AFL — Q1 2026 Financial Report Analysis

A 35x jump in reported profit that says almost nothing about the insurance business

Aflac reported net earnings of $1.02 billion, or $1.98 per diluted share, for the three months ended March 31, 2026, against $29 million and $0.05 a year earlier. Essentially all of that swing is an investment-accounting artifact: the company booked net investment gains of $49 million this quarter versus net investment losses of $963 million in Q1 2025. Strip those out and the operating picture is close to flat — adjusted earnings (the company's own measure of insurance-operations profit, which excludes investment gains and losses and one-off items) were $901 million, down 0.6% from $906 million.

The more interesting numbers are underneath: Aflac Japan's benefit costs fell sharply enough to lift its margin by more than three percentage points, Japan sales grew 25.5% in yen on a new medical product, and Aflac U.S. grew premiums but gave the gain back in expenses.

Headline figures

¹ Computed from the income statement; the company reports benefit ratios by segment (shown below). The benefit ratio is the share of premium money paid back out as claims and reserves for future claims — the single biggest cost line for an insurer, so a lower ratio means more premium left over as profit.

Why reported profit moved and underlying profit didn't

Three separate things pushed GAAP earnings up and none of them is premium growth:

• The investment swing. Q1 2026's $49 million of net investment gains contained $164 million of derivative and foreign-currency gains, offset by a $61 million increase in credit loss allowances, $24 million of impairments, $16 million of net losses on sales and redemptions, and a $14 million decline in the fair value of equity securities. The prior-year quarter's $963 million loss is the comparison base doing the heavy lifting.
• Tax. The effective tax rate — tax as a share of pretax profit — was 16.8%, against 80.3% a year ago. The distortion runs both ways: in Q1 2025 the company paid $116 million of tax on only $145 million of pretax earnings because foreign-currency translation gains and losses on certain Aflac Japan dollar-denominated investments held in a Delaware Statutory Trust are excluded from taxable income, which can leave the rate far from the 21% US statutory rate in either direction.
• The share count. Adjusted earnings fell 0.6% in dollars, yet adjusted EPS rose 5.4%, entirely because there were 5.9% fewer shares. Aflac repurchased $1.0 billion — 9.0 million shares — in the quarter. The per-share improvement is a capital-return result, not an earnings result.

The prior-year quarter also carried a $55 million pension settlement charge from buying a group annuity contract to close out the frozen US defined-benefit plan; that sat in GAAP earnings but was excluded from adjusted earnings, so it flatters the GAAP comparison and not the adjusted one.

The yen: a real drag, but a small one this quarter

Aflac earns most of its profit in Japan and reports in dollars, so the exchange rate moves reported results without anything changing in the business. The average rate was ¥156.87 per dollar versus ¥152.40 a year earlier — the yen 2.8% weaker, meaning each yen of Japanese profit converted into fewer dollars. Management quantifies the hit at $0.02 per diluted share; excluding it, adjusted EPS would have been $1.77 rather than $1.75.

That 2.8% gap is what separates Aflac Japan's dollar and yen growth rates below — and it cuts the other way inside the yen figures, because Japan holds dollar-denominated bonds whose income translates into more yen when the yen is weak. On that basis Japan's pretax adjusted earnings rose 8.3% in yen including currency effects but 6.6% excluding them.

Segment results

Persistency is the share of premium still on the books a year later — 92.8% means roughly 7% of Japan's in-force premium lapsed or ended over the trailing twelve months. It matters because a supplemental-health insurer's earnings come from a block of policies that only stays profitable while customers keep paying.

Aflac Japan: profit up on falling claims, revenue down for identifiable reasons. Yen premiums fell 3.8%, and the filing names the two causes: roughly ¥4 billion from an external reinsurance transaction established in the first quarter of 2026 (premium ceded to another insurer no longer counts as Aflac's revenue) and roughly ¥3 billion from limited-pay products reaching paid-up status — policies where the customer has finished paying but coverage continues. Neither is lost customers. Annualized premiums in force — the yearly premium the existing book would generate — fell 2.5% to ¥1.17 trillion, again driven by paid-up policies.

Profit rose anyway because benefits and claims fell 7.9% in yen, which management attributes to assumption updates made in Q3 2025 plus larger reserve remeasurement gains (¥7 billion versus ¥4 billion) — releases of money previously set aside for future claims when experience comes in better than assumed. That is a genuine margin improvement, but a meaningful slice of it is prior-period actuarial revision rather than current-quarter claims experience, and reserve gains are not a repeatable earnings line. Expenses fell 2.2% in yen partly because higher sales let more acquisition cost be capitalized and spread over future years rather than expensed now — a quirk worth flagging, since the same growth that helps the expense ratio this quarter creates amortization later.

Sales were the clear bright spot: new annualized premium sales of ¥17.7 billion, up 25.5% in yen (up 21.7% in dollars to $113 million), driven by Anshin Palette, the medical product launched in December 2025, plus Miraito and Tsumitasu. Medical and other health moved to 23.5% of the sales mix from 15.3%, while cancer — Aflac Japan's traditional core, with about 14 million cancer policies of roughly 22 million total in force — slipped to 54.1% from 59.7%. New money yield, the return on cash newly invested, jumped to 4.97% from 3.30% on a shift into higher-yielding assets, though the portfolio's overall book yield moved only to 3.30% from 3.22%.

Aflac U.S.: growth that didn't reach the bottom line. Premiums rose 3.5% on improved sales, and annualized premiums in force rose 4.6% to $6.8 billion, but pretax adjusted earnings gained only 1.4%. Benefits rose 2.5% — higher incurred claims on certain group products tracking premium growth, partly offset by larger reserve remeasurement gains ($36 million versus $15 million) — while adjusted expenses rose 5.4% on variable costs tied to that growth. The result is a margin that went backwards: 20.4% from 20.8%. New sales of $318 million were up only 2.9%, led by group products, with life rising to 16.7% of the mix from 12.5%. US new money yield fell to 6.23% from 6.61% on lower rates for fixed and floating assets.

Corporate and other went from $43 million of pretax adjusted earnings to zero, a $43 million headwind that offsets most of the two segments' combined $42 million gain — and is the arithmetic reason consolidated adjusted earnings were flat. Amortized hedge income dropped to $18 million from $30 million and interest expense rose to $58 million from $45 million.

Takeaway: Every dollar of the earnings headline comes from the investment line and a low tax rate; the insurance business produced 0.6% less profit than a year ago, and the 5.4% rise in adjusted EPS was bought with $1.0 billion of buybacks. The number that should actually change a view of Aflac is Japan's 25.5% yen sales growth on Anshin Palette — the first sign of new premium replacing a book that is shrinking 2.5% a year as limited-pay policies go paid-up.

Capital and what to watch

Shareholders' equity was $30.0 billion, or $58.69 per share, up from $56.85 at year-end 2025 — but that book value is unusually noisy. It embeds a $9.5 billion cumulative benefit from discount-rate assumption changes on insurance reserves (up from $8.0 billion), a $2.7 billion net unrealized investment loss (from $1.8 billion) and a $5.0 billion cumulative currency translation loss. On the company's cleanest measure, adjusted book value excluding foreign-currency remeasurement, the figure was $42.71 per share versus $42.66 at year-end — essentially unchanged, with the $1.0 billion of buybacks absorbing the quarter's retained earnings. Adjusted return on equity excluding currency remeasurement was 16.4%, against 15.6% a year ago.

The board declared a second-quarter dividend of $0.61 per share in April 2026, up 5.2% year over year; $315 million of dividends were paid in Q1. 105.3 million shares remain authorized for repurchase.

A 10-Q carries no earnings guidance, and Aflac gave none here. Two dated items are worth calendaring: Aflac Japan's first disclosure of its Economic Solvency Ratio under Japan's new economic-value-based capital regime — a measure of whether the insurer holds enough capital against future risk, where 100% is the regulatory intervention threshold — is scheduled for the end of July 2026, and it is sensitive to interest rates, credit spreads and the exchange rate. The 2025 US cyber incident, affecting personal information of roughly 22.65 million individuals, is still open on cost: notifications are complete and management does not currently expect a material financial impact, but it has not finished assessing costs or insurance recovery.

On trajectory: the durable positives are Japan's sales inflection and a benefit ratio that has room to stay low if the Q3 2025 assumption updates hold. The drags are structural — a Japanese in-force book still shrinking as limited-pay policies mature, a US segment whose expenses are growing faster than its premiums, a Corporate segment that has stopped contributing, and a yen that reduces reported dollar earnings as long as it sits near ¥157. Absent those reversing, adjusted EPS growth from here looks likely to keep depending on the buyback rather than on more insurance profit.