Why does GAAP EPS ($3.42) differ so much from adjusted EPS ($1.56) in Q4 2024?

The gap is mainly due to $1.0 billion of net investment gains in Q4, largely from derivatives and FX-related activity, which Aflac excludes from adjusted earnings because they are driven by market movements outside management's control. Adjusted EPS is the better measure of underlying insurance operations.

How did Aflac Japan perform, and what does the 2025 outlook imply?

Japan's Q4 pretax adjusted earnings rose 1.0% in yen terms, and its full-year pretax margin was 36.0%. However, yen premiums declined about 6.9% for the year. For 2025, management expects the Japan benefit ratio at the high end of 64%–66%, the expense ratio at the low end of 20%–23%, and the pretax margin at the low end of 30%–33%, which implies margin compression from 2024 levels.

Is the dividend growth and capital return program sustainable?

Aflac reiterated a 16% increase in its Q1 2025 dividend to $0.58 per share and extended its record of 42 consecutive years of dividend increases. It repurchased $750 million of stock in Q4 and $2.8 billion for the year, with 47.3 million shares remaining under authorization. Capital ratios were strong, with an SMR above 1,150%, an estimated ESR above 270%, and a combined RBC ratio estimated above 650%, and adjusted leverage at 19.7%, just below the 20%–25% target range.

What are the main risks in Aflac's results?

Key risks include yen/dollar exchange rate volatility (about 60% of debt is yen-denominated, and FX moves affect book value and leverage), U.S. commercial real estate exposure (management cited the worst CRE downturn in decades and increased CECL reserves by $40 million in Q4), and U.S. sales declines, which were 4.5% lower in Q4 as the company focused on profitable growth.

What drove the U.S. segment's performance and outlook?

U.S. net earned premiums rose 2.7% for the year and persistency improved to 79.3%. Full-year pretax adjusted earnings fell 5.5%, mainly because of a 12.1% rise in benefits and claims and expenses from growth initiatives in group life & disability, network dental and vision, and direct-to-consumer. For 2025, management expects the U.S. benefit ratio at the low end of 48%–52%, the expense ratio at the high end of 36%–39%, and the pretax margin at the high end of 17%–20%.

AFL 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 5, 2025. Cited figures are marked; the original filing is the authoritative source.

Aflac reported solid fourth-quarter and full-year 2024 results on February 5, 2025.

Q4 adjusted earnings rose 18.2% to $865 million^a ($1.56 per diluted share, up 24.8%), and full-year adjusted EPS grew 15.7% to $7.21 (18.6% excluding the weaker yen). GAAP net earnings were inflated by $1.0 billion of Q4 net investment gains, mainly from derivatives and FX, so GAAP EPS of $3.42 overstates underlying performance. Investors should focus on adjusted figures.

Adjusted book value excluding FX remeasurement rose 3.2% to $42.46^b per share, and the adjusted ROE excluding FX remeasurement was 14.5% for the quarter. Aflac Japan was the main driver, with pretax adjusted earnings up 1.0% in Q4 and a full-year pretax margin of 36.0%, the highest in about 30 years, though yen-denominated premiums fell 6.9% for the year. U.S. pretax adjusted earnings were up 9.3% in Q4 but down 5.5% for the full year, with sales declining 1.0% and the company citing a shift toward more profitable growth.

Management reiterated a 16% increase in the first-quarter dividend to $0.58^c per share, marking 42 consecutive years of dividend increases, and deployed $750 million in Q4 buybacks ($2.8 billion for the year). For 2025, management guided Japan's benefit ratio toward the high end of 64% to 66%, its expense ratio to the low end of 20% to 23%, and its pretax margin to the low end of 30% to 33%.

For the U.S., it guided the benefit ratio to the low end of 48%^d to 52%, the expense ratio to the high end of 36% to 39%, and the pretax margin to the high end of 17% to 20%. These updates signal lower Japan profitability in 2025 than 2024's exceptional margin, which is an important consideration for investors.

02—Key points

Key Highlights

Q4 2024 adjusted earnings rose 18.2% to $865 million; adjusted EPS grew 24.8% to $1.56 (25.6% excluding FX impact of $0.01)
GAAP net earnings were $1.9 billion ($3.42 per diluted share), boosted by $1.0 billion of net investment gains, mainly derivatives and FX
Full-year 2024 adjusted EPS rose 15.7% to $7.21 (18.6% excluding the $0.18 FX drag); adjusted earnings were $4.1 billion
Aflac Japan full-year pretax margin reached 36.0%, its highest in roughly 30 years, with pretax adjusted earnings up 15.5% in yen terms
Aflac U.S. full-year pretax adjusted earnings fell 5.5%, with sales down 1.0%, while Q4 pretax earnings rose 9.3%
Board reiterated a 16% increase to the Q1 2025 dividend ($0.58/share), extending 42 consecutive years of dividend growth; $2.8 billion of buybacks in 2024
2025 guidance points to a less favorable Japan margin (low end of 30%–33%) and a U.S. margin at the upper end of 17%–20%, with Japan's benefit ratio at the high end of its range

03—Questions

Frequently Asked Questions

Why does GAAP EPS ($3.42) differ so much from adjusted EPS ($1.56) in Q4 2024?
The gap is mainly due to $1.0 billion of net investment gains in Q4, largely from derivatives and FX-related activity, which Aflac excludes from adjusted earnings because they are driven by market movements outside management's control. Adjusted EPS is the better measure of underlying insurance operations.
How did Aflac Japan perform, and what does the 2025 outlook imply?
Japan's Q4 pretax adjusted earnings rose 1.0% in yen terms, and its full-year pretax margin was 36.0%. However, yen premiums declined about 6.9% for the year. For 2025, management expects the Japan benefit ratio at the high end of 64%–66%, the expense ratio at the low end of 20%–23%, and the pretax margin at the low end of 30%–33%, which implies margin compression from 2024 levels.
Is the dividend growth and capital return program sustainable?
Aflac reiterated a 16% increase in its Q1 2025 dividend to $0.58 per share and extended its record of 42 consecutive years of dividend increases. It repurchased $750 million of stock in Q4 and $2.8 billion for the year, with 47.3 million shares remaining under authorization. Capital ratios were strong, with an SMR above 1,150%, an estimated ESR above 270%, and a combined RBC ratio estimated above 650%, and adjusted leverage at 19.7%, just below the 20%–25% target range.
What are the main risks in Aflac's results?
Key risks include yen/dollar exchange rate volatility (about 60% of debt is yen-denominated, and FX moves affect book value and leverage), U.S. commercial real estate exposure (management cited the worst CRE downturn in decades and increased CECL reserves by $40 million in Q4), and U.S. sales declines, which were 4.5% lower in Q4 as the company focused on profitable growth.
What drove the U.S. segment's performance and outlook?
U.S. net earned premiums rose 2.7% for the year and persistency improved to 79.3%. Full-year pretax adjusted earnings fell 5.5%, mainly because of a 12.1% rise in benefits and claims and expenses from growth initiatives in group life & disability, network dental and vision, and direct-to-consumer. For 2025, management expects the U.S. benefit ratio at the low end of 48%–52%, the expense ratio at the high end of 36%–39%, and the pretax margin at the high end of 17%–20%.

04—Continue

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