AFLAC INC

Aflac Incorporated operates in the supplemental health and life insurance industry, providing financial protection to policyholders in Japan and the United States. The Company's principal business is supplemental health and life insurance products, with the goal to provide customers the best value in supplemental insurance products in Japan and the U.S. The Company is authorized to conduct insurance business in all 50 states, the District of Columbia, several U.S. territories, and Japan. The Company's insurance business consists of two reporting segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to the Parent Company's consolidated earnings and the largest insurer in Japan in terms of cancer and medical (third sector insurance products) policies in force. Aflac Japan's third sector insurance products are supplemental products designed to help consumers pay for medical and nonmedical costs that are not reimbursed under Japan's national health insurance system. Changes in Japan's economy and an aging population have put increasing pressure on Japan's national health care system, shifting more costs to Japanese consumers. Aflac U.S. insurance products are designed to provide supplemental coverage for people who already have major medical or primary insurance coverage, as Aflac U.S. insurance policies pay benefits regardless of other insurance. Aflac U.S. products are distributed in the individual and group supplemental insurance markets.

Aflac Japan pioneered the cancer insurance market in Japan in 1974, and remains the number one provider of cancer insurance in Japan today. The Company competes with other insurance carriers through product design, price, policyholder service, and sales efforts. Since the deregulation of the Japan market in 2001, the number of insurance companies offering stand-alone cancer and medical insurance has increased, intensifying competition. However, based on Aflac Japan's size of annualized premiums in force and diversified distribution network, the Company believes it is well-positioned to continue to adapt to increased competition. The Company believes Aflac Japan will remain a leading provider of third sector products such as cancer and medical insurance coverage in Japan, principally due to its experience in the market, well-known brand, low-cost operations, expansive marketing system and product expertise. Aflac U.S. competes against several supplemental insurance carriers on a national and regional basis. Aflac U.S. believes its policies, premium rates, platforms, value-added services and sales commissions are competitive by product type. Moreover, Aflac U.S. believes that its products are distinct from competitive offerings given its product focus (including features, benefits and claims service model), distribution capabilities and brand awareness. Given the profitability erosion some major medical carriers are facing in their core lines of business, the Company has seen a more competitive landscape as these carriers seek entry into Aflac's supplemental product segments and leverage their core benefit offerings by bundling and discounting products in order to gain market share.

The Company's strategy for growth in Japan and the U.S. has remained straightforward and consistent for many years. The Company develops relevant supplemental health insurance products offering financial protection from the rising out-of-pocket expenses associated with medical events that are not covered by the insureds' primary coverage. The Company also offers a complement of other voluntary and employer-paid health and life insurance products to fit the needs of its customers. Additionally, the Company aims to obtain more customers by selling where the customer prefers to purchase protection, whether through an agent or broker, a distribution partner or directly from the Company. The Company earns its revenues principally from insurance premiums and investments. The Company's operating expenses primarily consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, commissions and other costs of selling and servicing its products. Profitability for the Company depends principally on its ability to price its insurance products at a level that enables the Company to earn a margin over the costs associated with providing benefits and administering those products. Profitability also depends on, among other items, actuarial and policyholder behavior experience on insurance products, and the Company's ability to attract and retain customer assets, generate and maintain favorable investment results, effectively deploy capital and utilize tax capacity, and manage expenses.

Aflac Japan's third sector insurance products include Cancer Insurance, Medical Insurance, and Nursing Care Insurance. Aflac Japan pioneered the cancer insurance market in Japan in 1974, and remains the number one provider of cancer insurance in Japan today. Aflac Japan's cancer insurance products provide a lump-sum benefit upon initial diagnosis of cancer and fixed daily benefits for subsequent hospitalization and outpatient treatments due to cancer, as well as cancer-related surgical and convalescent care benefits. In March 2025, Aflac Japan launched a new cancer insurance product, Miraito, a service-integrated product designed to allow customers the flexibility to choose necessary coverage to meet their individual needs. Aflac Japan's medical insurance products provide benefits for hospitalization, surgeries and outpatient treatment of various illnesses, as well as lump sum benefits related to three critical illnesses: cancer, heart attack, and stroke. In December 2025, Aflac Japan launched a new medical insurance product, Anshin Palette, which offers customers the flexibility to choose only the coverage they need from a wide range of options. Aflac Japan's Nursing Care Insurance provides coverage for out-of-pocket costs incurred when receiving public nursing care services. Aflac Japan's first sector insurance products include Life Protection-Type Life Insurance (Whole Life Prepare Smart Whole-Life Insurance and GIFT), and Savings-Type Life Insurance (Tsumitasu, WAYS, and Child Endowment). Tsumitasu, launched in June 2024, is an insurance product designed primarily for post-retirement preparation, with asset formation features and coverage for nursing care and other benefits. Aflac Japan's child endowment insurance product offers a death benefit until a child reaches age 18, and also pays a lump-sum benefit at the time of the child's entry into high school, as well as an educational annuity for each of the four years during his or her college education.

Aflac U.S. insurance products include Accident Insurance, Disability Insurance, Critical Care (Cancer Insurance and Critical Illness Insurance), Hospital Indemnity Insurance, Dental and Vision Insurance, and Life Insurance. Aflac U.S. offers accident coverage on both an individual and group basis, paying cash benefits in the event of a covered injury. Aflac U.S. offers short-term disability benefits on both an individual and group basis and long-term disability benefits on a group basis. Aflac U.S.'s cancer insurance products provide a lump-sum benefit upon initial diagnosis of cancer and subsequent benefits for treatment received due to cancer, offered on an individual basis. Aflac U.S. offers coverage for critical illness plans on both an individual and group basis, designed to pay cash benefits in the event of critical illnesses such as heart attack, stroke or cancer. Aflac U.S. offers hospital indemnity coverage on both an individual and group basis, providing policyholders fixed dollar benefits triggered by hospitalization due to accident or sickness. Aflac U.S. offers network dental and vision products on a group basis, as well as fixed-benefit dental coverage on an individual basis. Aflac U.S. offers term- and whole-life policies on both an individual and group basis. In recent years, new annualized premium sales are generally higher in the fourth quarter for Aflac U.S. group business due to the timing of open enrollment for many employers, which typically results in over one third of Aflac U.S. total sales being generated in the fourth quarter.

In March 2025, Aflac Japan launched a new cancer insurance product, Miraito. In December 2025, Aflac Japan launched a new medical insurance product, Anshin Palette. In 2025, Aflac Incorporated repurchased $3.5 billion ¹, or 33.0 million ² of its common shares. At December 31, 2025, the Company had 114.3 million ³ remaining shares authorized for repurchase. In November 2025, the board of directors announced a 5.2% ⁴ increase in the quarterly cash dividend, effective with the first quarter of 2026. The Company identified an incident involving unauthorized access to a limited number of its systems in the U.S. on June 12, 2025. The Company completed a detailed review of the potentially impacted files and determined that personal information associated with approximately 22.65 million ⁵ individuals was involved. In August 2025, the board of directors announced a 100,000,000 ⁶ share repurchase authorization. In May 2025, the Parent Company issued $1.25 billion ⁷ aggregate principal amount of senior notes in a private placement, consisting of $350 million ⁸ of 1.990% ⁹ Senior Notes due May 2032, $350 million ¹⁰ of 2.320% ¹¹ Senior Notes due May 2035, $300 million ¹² of 2.650% ¹³ Senior Notes due May 2040, and $250 million ¹⁴ of 3.040% ¹⁵ Senior Notes due May 2045. In August 2025, the Parent Company issued $600 million ¹⁶ aggregate principal amount of senior notes in a private placement, consisting of $300 million ¹⁷ of 5.251% ¹⁸ Senior Notes due August 2035 and $300 million ¹⁹ of 5.991% ²⁰ Senior Notes due August 2055.

For the full year of 2025, total revenues were down 9.3% ²¹ to $17.2 billion ²², compared with $18.9 billion ²³ for the full year of 2024, primarily due to net investment losses of $572 million ²⁴ in 2025 compared with net investment gains of $1.3 billion ²⁵ in 2024. Net earnings were $3.6 billion ²⁶, or $6.82 ²⁷ per diluted share, for the full year of 2025, compared with $5.4 billion ²⁸, or $9.63 ²⁹ per diluted share, for the full year of 2024. Net earnings in 2025 included net investment losses of $572 million ³⁰, compared with net investment gains of $1.3 billion ³¹ in 2024. Net investment losses in 2025 included $467 million ³² of net losses from certain derivative and foreign currency gains or losses; an increase in credit loss allowances of $191 million ³³ and $6 million ³⁴ of impairments; offset by a $72 million ³⁵ gain from an increase in the fair value of equity securities and $20 million ³⁶ of net gains from sales and redemptions. Adjusted earnings for the full year of 2025 were $4.0 billion ³⁷, or $7.49 ³⁸ per diluted share, compared with $4.1 billion ³⁹, or $7.21 ⁴⁰ per diluted share, in 2024. Shareholders' equity was $29.5 billion ⁴¹, or $56.85 ⁴² per share, at December 31, 2025, compared with $26.1 billion ⁴³, or $47.45 ⁴⁴ per share, at December 31, 2024. The annualized return on average shareholders' equity in 2025 was 13.1% ⁴⁵. Adjusted book value was $28.0 billion ⁴⁶, or $54.06 ⁴⁷ per share, at December 31, 2025, compared with $29.1 billion ⁴⁸, or $52.87 ⁴⁹ per share, at December 31, 2024. The annualized adjusted return on equity excluding foreign currency remeasurement in 2025 was 17.6% ⁵⁰.

In November 2025, the board of directors announced a 5.2% ⁵¹ increase in the quarterly cash dividend, effective with the first quarter of 2026. The Company's target range for economic solvency ratio (ESR) is 170% to 230% ⁵² for Aflac Japan and a target combined RBC range of 350% to 450% ⁵³, over time, for Aflac U.S. For 2026, the Company expects Aflac Japan to generate a benefit ratio in the range of 60% to 63% ⁵⁴ driven by favorable trends in morbidity experience, new product launches featuring lower benefit ratios, and the premium shift over recent years from first sector savings products to third sector cancer and medical products, as well as first sector protection products. The Company expects Aflac Japan to generate an expense ratio in the range of 20% to 23% ⁵⁵ reflecting continued growth and strategic initiatives. For 2026, the Company expects Aflac U.S. to generate a benefit ratio in the range of 48% to 52% ⁵⁶ driven by growth in life, disability, and dental and vision insurance products, all of which typically carry higher benefit ratios. The Company expects Aflac U.S. to generate an expense ratio in the range of 36% to 39% ⁵⁷.

Aflac Japan's growth strategy includes the ongoing promotional efforts for products launched in 2025, including the new cancer insurance product Miraito, launched in March 2025, and the new medical insurance product Anshin Palette, launched in December 2025. The Company believes that sales of first sector products, including Tsumitasu, WAYS and Child Endowment, position Aflac Japan for potential future long-term sales opportunities by marketing these products to a younger demographic as well as potential cross-selling opportunities of Aflac Japan's third sector products. Aflac Japan's alliance with Japan Post Group, which was launched in 2008 and strengthened in 2013, provides distribution through approximately 20,000 ⁵⁸ postal outlets as of December 31, 2025, and through Japan Post Insurance Co., Ltd. through its 76 ⁵⁹ branches responsible for corporate sales and 626 ⁶⁰ service departments. Aflac Japan's alliance with Dai-ichi Life, launched in 2001, provides approximately 37,000 ⁶¹ Dai-ichi Life representatives offering Aflac Japan's cancer products. Aflac Japan's alliance with Daido Life, launched in 2013, provides approximately 3,700 ⁶² Daido Life representatives offering Aflac Japan's cancer products. At December 31, 2025, Aflac Japan had agreements with approximately 90% ⁶³ of the total number of banks in Japan to sell its products.

Aflac U.S. growth initiatives include expanding its distribution strategy to directly reach consumers outside of the traditional worksite through digital lead generation. The broker channel of Aflac U.S. focuses on selling to the mid- and large-case market, which is comprised of employers with 100 or more employees and typically an average size of 1,000 employees or more. The career agent channel in Aflac U.S. focuses on marketing Aflac to the small business market, defined as employers of between three and 99 employees. In 2025, the Aflac U.S. sales force included an average of approximately 5,300 ⁶⁴ U.S. agents, including brokers, who were actively producing business on a weekly basis. The increase in new annualized premium sales for Aflac U.S. in 2025 was 3.0% ⁶⁵, primarily driven by sales of group products.

For 2026, the Company expects Aflac Japan to generate a benefit ratio in the range of 60% to 63% ⁶⁶ and an expense ratio in the range of 20% to 23% ⁶⁷. The Company expects Aflac U.S. to generate a benefit ratio in the range of 48% to 52% ⁶⁸ and an expense ratio in the range of 36% to 39% ⁶⁹. The Company expects that benefit and expense ratios will continue to experience some level of revenue pressure due to the impact of paid-up policies and internal reinsurance transactions. The Company's objectives for Corporate and other in 2026 include achieving solid pretax adjusted earnings, assuming that U.S. interest rates remain stable and excluding the impact of tax credit investments, as tax benefits are recognized in a corresponding lower income tax expense.

The Company's strategy to drive long-term shareholder value is to pursue growth and maintain solid pretax profit margins while exercising tactical capital deployment. The Company's approach to pursue growth is through product development and distribution expansion, along with enhanced efficiency through technological upgrades and operational refinement. The Company's objectives in 2026 include preserving solid pretax profit margins with increased sales production achieved through the ongoing promotional efforts for products launched in 2025 in Aflac Japan and continued growth initiatives across both its Aflac Japan and Aflac U.S. segments. The Company believes this strategy positions it for future growth and efficiency while defending and leveraging its market-leading position, powerful brand recognition and varied distribution in Japan and the U.S.

In 2025, Aflac Incorporated repurchased $3.5 billion ⁷⁰, or 33.0 million ⁷¹ of its common shares. At December 31, 2025, the Company had 114.3 million ⁷² remaining shares authorized for repurchase. In November 2025, the board of directors announced a 5.2% ⁷³ increase in the quarterly cash dividend, effective with the first quarter of 2026. The Company intends to maintain strong capital ratios in Aflac Japan and Aflac U.S. in support of its commitment to shareholder dividends while remaining tactical in its deployment of capital in the form of share repurchases and opportunistic investments. The Company's target range for economic solvency ratio (ESR) is 170% to 230% ⁷⁴ for Aflac Japan and a target combined RBC range of 350% to 450% ⁷⁵, over time, for Aflac U.S.

The Company faces headwinds from difficult conditions in global capital markets and the economy, including inflation. Inflation globally remains elevated but continues to trend downwards after monetary tightening, recovery of supply chains, and phasing out of extraordinary fiscal support. In the U.S. and other regions, inflation rates reduced to a level that supported monetary loosening by central banks, but the risk of a return to increasing inflation remains alongside risks of weakening economic conditions. The Bank of Japan remains an exception to the major central bank loosening trends, ending a prolonged period of negative interest rates on bank reserves in March 2024. Continuing geopolitical tensions, including armed conflicts and regime changes, exacerbate uncertainty and can contribute to volatility across both physical and financial asset classes. Economic uncertainty is also impacted by potential policy changes in the U.S., including proposed domestic regulations focused on consumer pricing, trade tariffs and increasing trade restrictions driven by security concerns and broader geopolitical tensions. Continuing higher interest rates and softer economic conditions could impact the creditworthiness and value of the Company's existing investment portfolio, influence opportunities for new investments and have a negative impact on the Company's results of operations and financial positions.

The Company's concentration of business in Japan poses risks to its operations and financial condition. Aflac Japan's adjusted revenues accounted for 53% ⁷⁶ of the Company's total adjusted revenues in 2025, compared with 55% ⁷⁷ in 2024 and 60% ⁷⁸ in 2023. The percentage of the Company's total assets attributable to Aflac Japan was 76% ⁷⁹ at December 31, 2025, compared with 77% ⁸⁰ at December 31, 2024. Any potential deterioration in Japan's credit quality or access to markets, the overall economy of Japan, or an increase in Japanese market volatility could adversely impact Aflac Japan's operations and its financial condition and thereby Aflac's overall financial performance. The Company has a substantial concentration of JGBs in its investment portfolio exposing the Company to credit deterioration and potential downgrades of JGBs. The low interest rates on Japanese yen-denominated securities has a negative effect on overall net investment income. Lack of availability of acceptable Japanese yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity.

The Company's concentration of business in Japan poses significant risks, as Aflac Japan's adjusted revenues accounted for 53% ⁸¹ of total adjusted revenues in 2025 and 76% ⁸² of total assets at December 31, 2025. The Company has a substantial concentration of Japan Government Bonds (JGBs) in its investment portfolio, exposing it to credit deterioration and potential downgrades of JGBs. The Company is exposed to significant interest rate risk, as low interest rates on Japanese yen-denominated securities negatively affect net investment income, and rising interest rates could decrease the fair value of fixed maturity investments, negatively impacting capital ratios and dividend capacity. Foreign currency fluctuations in the yen/dollar exchange rate have a significant effect on reported financial position and results of operations, with Japanese yen weakening suppressing current year results and Japanese yen strengthening magnifying them. The Company's investments in commercial real estate loans, including transitional real estate loans and commercial mortgage loans, have been affected by conditions in the commercial real estate market, with a greater impact on mortgages secured by office properties. In 2025, the Company completed foreclosure or deed in lieu of foreclosure on TREs with an amortized cost of $257 million ⁸³, recognizing a net loss of $10 million ⁸⁴. The Company identified a cybersecurity incident in June 2025 involving unauthorized access to its systems, resulting in the exfiltration of personal information associated with approximately 22.65 million ⁸⁵ individuals, which could lead to litigation, regulatory actions, and reputational harm.

Management's message emphasizes a straightforward and consistent strategy for growth in Japan and the U.S. that has remained unchanged for many years: developing relevant supplemental health insurance products offering financial protection from rising out-of-pocket expenses. The Company's strategy to drive long-term shareholder value is to pursue growth and maintain solid pretax profit margins while exercising tactical capital deployment. The Company's approach to pursue growth is through product development and distribution expansion, along with enhanced efficiency through technological upgrades and operational refinement. The Company's objectives in 2026 include preserving solid pretax profit margins with increased sales production achieved through the ongoing promotional efforts for products launched in 2025 in Aflac Japan and continued growth initiatives across both its Aflac Japan and Aflac U.S. segments. Management believes this strategy positions the Company for future growth and efficiency while defending and leveraging its market-leading position, powerful brand recognition and varied distribution in Japan and the U.S. For 2026, management expects Aflac Japan to generate a benefit ratio in the range of 60% to 63% ⁸⁶ and an expense ratio in the range of 20% to 23% ⁸⁷. For 2026, management expects Aflac U.S. to generate a benefit ratio in the range of 48% to 52% ⁸⁸ and an expense ratio in the range of 36% to 39% ⁸⁹. The Company intends to maintain strong capital ratios in Aflac Japan and Aflac U.S. in support of its commitment to shareholder dividends while remaining tactical in its deployment of capital in the form of share repurchases and opportunistic investments. The Company's target range for economic solvency ratio (ESR) is 170% to 230% ⁹⁰ for Aflac Japan and a target combined RBC range of 350% to 450% ⁹¹, over time, for Aflac U.S.