# How Aflac makes money

CXProWealth Business Lens · Aflac (AFL) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-07 with the SEC (accession 0001628280-26-054618): https://www.sec.gov/Archives/edgar/data/4977/000162828026054618/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $4.1B (+21.2% on the year)
- Operating income: — (operating margin —)
- Net income: $825.0M (net margin 20.0%)
- Gross margin: not reported (the company reports expenses by nature: no cost of revenue or gross profit line exists)
- Free cash flow: —
- Cash conversion (operating cash flow / net income): 0.14x
- Capital expenditure: — of revenue

## Where the money goes (Q2 FY2026)

- Total revenues → Total benefits and expenses: $3.1B
- Total benefits and expenses → Total benefits and claims, net: $1.9B
- Total benefits and expenses → Total acquisition and operating expenses: $1.3B
- Total revenues → Earnings before income taxes: $995.0M
- Earnings before income taxes → Income taxes: $170.0M
- Earnings before income taxes → Net earnings: $825.0M

## Where the revenue comes from

### Segments (BUSINESS SEGMENT INFORMATION - Operations by Segment - Revenues (Details))

| Member | Value | Share |
|---|---:|---:|
| Aflac Japan | $2.2B | 52.5% |
| Aflac U.S. | $1.8B | 43.0% |
| Corporate and other | $291.0M | 7.1% |

The members do not sum to total revenue.

## Key insights

### Premiums cover the costs; investments earn the profit

Benefits and expenses used 96.0% of earned premiums, so investment income of $984M carried nearly all pretax earnings.

In the quarter, total benefits and expenses were $3.12B against net earned premiums of $3.25B: 96.0% of premiums, compared with 96.2% a year earlier. Net investment income was $984M, equal to 98.9% of earnings before income taxes of $995M and to 30.3% of earned premiums. _(from the filing)_
The filing calls investment income one of the drivers of the company's profitability. It invests primarily in fixed maturity securities to provide a reliable stream of income, matched to the cash flows its policy liabilities require. Reserves build in a policy's early years because, in the filing's words, claims payments are expected to gradually increase over the life of a policy. _(from the filing)_
A year earlier, net investment income of $1.08B was 131.5% of pretax earnings of $822M, because net investment losses of $421M absorbed part of it. This quarter those losses were $153M. The filing ties the lower investment income to lower call income, lower floating rate income and the weaker yen. _(from the filing)_
Analysis: the split is partly a matter of presentation. The benefit line includes the growth of reserves that the investment income exists to fund, so underwriting and investing are two halves of one pricing decision. What the ratio shows is dependence on yield: a change in what the portfolio earns reaches pretax earnings with little to cushion it. _(analysis)_

### Earnings jumped while the premium base shrank

Smaller investment losses, revised claim assumptions and a lower tax rate lifted profit, not more insurance sold.

Net earnings were $825M against $599M, while net earned premiums fell to $3.25B from $3.47B, 93.7% of the prior-year level. Total revenues slipped 1.03% to $4.12B. _(from the filing)_
Three lines account for the rise. Net investment losses narrowed to $153M from $421M. Total benefits and claims fell 7.86% to $1.85B, 56.9% of earned premiums against 57.9%. Income taxes fell 23.77% to $170M, 17.1% of pretax earnings against 27.1% a year earlier. _(from the filing)_
For Japan, the filing attributes lower benefits to annual cash flow assumption updates performed in the third quarter of last year and to higher reserve remeasurement gains, and lower premiums to an external reinsurance transaction set up earlier this year and to older limited-pay policies reaching premium paid-up status. The company's adjusted earnings, which exclude investment gains and losses, were below the prior year. _(from the filing)_
Analysis: the gain rests on smaller investment losses, which the company excludes from its own measure of insurance performance, and on recalculated reserves and a lower tax rate. None of the three is the same as selling more policies or paying fewer claims, so the rise in net earnings is not a reading of a stronger insurance business. _(analysis)_

### In dollars, the U.S. book nearly matches Japan

Japan's premiums in force fell to $7.2B in dollars while the U.S. grew to $6.8B, closing most of last year's gap.

Aflac Japan's annualized premiums in force, translated at period-end exchange rates, were $7.2B at the end of June against $8.2B a year earlier. Aflac U.S. annualized premiums in force rose to $6.8B from $6.5B. The U.S. figure equals 94.4% of Japan's, against 79.3% a year earlier. _(from the filing)_
The filing names three causes for Japan: a weaker yen, which reports fewer dollars for the same yen business; older limited-pay policies reaching premium paid-up status; and an external reinsurance transaction. Aflac Japan's premium persistency slipped to 92.7% from 93.7%. For the U.S., the filing credits improved sales and continued strong persistency, 79.4% against 79.2%. _(from the filing)_
Japan still brings in more revenue. Aflac Japan's adjusted revenues of $2.16B equalled 52.5% of total revenues in the quarter, against $1.77B, or 43.0%, for Aflac U.S., and the filing describes Aflac Japan as the principal contributor to consolidated earnings. _(from the filing)_
Analysis: much of the narrowing is currency, which can move either way, and premiums in force are not profit. The U.S. book renews less of its premium each year and its group products carried higher claims this quarter. The shift still changes how the company reads: a growing share of its premium base now sits outside the yen. _(analysis)_

### Buybacks lift per-share earnings faster than profit

Diluted earnings per share reached $1.63 against $1.11, a steeper rise than net earnings, as repurchases cut the share count.

Diluted shares averaged 505.6M in the quarter against 538.4M a year earlier, 93.9% of the prior count. Diluted earnings per share were $1.63 against $1.11, 146.8% of the prior level, while net earnings rose 37.73%. _(from the filing)_
The quarterly cash dividend rose to $0.61 per share from $0.58, equal to 37.4% of diluted earnings per share. The filing says the subsidiaries fund the parent company through management fees and dividends, with Aflac Japan the largest contributor, and that the parent's main uses of cash are shareholder dividends, share repurchases, interest and operating expenses. _(from the filing)_
Operating cash flow in the quarter was $112M, 13.6% of net earnings of $825M. In the first quarter it was $968M, so one quarter understates the half year, but reported earnings and cash do not arrive together. _(from the filing)_
Analysis: a smaller share count spreads a flat or shrinking premium base over fewer owners. That depends on subsidiaries continuing to send cash upward, and in Japan that now runs through a new economic value-based solvency standard that the filing says is sensitive to interest rates, credit spreads and exchange rates. _(analysis)_

## For members

Signed-in members read, on the page: the investor's and the founder's views of Aflac (its fundamentals against its peers, where the profit is made, how the model works, where every $100 of revenue goes against the industry, the path to scale), its performance over time with every line as filed, and the edge and the risks. Membership is free.

## Member research

Signed-in members read, on the page: what Aflac's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Aflac 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/4977/000162828026054618/ (2026-08-07)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-03 · as of 2026-11-03