Aflac Incorporated advanced its Japan reinsurance strategy in Q1 2026 through a Bermuda-based transaction linked to Japan Post Insurance, part of efforts to develop external reinsurance operations focused on Japan despite limited immediate financial impact.
Effective March 31, Aflac Re Bermuda entered into a coinsurance agreement to assume a block of whole life annuities from Japan Post Insurance, which continues to administer the policies. The transaction represents the first external reinsurance deal for Aflac Re beyond internal arrangements with Aflac Life Insurance Japan.
Senior executive vice president and CFO Max Broden said the transaction is immaterial to Aflac Inc.’s financials. He said the impacts to capital were relatively small and that movements in Japan’s solvency position were largely tied to dividends from Aflac Japan to the holding company, with higher yen rates slightly negative and some yen weakening providing a benefit.
Broden said external reinsurance reduced Aflac Japan earnings in the first quarter by a mid-single-digit US dollar amount in millions and is expected to move toward a neutral effect over time. He said blocks could become material over time.
The transaction occurs in a market where reinsurers remain well capitalized and continue to seek opportunities despite limited new demand, according to Gallagher Re Japan. The April 2026 renewals showed continued softening, with catastrophe programs recording risk-adjusted reductions of about -15% to -17.5%, alongside reductions in per-risk lines and stable or slightly rising casualty pricing.
Gallagher Re Japan also reported that insurers in Japan have been adjusting underwriting portfolios, reducing exposures and tightening terms, which has contributed to improved performance in reinsured portfolios. This environment has led to higher commissions in some segments and sustained appetite for lines such as earthquake and cyber coverage.
Japan’s insurance system operates within a framework where large-scale risks, particularly earthquakes, are partially supported by government-backed reinsurance structures with layered participation between private insurers and the state, according to a market report by The Toa Reinsurance Company.
Japan Post Insurance has reported mixed operating trends leading into the transaction. Financial disclosures show net income rising 40.3% year over year to ¥118.4 billion ($757.76 million), while adjusted profit increased 13.2% to ¥120.3 billion ($769.92 million). However, new policy sales declined 48.2%, and policies in force fell 4.3%, indicating contraction in parts of its individual life portfolio.
The agreement with Aflac Re comes as Japanese insurers manage capital and risk through reinsurance while adjusting product mix and in-force portfolios.
Aflac reported net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75. Adjusted earnings per diluted share increased 6.6% year over year to $1.77, excluding foreign currency effects.
Total revenues reached $4.3 billion, up 27.9% year over year, while adjusted earnings were $901 million, down 0.6% from the prior year period.
In Japan, net earned premiums declined 3.8% in yen terms to ¥246.7 billion ($1.58 billion), partly reflecting the impact of external reinsurance and policies reaching paid-up status. Pretax adjusted earnings rose 8.3% to ¥119.1 billion ($762.24 million), with a pretax margin of 35.0%, up from 31.8%.
Sales in Japan increased 25.5% to ¥17.7 billion ($113.28 million), driven by products including Anshin Palette, Miraito, and Tsumitasu.
In the US, net earned premiums rose 3.5% to $1.6 billion, with a benefit ratio of 47.2%, expense ratio of 38.3%, and pretax margin of 20.4%.
The Corporate and Other segment reported breakeven pretax adjusted earnings, compared with a $43 million gain a year earlier, reflecting lower investment income, higher costs, and runoff from closed blocks.
Aflac reported unencumbered liquidity of $3.4 billion, adjusted leverage of 21.2%, and an estimated ESR of 227%, or 243% including USP. The combined RBC ratio was about 560%.
The company returned $1.3 billion to shareholders, including $1.0 billion in share repurchases and $315 million in dividends.
Investment-related items included $19 million in loan charge-offs and $24 million in impairments tied to real estate owned assets, with commercial real estate valuations remaining depressed.
Broden said the company remains confident in its full-year benefit ratio guidance of 60% to 63% for Japan and 48% to 52% for the US. He said underlying earned premiums in Japan are expected to remain between -1% and -2% for the full year.
Net earned premiums in Japan declined 3.8% in yen terms in the quarter, with persistency at 92.8%, affected by lapse and reissue activity in cancer insurance.
Chairman and CEO Daniel Amos said Japan sales for 2026 are expected to exceed the prior year, with a level closer to ¥80 billion ($512 million).
Analysts questioned the relationship between reinsurance activity and underlying growth. Amos said no when asked whether reinsurance signals weaker core growth, adding that the company’s approach is evolution rather than a shift in direction.
President Virgil Miller said the US core agent business was slightly down to flat, with a 16% conversion rate for new agents. He said there are no material impacts from state-driven rate changes.
Senior managing executive officer Koichiro Yoshizumi said Miraito momentum is continuing, with 2026 sales expected to be equivalent to 2025 levels.
Japan sales growth accelerated to 25.5% in Q1 2026 from 15.7% in Q4 2025. Japan pretax margin rose to 35% from 31.3%. The US expense ratio improved to 38.3% from 40.4%.
Share repurchases increased to $1 billion from $800 million in the prior quarter, while liquidity declined from $4.1 billion to $3.4 billion.
Management described the quarter as a good start to the year, citing Japan sales growth, US premium trends, and capital returns. The company maintained its benefit ratio outlook, noted continued pressure on Japan earned premiums, and said the Japan Post reinsurance transaction carries limited financial impact while forming part of its Japan-focused reinsurance operations.
