All right. Good morning, everybody. We're privileged to have Virgil Miller, the President of Aflac Incorporated, and then Max Brodén, the CFO of Aflac here with us today. Again, thank you both for taking the time and coming to our conference. I really appreciate 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 five years, Aflac is easily one of the best-performing life insurance stocks in the space. Now, that being said, 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 sorted to keep you continue to outperform S&P?
Hey, Bob, I'll start with just an overview, then turn over to Max to go into it a little deeper. If you think about Aflac, the strength of the organization has been in our two business segments. We operate in the two 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 continued 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.
The key to the way we approached the environment there in Japan is more through an entire ecosystem. 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. Finally, the category we wanted to strengthen our ability to sell in the medical product sale, and we launched in December of last year a new product, 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.
You can buy all the way up, or you can buy just an individual rider to take care of yourself. I 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're optimistic about going forward there in Japan. Couple that 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 large case market.
We bought new products, Life and Disability, that we are doing very well, and we're performing paid family and medical leave, administrative services for the states of Maine and the States of Connecticut, all the way down to the middle market, and that way down to we have a direct-to-consumer platform. If you combine those T-bills, we grew 14% last year in those T-bills investments. That's what's encouraging on the U.S. Before I turn 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 sheets and take it and make sure we moved it over to our Bermuda engagement. Now we've also launched our first client in Japan beyond the Aflac Japan balance sheet.
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 what we're going to do to continue to drive the share price, and just reflecting on that's history. 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?" He is not happy. For us, 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. The valuation of stocks in our sector and also what drives share prices to some extent is the spread between the two. 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. 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 five years? I think that's been one of the drivers.
Thank you for that. 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, everyone's 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?
We'll start with Max this time.
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 two 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. I think you need to accept that that's the environment that you're operating in. We also size our operations accordingly. 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.
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. 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. What you've seen our in-force do is that you've seen the earned premium slightly decline, while at the same time, pre-tax margins have continued to expand, and I think that's a reflection of those underwriting decisions.
Okay.
Bob, I'll just add though, given the situation, we must still be innovative, right? 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 live longer. The question and the key to what we've done is try to reach them at an earlier stage in life. 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. 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. 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 break-even 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?
Yeah. I'll think about those separately. 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 a one policy at a time.
Right.
What reinsurance is doing is essentially to step into the wholesale business where we originate a big block of liabilities and assets onto our balance sheet at one go. They're a little bit different from that standpoint. What we are in a situation where we had built capabilities in Bermuda to transact between Japan and Bermuda. We wanted to leverage those capabilities to also offer up solutions to other insurance companies in Japan as well. We've been driving some pretty significant capital efficiencies through the internal transactions that we began executing in 2022. We are now taking that and offering these solutions to other insurance companies in Japan. We have a couple of benefits here, and that I think also gives us some competitive advantages.
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. Most of our competitors do not have a AA rating in Japan. 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, 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. That is also an additional benefit for us.
Got it. 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.
Okay. Thank you.
A quick one, Max.
Oh, well, wait for the mic. Sorry. Yeah.
Thanks, Bob. Max, is this going to be a separate segment, where is it in today's current reporting and documents, this third-party reinsurance business that you're standing up and building?
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.
Think we have another question from the audience right there.
Max, 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, how much of that you are 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. 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.
All right. Yeah. Thank you for the questions. If I don't see you because of the podium, I apologize in advance. Always love the engagement. Maybe another question just on the Japan piece before we move to the U.S. Aflac Japan targets about 60%-63% margin in 2026. First quarter, 2026 benefit ratio was more towards the higher end of that target, right? Sorry, on the benefit ratio side. This is due to lapse in older age cancer block, things of that nature. Curious as to 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, we feel good about the full-year outlook of 60%-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. 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%-63%.
It's really just a timing on business mix rather than.
Yeah
Anything serious. Okay. No, that's very helpful. Thank you. 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? Sales has been improving in the U.S. year-over-year for several quarters now. In the most recent quarter, all areas of the group business has been very strong.
Yeah.
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?
Yeah, I get asked that question if we're performing so well in the group space and we are very appreciated in the broker market, then why don't we see a larger overall growth number? 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. What I would say, Bob, is that we're going to continue to double down, though, in the group space. 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.
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 the individual, that is why you didn't see the tremendous explosiveness. What we're intending 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. 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. 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 had failed with our Dental and Vision property.
Operational failures there cost us some of the sales. We recovered that in the last year. We grew 48.8% in dental. This year, the focus is going to be to get those on a singular experience. Today, we sell Dental and Vision, we sell group VB, we sell our Life, Absence and Disability, and they have this 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. Just given this momentum you have, do you see competitors respond? I'm curious as to what you see in the competitive dynamics overall.
Yeah. I think we surprised some of them. 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 that 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. Why is that? It's our brand. Generally, when you take Aflac, our penetration rate or the number of employees will take the more Aflac because of the brand recognition. People know that we will pay them cash, therefore, we get a competitive advantage for that. Anytime we're going into a finalist meeting, we've been able to win in that space, pricing becomes the issue. I've seen some of our competitors that are competing on price.
I won't go as far as to say price gouging, 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 at our organization. We've also seen them go out and highly recruit some of our agency force. That makes how we are pricing when it comes to commissions and overpaying 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.
I think this is kind of interesting, right? You're gaining momentum on the growth side, but at the same time, competitors, it feels like they are responding to that as well in the market.
Yeah.
If we line that up with your earnings trajectory in the U.S. business, the benefit ratio is tracking on the very better end.
Yes
Of your guidance first quarter, right? 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 it feels like you have a little bit of cushion here, so to speak.
Yeah. Well, we set, at FAB, a 17%-20% range on our margins. We did that knowing, though, that, A, first, it's a product mix. The individual product has a better margin on it. 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. Again, that has to do with our strong underwriting discipline and also the fact we are managing our expenses. We maintain an expense ratio below 40% during Q1, and I expect us to continue to be within the range of guidance we set there. 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, therefore, it's a different type of nuances that they're going to have to consider. I'm confident in the trajectory we laid out, and I feel good about where we're headed.
Got it.
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. That's why we're obviously sticking with our guidance of 48%-52%. Over time, you should see a mix shift impacting our benefit ratio, our expense ratio, and pre-tax margin. 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 pre-tax margin than our average. 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 pre-tax margin marginally go down.
Just to call something.
Let me give perspective to the numbers Max is talking about. 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%. We've gone from 6% of total U.S. sales to 43% last year.
Right. 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 increasing at a rate.
It should increase.
Okay. Got it. That's very helpful. Thank you for that. It's not a financial conference this day and age without talking about AI, so maybe we can dig into that a little bit. When you were laying out your prior guidance, AI wasn't nearly as powerful as it is today. We 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. I'll let Max go deeper into 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 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 the human is at the center of the relationship enabled by AI. 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 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 with 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 being able to pay someone less than 24-48 hours. 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. 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. 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.
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, 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. As we become more efficient, we probably will be charged for it.
Okay. No, that's actually a very interesting thought. Thank you for that. We also have a lot of cameras outside, so if you do, we'll post it on YouTube.
You will keep him away from the camera.
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. Can you maybe talk about maybe not just private credit, but your investment philosophies in general as well as risk management? I think there's two things here. One is how you think about private credit and how you manage the risk, 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 two components here? So yeah.
Let's take one step back. I kind of view it as we are exposed to four different types of financial risk, that being insurance risk, credit risk, FX risk, and interest rate risk. We look at these differently. 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. 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. You then think about the asset side, you cannot think about the asset side without the liability side. They are 100% linked. 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 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.
We have a relatively liquid portfolio, I would argue. 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. I think that's the lens that you really need to start looking through it.
Bob, let me make a comment on behalf 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 8th degree.
Really appreciate that. Yeah. Last one from me, we're getting close to time, is capital deployment, right? You generate very strong free cash flow. 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? Well, dividends for sure. Buybacks, M&A. Just, yeah, I'm curious of your thoughts on sort of those things.
Well, let me start, and I'll let Virgil Miller follow. 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-$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.
Those will be more one-time in nature. Over the last couple of years, we've done quite a number of one-timers, and I would expect the team to continue to find those. 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. That will continue. 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 are focused in Japan. We're focused in the U.S. We're focused on what we're doing with our reinsurance there in Bermuda. As we do that, we'll continue to assess and to see if there's anything else we need to do.
Really appreciate that. Thank you both for taking the time.
Thank you.
Thank you.
Enjoyed it.