Aflac Incorporated (AFL) Q2 2026 Earnings Report, Transcript and Summary

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

Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Second Quarter 2026 Earnings Call. This morning, Dan Amos, Chairman and 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; Shinsuke Morimoto, Deputy President and Director, Aflac Life Insurance Japan; and Brad Dyslin, 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 joined us. The second quarter added to the first quarter's solid financial start. Aflac Incorporated reported net earnings per diluted share of $1.63 and adjusted earnings per diluted share of $1.75. These results reflect the focused execution of our strategy, thus creating long-term value for the shareholders. Starting with Aflac Japan. As we told you, we were up against a strong second quarter in 2025 sales comparison following the launch of Miraito cancer insurance. As a result, sales declined 5.6% to JPY 11 billion (sic) [ JPY 19.6 billion ] in the quarter, but sales were up 7% for the first half of the year. This reflected strong sales results of Tsumitasu and brings sales in line with our expectations for the first half of the year. As part of our ongoing strategy, we continue to promote the importance of third sector protection to new and younger customers with our innovative first sector savings-type life insurance product, Tsumitasu. During this quarter, both the refreshed Tsumitasu, new product, and Anshin Palette, medical insurance product, which we launched in December of 2025, delivered strong sales growth year-over-year. As a result, we continue to expect Aflac Japan sales to exceed 2025. For the quarter, premium persistency was 92.7%, which was in line with last quarter. 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. Our wide-ranging network of distribution channels, including agencies, alliance partners and banks, continually leverage opportunities to help provide financial protection to Japanese consumers. We view each channel as a distinct avenue to reach Japanese consumers in different demographics and stages of life. With this in mind, we evaluate and support each one with unique opportunities to help provide Japanese citizens with financial protection. Turning to Aflac U.S. We continue to focus on pursuing profitable growth with an eye on maintaining strong underwriting discipline and premium persistency. We generated a 2.6% increase in year-over-year sales in the second quarter. We are seeing momentum within our group business, especially our group voluntary products and network dental and vision. We generated a 2.3% increase in net earned premium for the quarter and maintained strong premium persistency of 79.4%. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintained a solid pretax margin of 20.9%. As public insurance companies, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of the shareholders. We continue to be pleased with our investments, producing solid investment income. Our operations generated strong capital and cash flows on an ongoing basis as we remain committed to prudent liquidity and capital management. This financial strength is the foundation that backs up our promise to the policyholders, balanced with financial flexibility and tactical capital deployment. I am 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 in 2026. Combining share repurchase and dividends, we delivered $1.3 billion back to the shareholders in the second quarter and $2.6 billion for the first 6 months. In doing so, we have maintained our position among companies with the highest return on capital and lowest cost of capital in the industry. We continue to pursue more profitable growth and the tactical opportunistic deployment of capital. The Japanese and U.S. insurance markets are 2 of the best insurance markets in the world. Both share characteristics that make them well suited to the products we offer. Across Japan and the United States, consumers are feeling the strain of increasing out-of-pocket medical expenses. That's exactly where our products can help. As you have heard me say many times before, I believe the need for our products is actually more compelling in this type of environment because the financial risk to the household becomes more pronounced and more impactful. As a pioneer in cancer insurance and leader in the industry, our employees, sales teams and sales partners show up every day to help ease that burden, providing financial protection with genuine compassion and care. The ongoing foundational strength of our business and our capacity for continued growth support our leading position and build on our momentum. I'll now turn the program over to Max to cover more details of the financial results. Max?

Thank you, Dan. For the second quarter of 2026, adjusted earnings per diluted share increased 1.1% year-over-year to $1.80, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $46 million, reducing benefits, with $7 million, or $0.01 per diluted share, below plan. Variable investment income ran $72 million, or $0.11 per diluted share, below our long-term return expectations. We also released a $26 million expense contingency with lowered expenses in our U.S. segment, benefiting results by $0.04 per share. Adjusted book value per share, excluding foreign currency remeasurement, decreased 4.1%. The adjusted ROE was 12.7% and 16.6%, 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 3.7%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability, declined 1.4%. Japan's total benefit ratio came in at 64% for the quarter, down 250 basis points year-over-year. We estimate the impact from reserve remeasurement gains were under plan by approximately 60 basis points. We continue to have favorable trends in cancer and hospitalization. Recognizing that the year-to-date benefit ratio is 63.4%, we now expect to be at the high end of our guidance range of 60% to 63% for the full year of 2026, excluding the annual actuarial assumption review in Q3. Persistency remains solid and in line with our expectations at 92.7%. We have continued to experience somewhat elevated lapse and reissue activity on recently launched products as we have expanded coverage options and competitiveness on our new products. 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 20.2% for the quarter, down 40 basis points year-over-year. This is a strong result, especially on the back of the current inflationary pressures in Japan. For the quarter, adjusted net investment income in yen terms was down 2.9%, primarily driven by lower call income and lower dollar-denominated floating rate income, partially offset by higher income on U.S. dollar assets due to the weakening of the yen and higher dollar-denominated fixed rate income. The pretax margin for Japan in the quarter was 34.3%, up 230 basis points year-over-year, a very good result. As we previously discussed, Aflac Japan set an internal reinsurance target of up to 10% of U.S. GAAP assets. We have revisited this target and aligned it with an FSA perspective of up to 30% of FSA reserves. This will allow us to continue to reduce risk, improve balance sheet efficiency and ultimately generate a higher ROE for Aflac Japan and the group. Turning to U.S. results. Net earned premiums were up 2.3%. We expect our net earned premium growth rate for 2026 to be just below our guidance range of 3% to 6% versus previous guidance for the low end of this range. We continue, though, to expect our 2025 to 2027 net earned premium CAGR to be within the range of 3% to 6%. Premium persistency remains solid at 79.4%, up 20 basis points year-over-year. Our total benefit ratio came in at 49.5%, 220 basis points higher than Q2 2025, driven by an increase in incurred group disability claims in the quarter relative to favorable results in the previous quarter. We estimate that reserve remeasurement gains impacted the benefit ratio by about 30 basis points above plan. Our expense ratio in the U.S. was 36.1%, down 20 basis points year-over-year. Adjusted net investment income in the U.S. was essentially flat, up 0.5% for the quarter, as higher call and fixed rate income were offset by lower floating rate and short-term income. Profitability in the U.S. segment was solid with a pretax margin of 20.9%, a 160 basis point decrease compared with a strong quarter a year ago. Corporate and Other reported a pretax adjusted loss of $10 million, down from a $20 million gain last year. The main drivers were lower adjusted net investment income from lower short-term income and reduced hedge benefits that were partially offset by higher fixed rate income. Although our tax credit investments impacted the adjusted net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line, the overall tax credit investment program benefited net earnings by $8 million. Higher interest expense and runoff impacts from our closed blocks of business also contributed to the net loss for the quarter. We're pleased with our overall performance of our investment portfolio. Our private credit portfolio, most notably our middle market loan portfolio, continues to deliver strong risk-adjusted net yields. During the quarter, our global investments team were quite active, repositioning $4.8 billion of the portfolio through switch trades to capture the benefit of higher yields and further strengthen the overall quality of our consolidated portfolio. These trades capture foreign currency gains to minimize market losses on lower-yielding assets, reduce the risk of future FSA impairments, improve our ALM and boost net investment income. On an annualized basis, we expect this program to increase net investment income by over $50 million on a run rate basis with a very limited impact on capital levels. We will continue pursuing opportunities that improve the overall health and performance of the portfolio. For U.S. statutory, we've recorded $11 million of impairments on invested assets and $1 million valuation allowance on our mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, we booked securities impairments of JPY 15.8 billion and an additional valuation allowance of JPY 33 million related to transitional real estate loans in Q2. This is well within our expectations and has a limited impact on regulatory earnings and capital. Aflac Inc. unencumbered liquidity stood at $3.3 billion, which was $2.3 billion above our minimum balance of $1 billion at the end of the quarter. Our adjusted leverage was 21.8% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 63% 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 226%. If including the undertaking specific parameter, or USP, this would add 14 points to the regulatory ratio and result in an ESR with USP of 240%. The decline quarter-over-quarter was primarily driven by significant subsidiary dividends. We estimate our combined RBC to be slightly above 600%. These are strong capital ratios, which we actively monitor, stress and manage to withstand both market volatility and credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $983 million of our own stock and paid dividends of $309 million in Q2, 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. Thank you, and I will now turn the call back over to David.

Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue to ask additional questions. [Operator Instructions].

[Operator Instructions] The first question today comes from Ryan Krueger with KBW.

My first question was on the asset repositioning that you did during the quarter. Maybe, I guess, first, maybe a little bit more detail on what you did, but then probably more importantly, to what extent do you see additional opportunities to do more of this going forward?

Yes. Thank you, Ryan. This is Brad. Yes, we were -- I'm very pleased that we were able to reposition about 5% of our portfolio in a single quarter. Obviously, we're solving for multiple objectives here. Income is an important driver as our losses as you sell the lower-yielding assets from prior periods. But we also have to manage taxes, liquidity, ALM, et cetera. So it's a pretty complex puzzle that we have to solve. What we were able to do this quarter was harvest gains from foreign currency on our dollar portfolio in Aflac Japan and use that to offset losses on some of those older bonds, both in our U.S. dollar portfolio, but also our JGB portfolio. We repositioned in both of those sectors. Most of the activity was in Aflac Japan, but we also touched Aflac U.S. and Aflac Bermuda with some adjustments to the portfolio there as well. In terms of the forward look, there's a reason insurance companies are often referred to as buy and hold, not my favorite term, by the way, but it is a complex puzzle to solve. But when you can crack the code, you can have a pretty significant impact as we saw this quarter. And we see a very big opportunity in front of us from the higher rate environment. And we didn't stop working on June 30. So we're not going to -- we're going to do our best not to waste this opportunity, and I look forward to talking more about it in third quarter.

Okay. And on first sector sales in Japan, you had strong sales there. I think demand is generally increasing for first sector type products given the higher rate environment there, but you've always been a third sector company. So I was curious, is there any practical limit in your view of what percentage or amount of your Japan sales you'd be willing to have come from the first sector, given kind of there's probably a bigger growth opportunity there if you wanted it?

Let me -- look, this is Max. Let me start, and then I'll ask Japan to add some commentary to this. From a group standpoint, we don't have a certain or specific set limit of our mix between third sector and first sector business. The primary driver for us is the return that we can get on certain products and the risk that comes with those products. Right now, we are getting very good risk-adjusted return on the first sector business that we are writing today. So we're very, very pleased with adding that to our portfolio. Overall, though, we do acknowledge that our in-force is predominantly driven by third sector business. And that's a business that is very stable, predictable, and it has risks that we are very comfortable with. And the first sector business adds a different type of risk profile to our business, i.e., mortality, spread and to some extent, longevity risk. So when we add that to our existing balance sheet, that is in relatively small portions, it's actually quite good for us from a diversification benefit standpoint. But if it gets too high, those risks can actually be risk increases overall for us. At this point, the first sector in-force is less than 20% of our total in-force, and it has been declining for quite a period of time, essentially since 2016 when we exited the WAYS business when JGB yields went negative. But as of right now, we are starting to see very good returns on the first sector business, and we're very happy with the business we're selling.

[Interpreted] This is Koide speaking from Aflac Japan. As Max has described, Tsumitasu, our first sector product accounts for 20% of the total sales. But it's not that we set a specific target or upper limit in terms of the first sector product sales. Tsumitasu is contributing in expanding our platform -- our customer base to younger generation, and it's been well received by those younger customers today. And Tsumitasu is also making a great deal of contribution in expanding our sales in cancer and medical insurance through concurrent sale. So we remain to be the third sector-oriented company, but Tsumitasu is definitely playing an important role from a strategic perspective.

The next question comes from Tom Gallagher with Evercore.

Dan, just wanted to start with a high-level M&A question for you. So historically, Aflac has done small deals. Should we expect that to be the case going forward? Or would you consider going bigger and more strategic if opportunities arise?

I think the answer is we continue to look at opportunities. Generally, if something is for sale, it's for sale for a reason. And so we want to be careful in how we spend the money. It took us a long time to make it, and we want to be careful with that. But at the same time, if there's opportunities, we certainly want to look into it. I am pleased with the development of the small companies that we bought and what's taking place. They've turned around and done much better in the last year or so, and I'm encouraged by that. So the answer is yes, we would look elsewhere, but it would have to pass a strenuous test for us to be excited and really interested in something.

Okay. And then my follow-up is, Max, on the expansion of the limit in terms of reinsuring Japanese business to Bermuda. Can you just give a little bit of color what the 30% of FSA reserves now? Was that just -- is that still just a company-imposed limit? Or was that in consultation with the FSA? And will this signal an ability to actually do more each time you do them? Like, can we expect the cadence of reinsurance to be going up annually? Or would you still expect it to be similar to what you've done in the past?

Yes. So this move from having a ceding limit from 10% of U.S. GAAP assets to 30% of FSA reserves, this is an internally imposed limit that we have developed ourselves. But you should assume that we have shared this with external constituents as well and received feedback on it. So we -- this is something that makes sense for us. We feel it fits us well when we balance the overall risks and opportunities available to us. As it relates to the size of future transactions, there is obviously a cost with every transaction that you do. So if you do any bigger transactions, that means that the cost per transaction now is somewhat lower. And we obviously now feel that we have developed a strong track record, both internally and now also externally to execute these transactions. So we feel very good about both significant opportunities that we have in front of us to improve the risk profile of the company and also the return profile of the company utilizing reinsurance.

The next question comes from Suneet Kamath with Jefferies.

I want to start with the medical sales in Japan. I know they were up year-over-year, but they were down sequentially despite the product launch in December. I would have thought that you had a little bit more runway given the product launch. So can you just talk about what you're seeing in that product line and your expectations for the balance of the year?

[Interpreted] Thank you for your question. This is Yoshizumi in charge of marketing sales in Aflac Japan. As you just described, the Anshin Palette, our medical insurance products, its momentum is sustaining from the first quarter to second quarter. And as a result, the first half of 2026 sales exceeded the prior year. But it's also true that there was a decline from the first quarter to second quarter. And this is because about the timing. This product was actually launched towards the end of December last year. And we were making a thorough preparation towards that day during December. And that is why we managed to get a great sales or solid result in the first quarter. And we enjoyed the more-than-expected momentum even in the second quarter. And we expect this momentum to continue through third quarter and fourth quarter. That's all.

Okay. And then maybe shifting to the U.S. Virgil, can you just give us some thoughts on how you're feeling about sales so far this year? And I think in the past, you've given us some good color on how the traditional channel has performed relative to the brokerage channel. I was wondering if you could give us an update there as well.

Yes, certainly. Let me first start by saying that pretty much for the year, we're in line with expectations, slightly the lower end of my expectations. But as you indicated, I'm expecting a stronger second half of the year, heavily weighted in the fourth quarter due to the seasonality of our business and the strength we continue to see though in our PLADS, or group life, absence, disability business. Let me give you just a little bit more color on the performance of how the portfolio balances out. First, if you add just our group life, absence, disability to our dental and vision, just looking at those 2 products and then, what, our group voluntary benefits, we were up 7.1% for second quarter, again, seeing good performance there. When you look at the overall earned premium result for those group products, we were up 13% for the earned premium. That gives you kind of a little bit of color that we're seeing continued steady growth in our group business. It's in line with the market, though. You can see the market now as brokers have gone more heavily into voluntary benefits, they are selling more of the group product. We're seeing that. We are still dedicated, though, to our agency force. We continue to roll out strong individual traditional products for them. And I do expect, though, to have a stronger year traditional overall this year, again, with a stronger second half heavily weighted in the fourth quarter. Just a couple more things. Dan mentioned earlier about the investments we made, though, with the products. When you look at the dental and vision product, we were up 47% in the second quarter. Very strong performance, heavily driven by our agency force. We're going to push stronger in the second half of the year and really get brokers to adopt the network dental product. That's going to be our focus going into the second half of the year. I think also when you look at the dental and vision property, we continue, though, to be focused on ensuring that we're selling our voluntary benefits product alongside of that. So for every $1 that we sold in the second quarter next to the voluntary benefits, what you will see is that we sold $1.07 of voluntary benefits. That's better than we ever expected, and that's the trend I want to see continue. We're not just selling it standalone. It drives VB alongside of it. Just again, overall, we've got some strong comparisons in the second half of the year, but I'm expecting growth to be higher than last year, and I'm expecting a big strong fourth quarter, though.

The next question comes from Mike Ward with UBS.

I was wondering, in Japan, if you guys have seen any change in the lapse paid up or surrender behavior given the inflationary kind of pressure and higher rates in Japan.

Yes. Thank you for the question. So far, we haven't really seen any sort of significant lapse uptick related to either inflation or to interest rates. If you look at our first sector block, which would be the block of business that should be the most sensitive to interest rates, we've seen a minor uptick, but that's from very, very low levels. And we certainly have not seen any spikes or significant correlation with the increase in rates there. So even when we -- if you then think about inflation pressures as well, that hasn't necessarily had any significant impact on our lapse rates. The decline in persistency that you have seen year-over-year has more been driven by the product launches that we have experienced both on cancer and medical, much more so on the cancer side than the medical side. But when we do refresh our product portfolio and we come out with more attractive new products, we always see an element of increased levels of lapse and reissue, obviously impacting our persistency rate. And we certainly experienced that with our Miraito launch. As we look forward, we do believe that Miraito is now through the full first year of being out there. So with that, we would expect some decline in lapse and reissue going forward. And therefore, we should expect our persistency rate, as reported, to stabilize going forward.

And then, Dan, I just wanted to ask again about the M&A question. I totally get that properties that are for sale are for sale for a reason sometimes. Just curious like how interested you guys might be in something that could really help you leapfrog in the U.S. specifically in a diversified way.

We certainly are looking all the time. And if you have any suggestions, we're willing to listen. But our focus has been on turning these other programs around, which I'm very pleased with what's been going on there. And now that I'm at that point, our financial team brings us what they think makes financial sense, and then we see how it would coordinate and work well with our existing distribution or do we look at it totally separate. And we look at both ways. We look at it that if it's products we don't sell, how we might mix it together. And then if you talk about merging where we sell products that we already sell, that would be how we had to look at it from a disciplined perspective and make sure that we're following guidelines, and we realize that can create disruption, but we're willing to do it if it makes sense. So we'll continue to watch those.

The next question comes from Wes Carmichael with Wells Fargo.

First question was just on Japan sales. I think, Dan, last quarter, you mentioned that you'd be happy this year if we got to JPY 80 billion in sales, maybe the company would be satisfied with a little less. But just curious, we're halfway through the year, I think we're at JPY 37-and-change billion of yen sales. So just curious what you're thinking for the rest of the year.

Well, I'd still be happy with sales at JPY 80 billion. But as I stated today, we expect the 2026 numbers to exceed last year's numbers. And that I also said in the first quarter -- at the end of the first quarter. We delayed some of our direct mail campaigns in Japan but are now back on track. And the JPY 80 billion was a challenge to begin with and remains in the realm of possibilities for us to achieve. So I won't rule it out, but I'm confident and can say that in terms of 2026 sales will exceed 2025.

Got it. And Max, maybe just on ESR. I think, as a rule of thumb in the past, you gave every 10 points was approximately $750 million to $1 billion of excess capital. Just curious if that still is a good rule of thumb to use? And should we be thinking about including the USP when we think about your excess capital in Japan?

Thank you, Wes. That is -- it continues to be a good rule of thumb for our ESR capital base. As it relates to the USP, we manage our business including USP. We manage our risk profile, including USP. So I would certainly include that. We think that, that gives a better view and better reflects the risks of our business when including USP in the ESR. So that is why we're using it.

The next question comes from Joel Hurwitz with Dowling & Partners.

Max, one more on inflation. In your prepared remarks on Japan, you highlighted good expense results despite the inflationary pressures. Can you just elaborate on how significant those inflation pressures are on your expense base? And I guess, any other broader headwinds from inflation in Japan?

Yes. So let me kick it off, and I'd like Morimoto-san to give some commentary on this as well. Japan inflation is running close to 3% at the moment. And obviously, that is a function of domestic inflationary pressures, but also the weakening yen leads to imported inflation as well into the Japanese economy. And when you run those kind of inflationary pressures and you know that our revenue base is slightly shrinking, that means that managing your expense becomes quite difficult. And I think the team has done a great job managing expenses and even getting the expense ratio lower than last year. So it is in that context that I think that we've done a very good job managing that expense ratio overall. Going forward, we still expect that the 20% to 23% is a good expense ratio range for the company to operate long term. And obviously, in the very near term, we have been towards that sort of low end of that range. So please, Morimoto-san.

[Interpreted] So this is Morimoto, I would like to comment as well. And one of the important factor in relation to inflation is the Middle East situation. The Middle East situation is, at this point, not giving any significant impact on the insurance business in Japan. That said, we will continue to monitor risks, including financial market volatility and potential upward pressure on operating expenses. The Middle East situation remains highly uncertain and any deterioration could raise both downside risk to Japan's economy and upside risk to inflation, notably through higher crude oil prices. The government is implementing supplementary budgets to address Middle East-driven energy price surges and has advanced alternative procurement of critical minerals with high Middle East exposure. We expect continued comprehensive measures in line with energy price developments and domestic economic and inflation trends. That's all from me.

This is Dan. One thing we try to do in these meetings is introduce new people in terms of -- in their position. And Morimoto is now our Deputy President and certainly is in line to continue to do well with us. He's in his over 25 years with the company. And Morimoto, we're glad to have you join us, and we're counting on you to help grow our business going forward as you work closely with Koide this year.

All right. Very helpful response. And then just maybe a follow-up on sales. And in response to an earlier question on Tsumitasu sales, you mentioned it's making, I think, a great contribution expanding third sector sales. Can you just provide some more color on the cross-sell there at this time?

[Interpreted] Thank you for your question. This is Yoshizumi once again. And Tsumitasu is a product attracting younger and middle-aged customers who are seeking to accumulate their assets in yen. And there is also a need from this target audience wanting to be prepared for cancer and medical by purchasing these products. However, if these needs have yet to be realized or if these needs are still potential, then the job of the associates is to drive their needs in order to realize them. So therefore, whenever they conduct pitches to the customers, the associates are always promoting the concurrent sales to customers. And through this effort, we have succeeded in selling cancer and medical insurance together with Tsumitasu. Initially, we were planning the concurrent sales to be 25%. However, presently, we are largely exceeding this percentage. That's all from me.

The next question comes from Wilma Burdis with Raymond James.

We estimate that taking Japan reinsurance from 10% to 30% would free up JPY 5 billion to JPY 7 billion of capital or more. Is that a reasonable estimate? And perhaps you could walk us through the pieces there.

So Wilma, the way to think about it is if you size the total opportunity, at the end of the fiscal year, Aflac Japan had policy reserves on an FSA basis of JPY 10.8 trillion. So if you take that as a starting point, that gives you sort of the current limit of our reinsurance capacity from a ceding standpoint out of Aflac Japan. If you then think about what would that do from a capital free-up standpoint, the capital being freed up is very dependent on many factors, including what blocks are being ceded. And I would generally say that the difference between the FSA reserve and economic reserve is the greatest for medical business. It has less of a difference for cancer business and the least difference between the reserve levels occurs in the first sector business for WAYS and Tsumitasu. The aging of the blocks ceded matters a lot. The interest rate levels matters a lot. So there's not a great sort of rule of thumb that we can give you. But I would encourage you to go back and look at our FAB presentation from 2020 (sic) [ 2021 ], where we gave a level of reserve difference for the total block of in-force business at that point in time. And that gives you an indication or a ballpark number of what that reserve difference could be given the block of business at that point in time. And it's -- I wouldn't say that it's materially different today in terms of the mix compared to back then. But that's what I would look at if I wanted to come up with a rough estimate of what reinsurance capital free up could give us in the future.

Okay. And then will the U.S. and Japan joint efforts to support the yen have any impact on Aflac? And if Japan interest rates ultimately have to increase to support the yen, what impact will that have on Aflac?

Wilma, this is Brad. Let me comment on that as it relates to the portfolio. Obviously, we've seen a sizable move in the yen. We almost hit JPY 164. I think we're hovering around JPY 158 today. Specific to the portfolio, remember, our U.S. dollar portfolio is part of the larger strategy designed to protect the economic value of Aflac Japan against these kinds of moves in FX. Think of it quite simply as having a pool of yen assets backing a currency matched against the offsetting yen liabilities, and then our surplus on behalf of our U.S. dollar shareholders is supported in large part by our unhedged U.S. dollar assets. So any changes in FX move in tandem on both sides of the balance sheet. There's a small impact on ESR, but nothing material to speak of. One area we're watching is, as I mentioned earlier, the FX gains from our dollar program have been an important tool for us as we look to reposition the portfolio. As the yen strengthens, it does have an impact on these gains. But most of our dollar assets were bought at much lower or much -- I should say, much stronger yen levels. So we still have a long ways to go there before those gains are eroded. So there really is no other impact to the -- from FX to the portfolio.

I just wanted to add, and I wanted to start with one correction. When you go back and look at the reserve difference between FSA and economic reserve, it's not the 2020 FAB, it's the 2021 FAB. So that's the FAB book to look at. The other comment I wanted to make on this topic of FX is that we design and have positioned our foreign exchange hedges for long-term protecting the value of, in our case, Aflac Japan in U.S. dollar terms. That's the ultimate purpose. And they are long term in nature, and they play out over a long period of time as well. So in that context, a 4% move, even though dramatic on the day, a 4% move in the yen-dollar exchange rate is actually quite minor in the scheme of things as we -- as our program is taking a very long-term view. So with that in mind, at the moment, this in itself does not necessarily lead us to make any significant changes to our foreign exchange program.

The next question comes from Pablo Singzon with JPMorgan.

My first question is for Max. Can you talk about to what extent the benefit ratio in Japan year-to-date will influence your approach to reviewing reserves in the third quarter? I think you had said that the elevated ratio is being caused by who's lapsing vis-a-vis the newer product. Is that a significant consideration? Or is it more of a backward-looking item when you think about assumption updates in 3Q?

Yes. I had a little bit trouble hearing you, but I think the question is around the benefit ratio for Japan for the first half and what we expect going into the second half and also any expectations on the actuarial assumption review that we -- that will take place in the third quarter. So in the -- obviously, in the first half, our benefit ratio has been a little bit higher than what we expected, and we have called that out. We still expect to be inside of our full year guidance range of 60% to 63%, but we now expect to be at the upper end of that range. The main reason that is sort of pushing us a little bit higher is the type of lapses that are occurring. We have seen less lapsation of older policies, and older policies obviously have -- that have been on our books for a long period of time, have accumulated and built up quite significant reserves. So when those policies lapse, that reserve is being released through the benefit ratio, pushing it down significantly. We have seen an increase in more recently issued policies that haven't had that same level of reserve being built up. And therefore, when they are being lapsed, then there's not a significant push down on the benefit ratio. So the mix impact of lapsation have played a role here, and that means that the benefit ratio have not benefited as much as we previously expected. This is driven by our lapse and reissue program, and it is driven by the cancer product, obviously, Miraito. As Miraito matures and now is more than a year through its lifetime, we would expect this lapse and reissue activity to normalize, and that also means that we would expect the mix impact between older and more recently issued cancer products as it relates to lapsation to normalize as well. And that's what gives us confidence that we will come back inside of the benefit ratio range of 60% to 63% in the second half. As it relates to the third quarter assumption review, that is something that we are working on right now, and we will report out in the third quarter. And as always, we are trying to set all the assumptions, especially our forward-looking assumptions, with our best estimate, and we do that to the best of our ability to make sure that we reflect the reserves as best as we can.

And then second question, what is your outlook for your reinsurance initiative? It seems like there's a lot of opportunity there in Japan, and you should just grow fast naturally from a standing start. But any perspective on how large that business might be for you in the medium term?

So, so far, we have executed one external transaction, and we're very pleased with that, and it's progressing well. We think that this is a significant market. We think that we have some particular competitive advantages, and we intend to leverage that to the best of our ability. This is a very lumpy business. So you should not expect us to announce or write any business every quarter. This is more of an annual cycle. So it's something that will build up over time. But long term, I think this is a business that fits us very well. And I think that we have a very good product that we can offer to the marketplace. So long term, we think this is going to be a significant business for Aflac. But I don't think it's going to overtake our primary business in U.S. and Japan, but it will be a very, very good supplemental business for us.

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. And please mark your calendars for December 3 and join us for our financial analyst briefing. We will be getting more details out in regard to that. If you have any questions, please follow up with Investor and Rating Agency Relations, and we look forward to talking to you soon. And again, thank you for joining us this Friday. Have a great one.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]