Q1 2026 Earnings Call Transcript

Good day, and welcome to the Aflac Incorporated First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the call over to David Young, Senior Vice President of Capital Markets. Please go ahead.

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's First Quarter 2026 Earnings Call. This morning, Dan Amos, Chairman, CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on this quarter's financial results, including our capital and liquidity.

These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO video update on investors.aflac.com. For Q&A today, we are also joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Driisland, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws.

Although we believe these statements are reasonable, we give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S.

GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan?

Thank you, David, and good morning, everyone. We're glad you've joined us. Although we have just 1 quarter under our belt, the first quarter marked a good start to the year. Aflac Incorporated reported net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75. These results reflect our focused execution of our strategy, thus creating long-term value for our shareholders.

Starting with Japan, as you will recall, last year, Aflac Japan implemented a marketing and sales transformation, which helped deliver the strong results and sales momentum we saw in 2025. And again, in this quarter, this transformation was a major strategic initiative driven by Aflac Japan's corporate strategy and marketing and sales team. I would highlight the leadership of Deputy President, Shinsuke Mary Moto, first Senior Vice President, Mitchiero Eto; and Chief Marketing Officer, Yumi Saito, working together with Executive Vice President, Yoshizumi, to make it happen. As a cohesive management team, they delivered strong results.

I'm excited [indiscernible] and innovation that they have produced and will continue to bring to the organization moving forward. With this in mind, I am pleased with Aflac Japan's sales increase of a 25.5% increase for the first quarter. These strong sales results were driven largely by our newest medical product, Onsen Tallett and Miraito, our latest cancer insurance product. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, [indiscernible].

The value of our policies resonates with millions of policyholders, and this reinforces how Aflac's overall strategy is effective and reputation is important. By maintaining strong persistency while adding new premium through sales, we seek to offset the impact of lapses and reissue as well as policies reaching paid-up status in the future. Maintaining strong persistency continues to be important to the future of Aflac Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually leverage opportunities to help provide financial protection to Japanese consumers.

For the quarter, all of our distribution channels generated increases in sales, which is significant considering that we prioritize being where the customer wants to buy insurance. We will continue to evaluate the needs of each channel and support those needs as we work together to provide Japanese citizens with financial protection. Turning to Aflac U.S. I am encouraged by the 2.9% year-over-year increase in sales and the momentum we are seeing within all areas of our group business especially our group voluntary products.

More importantly, we maintain strong premium persistency of 79.3% and increased net earned premium of 3.5% for the quarter. We continue to focus on driving our profitable growth with strong underwriting discipline and maintaining strong premium persistence. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin as Max will expand upon shortly.

Across Japan and the United States consumers are feeling the increasing burden of out-of-pocket medical expenses. That's where we step in. Our management teams, employees and sales distribution partners are united to be there for the policyholders when they need us most. As the pioneer in cancer insurance and a leader in the industry, our team and sales partners show up every day to help ease the burden, providing financial protection with genuine compassion and care.

As an insurance company, our primary responsibility is to fulfill the promises we make to the policyholders while being responsive to the needs of shareholders. We generated strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be pleased with our investments producing solid investment income. Our financial strength is the foundation that backs up our promise to our policyholders balanced with the financial flexibility and tactical capital deployment.

I am very pleased with the company's financial strength, which supports our capital deployment. We treasure our 43 consecutive years of dividend increases and remain committed to extending this record. Combining share repurchase and dividends, we delivered $1.3 billion back to the shareholders in the first quarter. In doing so, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry.

In today's complex health care environment, Aflac stands out as a trusted partner, combining relevant products, financial strength, a powerful brand and broad distribution to help consumers manage the financial strain of out-of-pocket medical expenses. The ongoing foundational strengths of our business and our capacity for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world, support our leading position and build on our momentum. I will now turn the program over to Max to cover more details of the financial results. Max?

Thank you, Dan. For the first quarter adjusted earnings per diluted share increased 6.6% year-over-year to $1.77, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $82 million, reducing benefits, with $23 million or $0.04 per diluted share above plan. Variable investment income ran $14 million or $0.02 per diluted share below our long-term return expectations.

Adjusted book value per share, excluding foreign currency remeasurement increased 0.2%. The adjusted ROE was 12.8% and 16.4% excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment.

Net earned premiums in yen terms for the quarter declined 3.8%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability, declined 1.3%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 62.9% for the quarter, down 290 basis points year-over-year.

We estimate the impact from reserve remeasurement gains exceeding plan to be approximately 70 basis points. We continue to have favorable trends in cancer and hospitalization. While persistency was down, it remains strong and in line with our expectations at 92.8%. We continue to see an uptick in lapse and reissue on our cancer insurance product.

Lapses on our first sector savings block remained low and in line with previous periods despite the increase in yen interest rates. Our expense ratio in Japan was 19.5% for the quarter, down 10 basis points year-over-year. For the quarter, adjusted net investment income in yen terms was up 4%, primarily driven by higher U.S. dollar fixed rate income on higher volume and higher variable net investment income compared to last year, partially offset by lower dollar-denominated floating rate income due to lower volume and rates as well as reduced call income. The pretax margin for Japan in the quarter was 35% and up 320 basis points year-over-year, a very good result.

Turning to U.S. results. Net term premiums were up 3.5%. Premium persistency remained solid at 79.3%. Our total benefit ratio came in at 47.2%, 50 basis points lower than Q1 2025, driven by favorable incurred claims for individual voluntary benefits products and group disability.

We estimate that reserve remeasurement gains impacted the benefit ratio by approximately 230 basis points in the quarter, which is about 80 basis points above plan. Our expense ratio in the U.S. was 38.3%, up 70 basis points year-over-year, primarily driven by higher DAC amortization and commissions along with timing of advertising and investment spend. Adjusted net investment income in the U.S. was down 0.5% for the quarter, primarily driven by lower short-term rates, offset by higher variable net investment income. Profitability in the U.S. segment was solid with a pretax margin of 20.4%, a 40 basis points decrease compared with a strong quarter a year ago.

Corporate & Other reported breakeven pretax adjusted earnings, down from a $43 million gain last year, driven by lower adjusted net investment income, higher interest expense and operating costs and runoff impacts from closed blocks of business. Adjusted net investment income was $17 million lower than last year due to a combination of lower hedge benefits, partially offset by lower volume of tax credit investments. Our tax credit investments impacted a net investment income line for U.S. GAAP purposes negatively by $5 million in the quarter with an associated credit to the tax line.

There were no benefit in first quarter earnings from tax credit investments. We are pleased with the overall performance of our investment portfolio. During the quarter, we recorded $19 million of charge-offs on our loan portfolio. Additionally, we did not foreclose on any properties in the period.

We recorded $24 million of impairments on our real estate owned portfolio to reflect the continued depressed valuations in the commercial real estate markets. However, we continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we continue to manage them through this cycle and maximize our recoveries. For U.S. statutory, we recorded $12 million of impairments on invested assets and a $1 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On our Japan FSA basis, securities impairment reversals led to a net realized gain of JPY 66 million in Q1. And we booked a valuation allowance of JPY 201 million related to transitional real estate loans.

This is well within our expectations and has a limited impact on regulatory earnings and capital. Effective March 31, Aflac Re Bermuda entered into a transaction in which it assumed a block of whole life annuities from Japan Post Insurance. This transaction itself is immaterial to Aflac Inc.'s financials, but it marks a strategic milestone as we expand our reinsurance franchise, targeting the Japan market. Aflac Inc. unencumbered liquidity stood at $3.4 billion, which was $2.4 billion above our minimum balance of $1 billion at the end of the quarter.

Our adjusted leverage was 21.2% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 65% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong.

We ended the quarter with an estimated regulatory ESR of 227%. If including the undertaking specific parameter, or USP, this would add 16 points to the regulatory ratio and results in an ESR with USP of 243%. We estimate our combined RBC to be approximately 560%. These are strong capital ratios, which we actively monitor, stress and manage to withstand market volatility and credit cycles as well as external shocks.

Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $315 million in Q1, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. I will now turn the call back over to David.

Thank you, Max. [Operator Instructions].

[Operator Instructions] And our first question comes from Tom Gallagher of Evercore ISI.

First question is just on capital generation. Max, can you talk about -- can you help quantify how much benefit you got from that external reinsurance deal? And were there any ESR headwinds that emerged in Japan that might have been impacted?

So the the reinsurance transaction we executed in the first quarter with an external party. The impacts to capital were relatively small. This was a relatively small block in the scheme of -- compared to the overall enterprise. So it wasn't really meaningful to either the ESR or FSA earnings in the quarter.

And in terms of the movements in the ESR, as you recall, we're down a little bit compared to the full year. The main driver of that is subsidiary dividends being moved up from Aflac Japan to the holding company in the quarter. Other than that, you have our sensitivities and they work pretty well in terms of estimating the other impact. Obviously, higher yen rates has a slightly negative impact to the ESR because of the increased capital charge associated with mass lapse risk.

At the same time, you also saw a little bit of a yen weakening that is benefiting the ESR. So relatively small impact from capital markets inputs to the ESR.

Okay. And then my follow-up is just can you -- I think there was a change in the lapse and reissue activity during the quarter, normally, it's much older policies, and it was less so this quarter. Can you talk about what does that mean for -- from an IRR perspective for Aflac when there's somewhat younger customers that are doing lapse and reissue? Are those still positive IRRs when you think about your economics?

Thank you, Tom. So when you have a policy that is a little bit shorter in its duration because that policy is now lapsing and now moving into a new policy, what tends to happen in that scenario is obviously the policyholder is doing this for -- in order to get a better coverage. And once you have gotten that better coverage, you're probably more likely to improve the persistency post the lapse and reissue activity. So when you think overall, we think when we analyze this through the totality of the overall block, relatively minor impacts on the IRRs.

There will be -- if you take a snapshot of one specific policy that just lapsed, obviously, that IRR is a little bit lower than originally assumed, but we now think about that new policy it is moving into, the duration of that policy is likely to be longer, and that might actually improve the IRR of that new policy that is being written. So that is sort of working a little bit as a balancing impact. So the overall impact to IRRs across the whole in-force is expected to be quite minor.

The next question comes from Ryan Krueger of KBW.

I had a question on the Japan benefit ratio. It's towards the high end of your target in the quarter and a little bit above, I guess, excluding favorable experience. Can you just talk about the key drivers of expected improvement in the benefit ratio as the year goes on towards the 60% to 63% outlook?

Yes. Thank you, Ryan. So when we think about the different drivers being underlying experience, that being the lower net premium ratio established in the third quarter of last year and then also different types of lapse activity, we would expect going forward, the favorable experience that we didn't have in this quarter, and we've had for a long time. We think that we will continue to generally have those trends in place.

When we think about the net premium ratio, that has been set more or less, and that's more driven by mix of business as it relates to the current year benefit ratio. And obviously, we will update our net premium ratio with our long-term assumption unlock in the third quarter of this year. Then the last piece being the mix of lapsation. We did have a mix in this quarter with a little bit less of old age cancer and a little bit higher lapsation of more recently issued policies.

And when that happens, you naturally have less of an impact on the reported GAAP benefit ratio because the younger policies have less of a reserve being built up relative to old policies. Especially old policies with a CSV could have quite an impact on the reported benefit ratio given the release of those reserves. So as we then think about these impacts and trends running through our results for the full year, we still feel very confident with the outlook range that we gave at the beginning of the year of 60% to 63% for the Japan benefit ratio.

Great. And then you did -- I know it was smaller as a starting point, but on the first third-party Japan reinsurance transaction, but could you talk a little bit about how big of an opportunity you think that is perhaps for Aflac, I guess, over time? And could that move the needle some on your growth in Japan?

Well, these transactions, while this one was a relatively small transaction, could be material to us over time. These can be pretty sizable blocks when executed and they would then be immediately accretive to our earnings profile. So Japan, obviously, is a very sizable market. I don't think that we will target the whole market.

We will be selective in the way we approach it, both in terms of the target niches and also the type of products and risks that we go after. But it's obvious to us that we think that we have a balance sheet that is quite attractive for counterparties to transact with a AA rating. We think that we have a certain expertise in how to navigate and transact in the Japanese market, and we now built a platform that is ready to do so. So we do think that adding also some risks, i.e., that being mortality, longevity risk and spread risk to our balance sheet can be quite attractive to us from a risk management standpoint as well.

So there are many factors at play that makes this quite attractive from a financial standpoint for us. So I think this will be -- it will take time for this to build up. But over time, we certainly expect that this would be material to the company.

The next question comes from Les Carmichael of Wells Fargo.

First question on Japan cancer sales Miraito, do you expect sales to sequentially improve in the next quarter relative to the first quarter? I know it's competing a bit now with the new medical product.

[Interpreted] This is Yoshizumi from Aflac Japan. Medical cancer insurance merits momentum is continuing, and we expect the 2026 sales to be equivalent to the 2025. We have created a system whereby the entire 3 products, starting with the cancer reinsurance Miraito, medical insurance and [indiscernible] and Sumita to be sold concurrently.

Appreciate that. And then second question just was on the corporate segment. I know there was breakeven in the quarter, maybe a little bit of impact from tax credits, but it's bounced around a little bit. I was wondering, Max, is there any help you can give us with an expected run rate of earnings power there? And I realize there's a few moving pieces.

Yes. So you tell me where short-term rates are going to go and I give you the answer is a little bit of the -- how this works. The main driver that is swinging our Corporate and Other segment around is the net investment income that we generate on our cash and liquid assets. So obviously, depending on how much capital we hold at the holdco times the short-term rates, to some extent, drives that.

The other component to it is we -- this is where we hold our internal -- sorry, all our reinsurance treaties and because these are runoff blocks, there's a natural decay roughly about 8% per year. So that also drives down the earnings contribution year-over-year unless we add and do more either internal or external transactions adding to the earnings of that segment. So as we go into Q2 right now, I would say that I would expect this segment to be slightly negative in terms of pretax earnings given current volumes and rates and what we see from our reinsurance blocks.

Next question comes from Joel Hurwitz of Dowling & Partners.

Max, I wanted to go back to the external reinsurance transaction that you did with some of your first-sector business in Japan. If I look at the ceded premiums and the tick-up quarter-over-quarter, it looked like you had like a 1.5 point impact to net earned premium. Should we think that the earnings impact is similar to that premium impact over time? Or is there another way we should you thinking about earnings impact from that deal?

So on that transaction, it negatively impacted our Aflac Japan earnings in the first quarter by mid-single-digit U.S. dollars in millions. That transaction or that block of business will initially have a negative impact along those lines for the next couple of quarters, but then over time, it will go towards more of a zero impact. So in the near term, we expect a negative earnings impact from that ceded business and that it will go closer to zero over time as those policies reach paid-up status.

Got it. That's helpful. And then switching to the U.S. There were some headlines in the past month that a state regulator was forcing rate cuts on some of your products. Are you seeing pressure from other states? And just how should we think about a potential impact to top line earnings in the U.S.?

Joel, this is Virgil. No, we're not seeing any additional pressure like that. As a matter of fact, in the U.S., I'm pleased with how we are looking going forward with the year. It's still we're still being consistent and balanced with our approach, but we're really seeing no material impacts at all.

The next question comes from Suneet Kamath of Jefferies.

Just wanted to start on strategy maybe with Dan. So this reinsurance opportunity in Japan sounds interesting, but I guess another read could be sort of it's an indication that maybe the core business over there has less growth than maybe it previously did, and you're looking for other opportunities to sort of stimulate growth. So just curious, is that not the right read of this?

No. What I would say is that we're always looking for opportunities. We -- our position on reinsurance was as we've taken a slow methodical approach by starting by doing a reinsurance with another company, then we ended up taking it internally. And what we've seen is success in the reinsurance business for us.

And now the next thing is to do a deal with our biggest and closest partner, Japan Post, and then from there, we'll see where it goes. We still believe there's a lot of opportunity to grow our business in Japan. And so this is a natural fit for us that we'll continue to watch. But what I like is evolution, not revolution.

And so we continue to methodically take this on and continue to grow the business.

Got it. Okay. And then I guess for Virgil, last quarter, you gave us some good color in terms of the mix of sales, sort of the group business versus kind of the core agent business. Just wondering if you could give us an update on what happened here in the first quarter, and how you think things will trend for the balance of the year?

Yes. Thank you. So as mentioned [indiscernible], overall, I'm pleased with the quarter. It's consistent as now the color I gave on the group business, I'll give you some more insight, very similar.

So in the quarter, if you look at what we found is group products, that would include our [indiscernible] vision line, our Core VB, and then you look at what we've been doing now with our group life and absence disability. If you add those 3 categories up, we were up about 12.4% for the quarter. What we've been calling by the bill, this is the investment we made with the [indiscernible] property. What we made, we will call them a plant, let's just call it group life absence and disability, and then with our direct-to-consumer platform that we refer to as consumer markets.

When you add the 3 of those to -- those 3 entities up to buy the bills, we were up 25% for the quarter. So strong performance, very, very pleased with those. If you look at the [indiscernible] property, I fell on the sword maybe a couple -- over a year ago and tell you that we were going to invest in improving that business and get it back going. So we're up 52% for the quarter.

Strong performance. I believe that the -- you'll continue to see solid performance in those categories. And again, I am pleased with how we're trending. And overall, you add in a point of the fact that we still have consistent, strong persistency, 79.3%, and that is how you're seeing, though, the overall increase in our premium income at 3.5%.

If you look at the premium income, since the pandemic, we've seen steady increase. And now I'm pleased with where we're sitting with that metric.

But is the core business, like the agent business shrinking still? Or like what's going on with that piece?

Yes. That's why you don't see the overall tremendous growth that you've seen in just the group space. That particular business, we've got some investments we're doing right now to try to get growth out of that business, but what you're seeing right now is slightly down to flat. What's going to improve that is I'll continue to focus on recruiting agents and then making sure that we convert those agents.

So in the first quarter, we had a 16% conversion rate of new agents. That's where I continue to focus, and we continue to have strong productivity. The productivity with our agent group was about 8%. So that's how we continue to focus.

But you're right, we're not seeing growth out of our core traditional business. We've also invested in improving and enhancing our enrollment process. What it really means is we've made it easier for new agents to be onboarded and have given them tools where they can go out and sell quickly and get going. We all know that when you're in a market where you're having people come on that are getting paid commission, the best thing to do is get money in their hands as quickly as possible and get some accounts in the book.

There's a metric that much behind the scenes, call it, new agent success. And what that really measures is can we get an agent to produce about $25,000 in the first 3 months and add 3 new accounts, and that metric is up also 8%. So I think we're heading in the right direction. But with the market going toward group product and then group product continuing to go toward the smaller employee groups down now to 100 and some below 100 lives, we just had to continue to make sure that we are putting innovative product and technology, and that's what we're investing in.

Next question comes from Jack Maton of BMO Capital Markets.

Just a follow-up on the U.S. business. I guess just given there's been some kind of incremental impact from inflation and higher gas prices in recent months, is Aflac seeing anything changing around consumer behavior for voluntary products or regarding agent recruiting? I mean it sounds like you just like your persistency has been stable so far. But just wondering if there's any other perspective you offer.

I think one of your peers caught out somewhat lower VB persistency.

Thank you for the question. Now you can see our persistency has maintained consistent and actually, we had been showing steady increase. So that 79.3% is strong. So we haven't seen an impact of that.

Recruiting is tough in the market. It's not easy, but however, I can tell you that we're going to be on track to recruit about consistent with what we've been for the last 2 or 3 years. We've been at that 10,000 to 11,000 range now. That's what I expect to see again this year.

But again, the focus would be on taking those and making sure we convert and making sure we maintain those going forward. But we're not seeing any material impact that that's worthy of calling out.

Got it. That's helpful. And then maybe just a follow-up on the Japan business growth outlook. I mean, Aflac has been seeing very strong sales growth following the marketing transformation you all did and some of the new product introductions over the past year.

But that underlying earned premium growth rate still hasn't going to tick higher. So just wondering what, if anything, you think would need to change that inflection to occur?

Yoshizumi? Well, I'll take it, I guess. Go ahead.

[Interpreted] Excuse me, could you say that question once again, please?

Yes. I mean just in light of the strong sales growth that Aflac side over the past year or so, it's been impressive, but the underlying kind of earned premium growth rate still hasn't picked higher. So just wondering what would need to change for that inflection to occur?

Maybe I can kick it off and maybe Aflac add to the answer. If you look at the profile of earned premium, we are currently sort of running a relatively predictable lapsation in about roughly JPY 90 billion right now. And that means that in order to get back to earned premium growth, that's the kind of sales level that you basically need to get to in order to achieve 0 or flat in-force period-over-period on an annual basis. So that's what we need to get to.

Obviously, Aflac Japan has a strategy that they're executing on. And in that, we have a line of sight of getting to that level. Over time, we do expect to get to both flat and into the growth mode as it relates to earned premium as well. But for the time being, we have been sort of hovering in this range of negative 1% to 2% on the underlying earned premium, and that's what we expect for the full year.

[Interpreted] This is Koide speaking from [indiscernible]. Our midterm management strategy is to grow the new business. And by doing so, we aim to stop the stagnation of the earned premium.

The next question comes from Wilma Burdis of Raymond James.

Aflac has been declining again. Does Aflac have plans to raise any debt? And if so, could you talk a little bit about uses of capital? I think in addition to that, you have quite a bit of excess capital. So maybe just talk a little bit about that.

Yes. Thank you, Wilma. So leverage down to 21.2%. That is partially a function of the yen-dollar exchange rate.

As you may recall, we hold about 2/3 of our debt denominated in yen and 1/3 in U.S. dollars. And this is a part of our enterprise FX hedging program that we run in order to neutralize the impact from the yen-dollar exchange rate to the overall enterprise. What that means is that as we operate within the leverage corridor of 20% to 25%, we have significant benefits from borrowing in the yen, that being from a lowering risk standpoint as it relates to FX to enterprise, also accessing a broader investor base and also accessing lower interest rates, all of those very beneficial to us. But what it also means is that it does expose our leverage ratio to volatility in the yen-dollar exchange rate.

So we need to stress test that and make sure that we can -- we don't necessarily breach the leverage corridor even in a significant yen strengthening scenario. So that's why we always sort of stress test that under different scenarios, especially when we are looking to add new debt to our capital structure. At this point in time, we don't have any real plans to increase our leverage per se. We have significant capital and liquidity at the holding company in order to deploy that into our operations and also back to shareholders.

And we have significant flexibility across the company as it relates to the capital that we hold inside of the regulated entities. And layer on top of that, the ability to then also utilize reinsurance to both create in the near term, more capital and eventually further liquidity available to the holding company gives us -- puts us in a very strong position to execute whatever plans we want to execute on.

Aflac has so much excess capital. That's really the #1 question I get is there what can you do with that? Is pursuing these external reinsurance deals something that you think you could deploy more sizable amounts of capital? And if so, what would you look for in a larger deal?

So as it relates to our external reinsurance strategy, that is something that will consume capital. That being said, I don't expect it to be consuming that much capital that we would alter our capital deployment back to shareholders as we have pursued over the last couple of years. This is more as an add-on strategy. And if we can do that at good IRRs and grow our overall business and earnings power, we think that, that can be quite beneficial overall to the company.

And certainly, also, it would diversify our earnings stream a little bit and also diversify the risk profile of the company, all of those being ultimately positive.

The next question comes from Pablo Singzon of JPMorgan.

So first on the U.S. benefits ratio, sort of the reverse of Frank's question. So 1Q was much better than your outlook. Is there any reason why the benefit ratio should increase from here? Or basically, is your view that claims are just too good in 1Q?

Thank you, Pablo. So the benefit ratio guidance for the full year remains 42% to 52%. In the first quarter, we did benefit from remeasurement gains that was over and above our internal expectations by about 80 basis points. So on an underlying basis, if I add back those 80 basis points, puts our first quarter underlying benefit ratio spot on 48%, i.e., at the very low end of the full year range.

In this quarter, we did benefit both from favorable experience on cancer, but we also benefited from a low benefit ratio on our group disability block as well. This is something that can be quite volatile from quarter-to-quarter. So I would keep that in mind. So while we're very encouraged by the start of the year, we still think that 48% to 52% is a good range for the full year for our U.S. benefit ratio.

And then my second question, other group insurance companies have started talking more about [indiscernible] family. Can you talk about your current involvement in the product? Today, I think you will see admin services. And if there are goals are intended to eventually start fully ensuring risk at some point in the future?

This is Virgil again. So yes, let me just give you a little bit more color on our overall block and what we do. Of course, our focus is on the administrative service portion. We provide services for more than about 3 million constituents out there.

The main thing we talk about is the services we provide for the state of Connecticut. We want and add it now in the state of Maine, but we also oversee and provide services for other entities, other business entities. Inside those business entities, though, if you look at that, we do provide insurance coverage also. So we get about -- approximately about $40 million in premium on that side of the business is not material to our overall U.S. block.

But from an administrative services fee, we get probably about $90 million from that side. So it kind of gives you a little bit more color into the size and again, is providing services about more than 3 million constituents overall. Overall, this has been very good for our overall book of business. We've been able to demonstrate that we are certainly serious and a player in this space.

We provide high touch, very high standard of service. It's excellence that we provide, and we have been able to achieve and get good feedback from where we're providing those administrative services. And we look cautiously to expand where necessary out of the market because it's been a good business for us.

The next question is a follow-up from Tom Gallagher of Evercore ISI.

Just wanted to try and tie a few things together from different responses I heard to make sure I am understanding this correctly. Max, the number to get to flat premium growth in Japan you said would require around $90 billion of yen sales for the year. Did I understand that part correctly?

Yes, you did.

Okay. And then I think the earlier response on the expectation for Japan sales for '26 was the same level as '25, which was JPY 74 billion. So that would leave you about JPY 15 billion, JPY 16 billion short. Is that the right math to think about here?

Well, let me just say, this is Dan. I think the number will be higher than last year's number.

Got you. So Dan, you expect -- and if you wouldn't mind opining a little bit further on that, Dan. What are you thinking overall relative to JPY 74 billion was the baseline for '25? How do you -- what's your best guess for how that emerges in '26?

Well I would say closer to JPY 80 billion. That's what I'd like. I'm not going to say that the company won't be satisfied with a little less, but I'd like JPY 80 billion.

You want me talk a little bit about the product, Dan?

Yes, go ahead.

Yes. Just to say, you can see just looking at consistency now with the growth we're seeing in the new cancer product. You can also see though that [indiscernible] Pallet, the medical product we introduced to the market, has come out strong in Q1. So we are very encouraged by the new sales of those 2 products. And then we continue to be focused on [indiscernible]. [indiscernible] came out very strong for us, but we still -- we're adjusting our rates were necessary, and we've still been a major player in there.

So when you combine those 3 things, I think that's what has us all encouraged about what we're seeing with Aflac Japan.

This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks.

Thank you, Andrea, and thank you all for joining us this morning for our call. If you have any additional questions, please reach out to the Investor and Rating Agency Relations team. We'll be happy to follow up and we look forward to talking to you soon. Have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.