• Net Earnings Per Diluted Share: Up 23.8% to $9.63.
• Adjusted Earnings Per Diluted Share: Up 15.7% to $7.21.
• Aflac Japan Pretax Adjusted Earnings: Increased 15.5% with a 36% pretax profit margin.
• Aflac Japan Premium Persistency: 93.4%.
• Aflac Japan Sales Increase: 5.6% year-over-year, including a 9% increase in Q4.
• Aflac US Premium Persistency: Improved by 70 basis points to 79.3%.
• Aflac US Net Earned Premiums: Increased by 2.7%.
• Aflac US Pretax Profit Margin: 21.1% for the year.
• Capital Deployment: $2.8 billion to repurchase over 30 million shares.
• Dividends to Shareholders: $3.9 billion returned in 2024.
• Adjusted Earnings Per Diluted Share (Q4): Increased 24.8% to $1.56.
• Japan Segment Net Premiums (Q4): Declined 5.4%.
• Japan Benefit Ratio (Q4): 66.5%, up 40 basis points year-over-year.
• Japan Expense Ratio (Q4): 20.8%, down 30 basis points year-over-year.
• US Total Benefit Ratio (Q4): 46.3%, up 170 basis points from Q4 2023.
• US Expense Ratio (Q4): 40.3%, down 310 basis points year-over-year.
• US Pretax Margin (Q4): 19.7%.
• Unencumbered Holding Company Liquidity: $4.1 billion.
• Stock Repurchase (Q4): $750 million.
• Dividends Paid (Q4): $277 million.

• Warning! GuruFocus has detected 5 Warning Sign with DSMD:QATI.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Aflac Inc (NYSE:AFL) reported a strong increase in net earnings per diluted share, up 23.8% to $9.63, and adjusted earnings per diluted share, up 15.7% to $7.21 for 2024.
• Aflac Japan achieved a record 36% pretax profit margin in 2024, with a 15.5% increase in pretax adjusted earnings.
• The company maintained a strong capital position with an SMR above 1,150% and an estimated ESR about 270%, indicating robust financial health.
• Aflac Inc (NYSE:AFL) returned $3.9 billion to shareholders in 2024, including $2.8 billion in share repurchases and 42 consecutive years of dividend growth.
• The US segment showed improvement with a 70-basis-point increase in premium persistency to 79.3% and a 2.7% increase in net earned premiums.

Negative Points

• Aflac Japan experienced a 5.4% decline in net premiums for the quarter, impacted by internal cancer reinsurance transactions and paid-up policies.
• US sales were lower than expected in the fourth quarter, leading to a 1% decline for the year, attributed to competitive pressures and challenges in the dental sales segment.
• The US total benefit ratio increased by 170 basis points year over year, driven by lower remeasurement gains compared to the previous year.
• The commercial real estate market remains challenging, with Aflac Inc (NYSE:AFL) increasing its CECL reserves by $40 million due to distressed property valuations.
• The company anticipates a lower pretax profit margin for Aflac Japan in 2025, at the lower end of the 30% to 33% range, due to expected higher benefit ratios and lower net investment income.

Q & A Highlights

Q: Can you provide more color on the competitive environment impacting US sales? Are there specific products or areas of the market affected? A: Virgil Miller, President of Aflac U.S., explained that the company faced tough comparisons in Q4 2023, one of their largest sales quarters. They maintained underwriting discipline, avoiding business that doesn't fit their profit profile. The dental and vision platform improvements didn't receive the expected market response, leading to a 33% decline in dental sales for Q4. Despite this, financial management was solid, with pretax earnings up 9.3% and margins up 1.3%.

Q: For Japan, you guided the pretax margin to be at the low end of the range. Can you provide more color on how the benefits from floating rate security hedges flow through earnings? A: Virgil Miller explained that Aflac has a floating rate book in Japan and cash invested at the short end of the curve. With expected rate cuts in 2025, floating rate income is likely to be lower. The interest rate swap acts as a tail hedge, but current higher rates make it ineffective, impacting net investment income. The mark-to-market component of the swap affects US GAAP earnings but not adjusted earnings.

Q: Japan sales grew strongly this quarter, but they're still below pre-pandemic levels. What's your optimism for reaching previous sales levels? A: Masatoshi Koide, President of Aflac Japan, noted that post-pandemic, sales activities have recovered. Koichiro Yoshizumi, Executive VP, added that marketing and sales transformation efforts, including new product launches like Tsumitasu, aim to recover pre-COVID performance. The focus is on expanding customer reach and enhancing solicitor agents' potential.

Q: In the US, sales were weak in 2024 due to dental issues and competition. Is the dental rollout normalizing, or is it more of a 2026 event? A: Virgil Miller stated that Aflac is open for business with a strong dental platform. The focus is on regaining broker and agent trust. Investments in life, absence, and disability platforms exceeded expectations, and the direct-to-consumer platform performed well. The dental platform is expected to demonstrate increased sales over last year.

Q: How much of the Japan margin coming in at the low end of the guide is due to floating rate impact on NII, and how much is due to limited benefit ratio improvement? A: Max Broden, CFO, explained that the majority of the impact is from net investment income. The benefit ratio is expected to decline over the forecast period as the in-force mix shifts towards third-sector products. The pretax margin is expected to start at the lower end and move higher throughout the forecast period.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.