales results of Tsumitasu and bring sales in line with our expectations for the first half of the year. As part of our ongoing strategy, we continue to promote the importance of third sector protection to new and younger customers with our innovative first sector savings-type life insurance product, Tsumitasu. During this quarter, both the refreshed Tsumitasu product and Anshin Palette medical insurance product, which we launched in December of 2025, delivered strong sales growth year-over-year. As a result, we continue to expect Aflac Japan sales to exceed 2025.

For the quarter, premium persistency was 92.7%, which was in line with last quarter 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. Our wide-ranging network of distribution channels, including agencies, alliance partners and banks continually leverage opportunities to help provide financial protection to Japanese consumers. We view each channel as a distinct avenue to reach Japanese consumers in different demographics and stages of life. With this in mind, we evaluate and support each one with unique opportunities to help provide Japanese citizens with financial protection.

Turning to Aflac U.S. We continue to focus on pursuing profitable growth with an eye on maintaining strong underwriting discipline and premium persistency. We generated a 2.6% increase in year-over-year sales in the second quarter. We are seeing momentum within our group business, especially our group voluntary products and network dental and vision. We generated a 2.3% increase in net earned premium for the quarter and maintain strong premium persistency of 79.4%. At the same time, Aflac U.S. has continued prudent approach to expense management and maintained a solid pretax margin of 20.9%. As public insurance companies, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of the shareholders. We continue to be pleased with our investments producing solid investment income.

Our operations generated strong capital and cash flows on an ongoing basis as we remain committed to prudent liquidity and capital management. This financial strength is the foundation that backs up our promise to the policyholders balanced with financial flexibility and tactical capital deployment. I am 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 in 2026, combining share repurchase and dividends we delivered $1.3 billion back to the shareholders in the second quarter and $2.6 billion for the first 6 months. In doing so, we have maintained our position among companies with the highest return on capital and lowest cost of capital in the industry. We continue to pursue more profitable growth and the tactical opportunistic deployment of capital.

The Japanese and U.S. insurance markets are 2 of the best insurance markets in the world, both share characteristics that make them well suited to the products we offer. Across Japan and the United States, consumers are feeling the strain of increasing out-of-pocket medical expenses. That's exactly where our products can help. As you have heard me say many times before, I believe the need for our products is actually more compelling in this type of environment because the financial risk to the household becomes more pronounced and more impactful. As a pioneer in cancer insurance and leader in the industry, our employees, sales teams and sales partners show up every day to help ease that burden, providing financial protection with genuine compassion and care. The ongoing foundational strength of our business and our capacity for continued growth support 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. For the second quarter of 2026, adjusted earnings per diluted share increased 1.1% year-over-year to $1.80, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $46 million, reducing benefits with $7 million or $0.01 per diluted share below plan. Variable investment income ran $72 million or $0.11 per diluted share below our long-term return expectations. We also released a $26 million expense contingency with lowered expenses in our U.S. segment, benefiting results by $0.04 per share. Adjusted book value per share, excluding foreign currency remeasurement decreased 4.1%. The adjusted ROE was 12.7% and 16.6%, 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 3.7%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability declined 1.4%. Japan's total benefit ratio came in at 64% for the quarter, down 250 basis points year-over-year. We estimate the impact from reserve reinvestment gains were under plan by approximately 60 basis points. We continue to have favorable trends in cancer and hospitalization. Recognizing that the year-to-date benefit ratio is 63.4%, we now expect to be at the high end of our guidance range of 60% to 63% for the full year of 2026, excluding the annual actuarial assumption review in Q3. Persistency remains solid and in line with our expectations at 92.7%. We have continued to experience somewhat elevated lapse and reissue activity on recently launched products as we have expanded coverage options and competitiveness on our new products.

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 20.2% for the quarter, down 40 basis points year-over-year. This is a strong result, especially on the back of the current inflationary pressures in Japan. For the quarter, adjusted net investment income in yen terms was down 2.9%, primarily driven by lower call income and lower dollar-denominated floating rate income, partially offset by higher income on U.S. dollar assets due to the weakening of the yen and higher dollar-denominated fixed-rate income. The pretax margin for Japan in the quarter was 34.3%, up 230 basis points year-over-year, a very good result. As we previously discussed, after Japan set an internal reinsurance target of up to 10% of U.S. GAAP assets. We have revisited this target and aligned it with an FSA perspective, of up to 30% of FSA reserves. This will allow us to continue to reduce risk, improve balance sheet efficiency and ultimately generate a higher ROE for Aflac Japan and the group.

Turning to U.S. results. Net earned premiums were up 2.3%. We expect our net earned premium growth rate for 2026 to be just below our guidance range of 3% to 6% versus previous guidance, for the low end of this range. We continue, though, to expect our 2025 to 2027 net earned premium CAGR to be within the range of 3% to 6%. Premium persistency remained solid at 79.4%, up 20 basis points year-over-year. Our total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025, driven by an increase in incurred group disability claims in the quarter related to favorable results in the previous quarter. We estimate that reserve remeasurement gains impacted a benefit ratio by about 30 basis points above plan. Our expense ratio in the U.S. was 36.1%, down 20 basis points year-over-year.

Adjusted net investment income in the U.S. was essentially flat, up 0.5% for the quarter as higher call and fixed rate income were offset by lower floating rate and short-term income. Profitability in the U.S. segment was solid with a pretax margin of 20.9%, a 160 basis point decrease compared with a strong quarter a year ago. Corporate and other reported a pretax adjusted loss of $10 million, down from a $20 million gain last year. The main drivers were lower adjusted net investment income from lower short-term income and reduced hedge benefits that were partially offset by higher fixed rate income. Although our tax credit investments impacted the adjusted 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 overall tax credit investment program benefited net earnings by $8 million. Higher interest expense and runoff impact from our closed blocks of business also contributed to the net loss for the quarter.

We're pleased with our overall performance of our investment portfolio. Our private credit portfolio, most notably our middle market loan portfolio continues to deliver strong risk-adjusted net yields. During the quarter, our Global Investments team were quite active repositioning $4.8 billion of the portfolio through switch trades to capture the benefit of higher yields and further strengthening the overall quality of our consolidated portfolio. These traits capture foreign currency gains to minimize market losses on lower-yielding assets, reduce the risk of future FSA impairments, improve our ALM and boost net investment income. On an annualized basis, we expect this program to increase net investment income by over $50 million on a run rate basis with a very limited impact on capital levels.

We will continue pursuing opportunities that improve the overall health and performance of the portfolio. For U.S. statutory, we recorded $11 million of impairments on invested assets and $1 million valuation allowance on our mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, we booked securities impairment of JPY 15.8 billion and an additional valuation allowance of JPY 33 million related to transitional real estate loans in Q2. This is well within our expectations and has a limited impact on regulatory earnings and capital. Aflac Inc. unencumbered liquidity stood at $3.3 billion, which was $2.3 billion above our minimum balance of $1 billion at the end of the quarter. Our adjusted leverage was 21.8% 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 connecting 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 226%. If including the undertaking specific parameter or USP, this would add 14 points to the regulatory ratio and result in an ESR with USP of 240%. The decline quarter-over-quarter was primarily driven by significant subsidiary dividends. We estimate our combined RBC to be slightly above 600%. These are strong capital ratios which we actively monitor, stress and manage to withstand both market volatility and credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $983 million of our own stock and paid dividends of $309 million in Q2, 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.

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

Thank you, Max. [Operator Instructions].

[Operator Instructions] The first question today comes from Ryan Krueger with KBW.

My first question was on the asset repositioning that you did during the quarter. maybe, I guess, first, maybe a little bit more detail on what you did, but then probably more importantly, to what extent do you see additional opportunities to do more of this going forward?

Yes. Thank you, Ryan. This is Brad. Yes, we were -- I'm very pleased that we were able to reposition about 5% of our portfolio in a single quarter. Obviously, we're solving for multiple objectives here. Income is an important driver as our losses as you sell the lower-yielding assets from prior periods, but we also have to manage taxes, liquidity, ALM, et cetera. So it's a pretty complex puzzle that we have to solve. What we were able to do this quarter was harvest gains from foreign currency on our dollar portfolio in Aflac Japan and use that to offset losses on some of those older bonds, both in our U.S. dollar portfolio, but also our JGB portfolio. We repositioned in both of those sectors. Most of the activity was in Aflac Japan, but we also touched Aflac U.S. and Aflac Bermuda with some adjustments to the portfolio there as well.

In terms of the forward look, there's a reason insurance companies are often referred to as buy and hold, not my favorite term, by the way. But it is a complex puzzle to solve. But when you can crack the code, you can have a pretty significant impact as we saw this quarter, and we see a very big opportunity in front of us from the higher rate environment, and we didn't stop working on June 30. So we're not going to -- we're going to do our best not to waste this opportunity, and I look forward to talking more about it in the third quarter.

Okay. And on first sector sales in Japan, you had strong sales there. I think demand is generally increasing for first sector type products given the higher rate environment there, but you've always been a third sector company. Curious, is there any practical limit in your view of what percentage or amount of your Japan sales you'd be willing to have come from the first sector given kind of there's probably a bigger growth opportunity there if you wanted it?

Let me -- this is Max. Let me start, and then I'll ask Japan to add some commentary to this. From a group standpoint, we don't have a certain or specific set limit of our mix between third sector and first sector business. The primary driver for us is the return that we can get on certain products and the risk that comes with those products. Right now, we are getting very good risk-adjusted return on the first sector business that we are writing today. So we're very, very pleased with adding that to our portfolio.

Overall, though, we do acknowledge that our in-force is predominantly driven by third sector business. And that's a business that is very stable, predictable, and it has risks that we are very comfortable with. And the first sector business adds a different type of risk profile to our business, i.e., mortality, spread and to some extent, longevity risk. So when we add that to our existing balance sheet, that is in relatively small portions, it's actually quite good for us from a diversification benefit standpoint. But if it gets too high, those risks can actually be risk increases overall for us. At this point, the first sector in-force is less than 20% of our total in-force and it has been climbing for quite a period of time, essentially since 2016 when we exited the WAYS business when JGB yields went negative. But as of right now, we are starting to see very good returns on the first sector business, and we're very happy with the business we're selling.

[Interpreted] This is Koide speaking from Aflac Japan. As Max has described, Tsumitasu, our first sector products account for 20% of the total sales, but it's not that we set a specific target or upper limit in terms of the first sector product sales. Tsumitasu is contributing in expanding our platform, our customer base through a younger generation, and it's been well received by those younger customers today. And Tsumitasu is also making a great contribution in expanding our sales in cancer and medical insurance through concurrent sales. So we remain to be the third sector oriented company, but Tsumitasu is definitely playing an important role from a strategic perspective.

The next question comes from Tom Gallagher with Evercore ISI.

I just want to start with a higher-level M&A question for you. So historically, Aflac has done small deals. Should we expect that to be the case going forward? Or would you consider going bigger and more strategic if opportunities arise?

I think the answer is we continue to look at opportunities. Generally, if something is for sale, it's for sale for a reason. And so we want to be careful in how we spend the money. It took us a long time to make it, and we want to be careful with that. But at the same time, if there's opportunities, we certainly want to look into it. I am pleased with the development of the small companies that we bought and what's taking place. They've turned around and done much better in the last year or so, and I'm encouraged by that. So the answer is yes, we would look elsewhere but it would have to pass a strenuous test for us to be excited and really interested in something.

Okay. And then my follow-up is, Max, on the expansion of the limit in terms of reinsuring Japanese business to Bermuda, can you just give a little bit of color what the 30% of FSA reserves now. Was that just -- is that still just the company imposed limit? Or was that in consultation with the FSA? And will this signal an ability to actually do more each time you do them? Like can we expect the cadence of reinsurance to be going up annually? Or would you still expect it to be similar to what you've done in the past?

Yes. So this move from having a ceding limit from 10% of U.S. GAAP assets to 30% of FSA reserves, this is an internally imposed limit that we have developed ourselves. But you should assume that we have shared this with external constituents as well and receive feedback on it. So we -- this is something that makes sense for us. We feel it fits us well when we balance the overall risks and opportunities available to us.

As it relates to the size of future transactions, there is obviously a cost with every transaction that you do. So if you do any bigger transactions, that means that the cost per transaction now is somewhat lower. And we obviously now feel that we have developed a strong track record both internally and now also externally to execute these transactions. So we feel very good about both significant opportunities that we have in front of us to improve the risk profile of the company and also the return profile of the company utilizing reinsurance.

Next question comes from Suneet Kamath with Jefferies.

I wanted to start with the medical sales in Japan. I know they were up year-over-year, but they were down sequentially. Despite the product launch in December, I would have thought that you had a little bit more runway given the product launch. So can you just talk about what you're seeing in that product line and your expectations for the balance of the year?

[Interpreted] Thank you for your question. This is Yoshizumi in charge of Marketing Sales in Aflac Japan. As you just described, Anshin Palette or medical insurance products is its momentum is sustaining from the first quarter to second quarter. And as a result, the first half of 2026 sales exceeded the prior year. But it's also true that there was a decline from the first quarter to second quarter. And this is because about the timing. This product was actually launched towards the end of December last year. And we were making a thorough preparation towards that day during December. And that is why we managed to get a great sales or solid results in the first quarter and we enjoyed the more-than-expected momentum even in the second quarter. And we expect this momentum to continue through third quarter and fourth quarter.

Okay. And then maybe shifting to the U.S., Virgil, can you just give us some thoughts on how you're feeling about sales so far this year? And I think in the past, you've given us some good color on how the traditional channel has performed relative to the brokerage channel. I was wondering if you could give us an update there as well.

Yes, certainly. Let me first start by saying that pretty much for the year, we're in line with expectations, slightly the lower in my expectations. But as you indicated, I'm expecting a stronger second half of the year heavily weighted in the fourth quarter due to the seasonality of our business and the strength we continue to see though, in our plants or our Group Life Absence Disability business.

Let me give you just a little bit more color on the performance of how the portfolio balances out. First, if you add just our Group Life Absence Disability to our Dental and Vision, just looking at those 2 products and then with all group voluntary benefits, we were up 7.1% for second quarter. Again, seeing good performance there. When you look at the overall earned premium results, for those group products, we were up [ 13% ] for the earned premium. That gives you kind of a little bit of color that we're seeing continued steady growth in our group business. It's in line with the market though. And you can see the market now as brokers have gone more heavily into voluntary benefits. They are selling more of the group product. We're seeing that. We are still dedicated though, to our agency force. We continue to roll out strong individual traditional products for them. And I do expect, though, to have a stronger year of traditional overall this year again, with a stronger second half heavily weighted in the fourth quarter.

Just a couple more things. Dan mentioned earlier about the investments we made, though, with the properties. When you look at the Dental and Vision property, we were up 47% in the second quarter. Very strong performance, heavily driven by our agency force. We're going to push stronger in the second half of the year and really get brokers to adopt the network dental products, that's going to be our focus going into the second half of the year. I think also when you look at the Dental and Vision property, we continue though to be focused on ensuring that we're selling our voluntary benefits product alongside of that. So for every dollar that we sold in the second quarter, next to the voluntary benefits, you will see that we sold $1.07 of voluntary benefits. That's better than we ever expected. And that's the trend I want to see continue. We're not just selling it standalone. It drives VB alongside of it.

Just again, overall, we've got some strong comparisons in the second half of the year, but I'm expecting growth to be higher than last year and I'm expecting a big strong fourth quarter though.

The next question comes from Mike Ward with UBS.

I was wondering in Japan, if you guys have seen any change in the lapse paid up or surrender behavior given the inflationary kind of pressure and higher rates in Japan.

Yes. Thank you for the question. So far, we haven't really seen any sort of significant lapse uptick related to either inflation or to interest rates. If you look at our first sector block, which would be the block of business that should be the most sensitive to interest rates, we've seen a minor uptick, but that's from very, very low levels. And we certainly have not seen any spikes or significant correlation with the increase in rates there. So even when we -- if you don't think about inflation pressures as well, that hasn't necessarily had any significant impact on our lapse rates.

The decline in persistency that you have seen year-over-year has more been driven by the product launches that we have experienced both on cancer and medical much more so on the cancer side than the medical side. But when we do refresh our product portfolio and we come up with more attractive new products, we always see an element of increased levels of lapse and reissue obviously impacting our persistency rate, and we certainly experienced that with our Miraito launch. As we look forward, we do believe that Miraito is now through the full first year of being out there. So with that, we would expect some decline in lapse and reissue going forward. And therefore, we should expect our persistency rate as reported to stabilize going forward.

And then Dan, I just wanted to ask again about the M&A question. I totally get that properties that are for sale, are for sale for a reason sometimes. Just curious like how interested you guys might be in something that could really help you leapfrog in the U.S. specifically in a diversified way.

We certainly are looking all the time. And if you have any suggestions, we're willing to listen. But our focus has been on turning these other programs around, which I'm very pleased with what's been going on there. And now that I'm at that point, our financial team brings us what they think makes financial sense and then we see how it would coordinate and work well with our existing distribution or do we look at it totally separate. And we look at both ways. We look at it that if it's products we don't sell, how we might mix it together.

And then if you talk about merging where we sell products that we already sell, that would be how we had to look at it from a disciplined perspective and make sure that we are following guidelines, and we realize that can create disruption, but we're willing to do it if it makes sense. So we'll continue to watch those.

The next question comes from Wes Carmichael with Wells Fargo.

First question was just on Japan sales. I think, Dan, last quarter, you mentioned that you'd be happy this year if we got to JPY 80 billion unit sales, maybe the company would be satisfied with a little less. But just curious, we're halfway through the year, I think we're at JPY 37 billion in change of yen sales. So just curious what you're thinking for the rest of the year?

Well, I'd still be happy with sales at $80 billion. But as I stated today, we expect the 2026 numbers to exceed last year's numbers, and that I also said in the first -- the end of the first quarter. We delayed some of our direct major campaigns in Japan but are now back on track. And the JPY 80 billion was a challenge to begin with and remains in the realm of possibilities for us to achieve. So I won't rule it out, but I'm confident and can say that in terms of 2026 sales will exceed 2025.

Got it. And Max, maybe just on ESR. I think as a rule of thumb in the past, you gave every 10 points was approximately $750 million to $1 billion of excess capital. Just curious if that's still -- is a good rule of thumb to use? And should we be thinking about including the USP when we think about your excess capital in Japan?

Thank you, Wes. That is -- it continues to be a good rule of thumb for our ESR capital base. As it relates to USP, we manage our business including USP, we manage our risk profile, including USP. So I would certainly include that. We think that, that gives a better view and better reflects the risks of our business when including USP in the ESR. So that is why we're using it.

The next question comes from Joel Hurwitz with Dowling & Partners.

Max, one more on inflation. In your prepared remarks on Japan, you highlighted good expense results despite the inflationary pressures. Can you just elaborate on how significant those inflation pressures are on your expense base? And I guess, any other headwinds from inflation in Japan?

Yes. So let me kick it off. And I like Morimoto-san to give some commentary on this as well. Japan inflation is running close to 3% at the moment. And obviously, that is a function of domestic inflationary pressures but also weakening yen leads to imported inflation as well into the Japanese economy. And when you run those kind of inflationary pressures and you know that our revenue base is slightly shrinking. That means that managing your expense becomes quite difficult. And I think the team has done a great job managing expenses and even getting the expense ratio lower than last year.

So it is in that context that I think that we've done a very good job managing that expense ratio overall. Going forward, we still expect that the 20% to 23% is a good expense ratio range for the company to operate long term. And obviously, in the very near term, we have been towards that sort of low end of that range. So please, Morimoto-san.

[Interpreted] This is Morimoto, I would like to comment as well. And one of the important factor in relation to inflation is the Middle East situation. The Middle East situation is at this point are not giving any significant impact on the interest business in Japan. That said, we will continue to monitor risks, including financial market volatility and potential upward pressure on operating expenses. The Middle East situation remains highly uncertain and any deterioration could raise both downside risk to Japan's economy and upside risk to inflation, notably through higher crude oil prices. The government is implementing supplementary budget to address Middle East driven energy price surges and has a vast alternative procurement of critical minerals with high Middle East exposure. We expect continued comprehensive measures in line with energy price development and domestic economic and inflation trends. That's all from me.

This is Dan. One thing we try to do in these meetings is introduce new people in terms of -- in their position. And Morimoto is now our Deputy President and certainly is in line to continue to do well with us. He's in his over 25 years with the company. And Morimoto, we're glad to have you join us, and we're counting on you to help grow our business going forward as you work closely with Koide this year.

All right. Very helpful response. And then just maybe a follow-up on sales. And in response to an earlier question on Tsumitasu sales. You mentioned it's making I think, a great contribution expanding third sector sales. Can you just provide some more color on the cross-sell there at this time?

[Interpreted] This is Yoshizumi once again. And Tsumitasu is a product attracting younger and middle-aged customers for seeking to accumulate their assets in yen. The results that we need from this target audience wanting to be prepared for cancer and medical, just in these products. However, if these needs have yet to be realized or if this means are still potential, then the job of the associates is to drive their needs in order to realize them. So therefore, whenever they conduct pitches to the customers, the associates are always promoting the concurrent sales to customers. And through this effort, we have succeeded in selling cancer and medical insurance together with Tsumitasu. Initially, we were planning the concurrent sales to be 25%. However, presently, we are largely exceeding this percentage.

The next question comes from Wilma Burdis with Raymond James.

We estimate that taking Japan reinsurance from 10% to 30% would free up $5 billion to $7 billion of capital or more. Is that a reasonable estimate? And perhaps you could walk us through the pieces there?

So Wilma, the way to think about it is if you cite the total opportunity, at the end of the fiscal year, Aflac Japan had policy reserves on an FSA basis of JPY 10.8 trillion. So if you take that as a starting point, that gives you sort of the current limit of our reinsurance capacity from a ceding standpoint out of Aflac Japan.

If you then think about what would that do from a capital free-up standpoint, the capital being freed up is very dependent on many factors, including what blocks are being ceded. And I would generally say that the difference between the FSA reserve and economic reserve is the greatest for medical business. It has less of a difference for cancer business and the least difference between the reserve levels occurs in the first sector business for WAYS in Tsumitasu. The aging of the blocks ceded matters a lot. The interest rate levels matters a lot. So there's not a great sort of rule of thumb that we can give you.

But I would encourage you to go back and look at our fab presentation from 2020, where we gave a level of reserve difference for the total block of in-force business at that point in time. And that gives you an indication of a ballpark number of what that reserve difference could be given the block of business at that point in time. And it's -- I wouldn't say that it's materially different today in terms of the mix compared to back then. But that's what I would look at if I wanted to come up with a rough estimate of what reinsurance capital free up could give us in the future.

Okay. And then the U.S. and Japan joint efforts to support the yen have any impact on Aflac. And if Japan interest rates ultimately have to increase to support the yen, what impact will that have on Aflac?

Wilma, this is Brad. Let me comment on that as it relates to the portfolio. Obviously, we've seen a sizable move in the yen. We almost hit 164. I think we're hovering around 158 today. Specific to the portfolio, remember, our U.S. dollar portfolio is part of the larger strategy designed to protect the economic value of Aflac Japan against these kinds of moves in FX. Think of it quite simply is having a pool of yen assets backing currency matched against the offsetting yen liabilities. And then our surplus on behalf of our U.S. dollar shareholders is supported in large part by our unhedged U.S. dollar assets.

So any changes in FX move in tandem on both sides of the balance sheet. There's small impact on ESR, but nothing material to speak of. One area we're watching is, as I mentioned earlier, the FX gains from our dollar program have been an important tool for us as we look to reposition the portfolio as the yen strengthens, it does have an impact on these gains. But most of our dollar assets were bought at much lower or much -- I should say, much stronger yen levels. So we still have a long ways to go there before those gains are eroded. So there really is no other impact from FX to the portfolio.

I just wanted to start with one correction. When you go back and look at the reserve difference between FSA and economic reserve, it's not the 2020 fab, it's the 2021 fab. So that's the fab book to look at. The other comment I wanted to make on this topic of FX is that we design and have positioned our foreign exchange hedges for long term protecting the value of -- in our case, Aflac Japan and U.S. dollar terms. That's the ultimate purpose and they are long term in nature, and they play out over a long period of time as well. So in that context, a 4% move, even though dramatic on the day, a 4% move in the yen-dollar exchange rate is actually quite minor in the scheme of things as we -- as our program is taking a very long-term view. So with that in mind, at the moment, this in itself does not necessarily lead us to make any significant changes to our foreign exchange program.

The next question comes from Pablo Singzon with JPMorgan.

My first question is for MAX. Can you talk about to what extent the benefit ratio in Japan year-to-date will influence your approach to reviewing reserves in the third quarter? I think you had said that elevated ratios being caused by who's lapsing vis-a-vis the newer product. Is that a significant consideration? Or is it more of a backward-looking item when you think about assumption updates in 3Q?

Yes. I had a little bit of trouble hearing you, but I think the question is around the benefit ratio for Japan for the first half and what we expect going into the second half and also any expectations on the actuarial assumption review that will take place in the third quarter. So in the -- obviously, in the first half, our benefit ratio has been a little bit higher than what we expected, and we have called that out. We still expect to be inside of our full year guidance range of 60% to 63%. But we now expect to be at the upper end of that range.

The main reason that is sort of pushing us a little bit higher is the type of lapses that are occurring. We have seen less lapsation of older policies and older policies, obviously have -- they've been on our books for a long period of time, have accumulated and built up quite significant reserves. So when those policies lapse, that reserve is being released through the benefit ratio, pushing it down significantly. We have seen an increase in more recently issued policies that haven't handed that same level of reserve being built up. And therefore, when they are being lapsed, then there's not a significant push down on the benefit ratio. So the mix impact of lapsation have played a role here. And that means that the benefit ratio has not benefited as much as we previously expected.

This is driven by our lapse and reissue program, and it is driven by the cancer product. Obviously, Miraito. As Miraito matures and now is more than a year through its lifetime, we would expect this lapse and reissue activity to normalize and that also means that we would expect the mix impact between older and more recently issued cancer products as it relates to lapsation to normalize as well. And that's what gives us confidence that we will come back inside of the benefit ratio range of 60% to 63% in the second half. As it relates to the third quarter assumption review, that is something that we are working on right now, and we will report out in the third quarter. And as always, we are trying to set all the assumptions especially our forward-looking assumptions with our best estimate, and we do that to the best of our ability to make sure that we reflect the reserves as best as we can.

And then second question, what is your outlook for your reinsurance initiative? It seems like there's a lot of opportunity there in Japan, and you should just grow fast naturally from a ceding start. But any perspective on how large this might be for you in the medium term?

So, so far, we have executed one external transaction, and we're very pleased with that, and it's progressing well. We think that this is a significant market. We think that we have some particular competitive advantages, and we intend to leverage that to the best of our ability. This is a very lumpy business, so you should not expect us to announce or write any business every quarter. This is more of an annual cycle. So it's something that will build up over time. But long term, I think this is a business that fits us very well. And I think that we have a very good product that we can offer to the marketplace.

So long term, we think this is going to be a significant business for Aflac. But I don't think it's going to overtake our primary business in U.S. and Japan, but it will be a very, very good supplemental business for us.

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 please, mark your calendars for December 3 and join us for our financial analyst briefing. We will be getting more details out in regard to that. If you have any questions, please follow up with Investor and Rating Agency Relations, and we look forward to talking to you soon. And again, thank you for joining us this Friday. Have a great one.

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

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.