Good day. And welcome to the Aflac Incorporated Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Please note this event is being recorded. I would now like to hand the call over to David Young, Vice President of Capital Markets. Please go ahead.

Good morning and welcome. Thank you for joining us for Aflac Incorporated's fourth quarter earnings call. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated, will provide an overview of our 2024 results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide an update on our fourth quarter and 2024 financial results, current capital and liquidity, as well as some color on our outlook for 2025. These topics are also addressed in the materials we posted with our earnings release and financial supplement on investors.aflac.com. In addition, Max provided his quarterly video update, which also includes information about the outlook for 2025. We also posted under financials on the same site updated slides of investment details related to our commercial real estate and middle market loans. For Q&A today, we are also joined by Virgil Miller, President of Aflac Incorporated and Aflac US, Charles Lake, Chairman and Representative Director, President of Aflac International, President and Representative 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. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discussed 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 is available on investors.aflac.com and includes reconciliations of certain non-US GAAP measures. I'll now hand the call over to Dan.

Thank you, David, and good morning, everyone. We are glad you joined us. Before Max provides a more detailed view of our financial results, I would like to reflect on what was another very good year. Aflac Incorporated delivered very strong earnings for the year with net earnings per diluted share up 23.8% to $9.63 and adjusted earnings per diluted share up 15.7% to $7.21. Aflac Japan represented more than 70% of pretax adjusted earnings and three-quarters of the company's consolidated balance sheet in 2024. Aflac Japan also generated a 15.5% increase in pretax adjusted earnings and a record 36% pretax profit margin in 2024. I am pleased with Aflac Japan's 93.4% premium persistency and 5.6% year-over-year sales increase, which included a 9% sales increase in the fourth quarter. By maintaining strong persistency and adding new premium through sales, we are partially offsetting the impact of reinsurance and policies reaching paid-up status. This will be integral to the future growth of Aflac Japan. Taking into account Japan's demographics, our product strategy is to fit the needs of customers throughout all stages of life. Acquiring younger customers is critical to our success. We believe Sumitos appeals to younger customers in Japan. Our strong sales in Japan reflect the success our agencies have had selling Sumitos. As the pioneer of cancer insurance and leading third-sector insurer, we also aim to sell the Sumitos policyholders a medical policy or cancer policy. Our last cancer insurance, Wings, was launched in stages in 2022. Therefore, we are planning a staged launch through our distribution channels of our new cancer insurance product between March and April. This new product includes our unique Uriso cancer consultation support service along with insurance coverage that offers enhanced protection before, during, and after cancer treatment. This product also features flexible…

Thank you for joining me as I provide a financial update on Aflac Incorporated's results for the fourth quarter of 2024. For the quarter, adjusted earnings per diluted share increased 24.8% year over year to $1.56, with a one-cent negative impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $43 million, reducing benefits. Variable investment income ran $17 million above our long-term return expectation. Adjusted book value per share excluding foreign currency remeasurement increased 3.2%. The adjusted ROE was 12% and 14.5% excluding FX remeasurement, an acceptable spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment, net earned premiums for the quarter declined 5.4%. This decline reflects a 7.2 billion yen negative impact from an internal cancer reinsurance transaction executed in the fourth quarter of 2024 and a 4.4 billion yen negative impact from paid-up policies. In addition, there's a 300 million yen positive impact from deferred profit liability. At the same time, policies in force declined 2.3%. Japan's total benefit ratio came in at 66.5% for the quarter, up 40 basis points year over year, and 62.5% for the year. The third sector benefits ratio was 56.9% for the quarter, up approximately 70 basis points year over year. We estimate the impact from remeasurement gains to be approximately 100 basis points favorable to the benefit ratio in Q4 2024. Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remains solid at 93.4%, which was unchanged year over year and in line with our expectations. Our expense ratio in Japan was 20.8% for the quarter, down 30 basis points year over year, driven primarily by a decline in…

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. We will now take the first question.

To ask a question, if you are using a speakerphone, please pick up your handset before entering the key. To withdraw your question, please press star then two. And our first question will come from Joel Hurwitz of Dooling and Partners. Please go ahead.

Hey. Good morning. One to start. On US sales, Virgil, can you just provide some more color on what you are seeing in the competitive environment that's impacting your sales? Is it specific products or specific areas of the market?

Hey. Thank you, Joel. Good morning. Yeah. Look, first, let me set the stage for going into the fourth quarter. We knew going through the fourth quarter, Joel, that we were up against one of the tougher comparisons with Q4. In Q4 of 2023, that was one of the largest sales quarters we have had in the history of Aflac. So we knew we had to have strong solid performance. The second thing I would say is that we also knew that we would stick to the underwriting discipline we have put forth in our group BB products. What that really means is that we are not going to be bringing business on board that does not fit our profit profile. Therefore, businesses that have high turnover, businesses that have low claims filing, we are not going to accept those because they are not good for the company longer term. The stronger underwriting just wants to help set us up for profitable business and profitable growth in the long-term vision that we have at Aflac. Then the third thing I would say is we knew that the market needs to respond to the improvements we have made with our dental and vision platform. I had disclosed in prior conversations that we had a failed system implementation that we were recovering from. I am very pleased with the recovery that we have seen, though. A partnership that we formed with one of the industry-leading third-party administrators out there has helped substantially move the needle on improvements. And we are open for business. We needed to get the brokers and our veteran agents to come back on board and really put that product back in the market as a very competitive product. And quite frankly, we did not get the response we needed. We saw a 33% decline in our dental sales for Q4. Along with the dental sales themselves, though, there's the impact that we call halo, which means that on a general census, we get additional voluntary benefit sales when we sell the dental product. Those are really the things that we add them up that impacted how we performed in that Q4. I would say, Joel, that I am disappointed with the softer sales, but I am very pleased with our overall performance. We did demonstrate solid financial management. If you heard from Max, you heard from Dan, they mentioned that pretax earnings were up 9.3%. Our margins were up 1.3%. Earned premiums up 2.7%. Persistency up 0.7% overall. Very pleased with that. That tells you though this management discipline of making sure that we are looking at proper business is generating the response that we need, reduced expenses by 3.1%. And then overall, we were able to give other additional value to all policyholders with an increased benefit ratio. Now we are watching that very closely. But very solid performance based on that discipline we put out there in the market.

Alright. Very helpful. Thank you. And then for my second one, just wanted to move to the 2025 outlook area that Max provided. So for Japan, you guided to the pretax margin to be at the low end of the range, which is below where I was, and I think most were. I think it's largely on net investment income and there's some misunderstanding on how the accounting works on the floating rate security hedges. Could you just provide more color on how the benefits from those hedges flow through earnings?

Yes. Thank you, Joel. So we obviously have a floating rate book in the Japan segment that is a little bit less than $9 billion of notional balance. Also at the corporate segment, we have a little bit over $4 billion of cash that is invested at the short end of the curve. That means that all these asset balances are very sensitive to SOFR. And that is both the one-month and the three-month SOFR that they reprice at. As we go into 2025, obviously, we had a rate cut in December, and there is an expectation about further rate cuts in 2025 when you look at the forward curves. When we just inject the forward curves onto our projected yields for 2025, that means that they are likely to be lower than what they were in 2024. So that is why our floating rate income is expected to be lower. As it relates to our interest rate swap, this is really a tail hedge swap that made sure that we protected our floating rate income from any significant declines in interest rates at the short end of the curve. That means that, obviously, we are at higher rates now than when this swap was entered into. That means that it is out of the money and somewhat ineffective at this point. And that's why you see the full brunt of any relatively even relatively small declines of interest rates at the short end immediately flows through and impacts our net investment income in 2025. Also, the mark-to-market component of the interest rate swap that falls below the line in the realized gains losses, i.e., outside of adjusted earnings but obviously included in our US GAAP earnings. I hope that's helpful.

It is. Thank you.

The next question comes from Jimmy Bhullar of JPMorgan. Please go ahead.

Hey. Good morning. So first, just had a question either for Dan or for Charles on Japan sales. You obviously grew at a strong pace this quarter. But if you look at where sales are versus where they used to be pre-pandemic, they're still fairly depressed. So just wondering what's changed in the market, and what's your optimism of being able to get to, in an absolute sense, the sales levels that you had before that'll allow you to potentially grow your in-force as opposed to report declining premium growth.

This is Yoshizumi from Aflac Japan. Pandemic public has recovered. So we do not see we see that it has recovered, and that is her. So we have been focusing on making a recovery in a solicitor's activity because during the two, three years of the COVID, the sales activities had been stagnant. So that has been a focus point, which is to make a recurring revenue. Let me answer. This is Yoshizumi. First of all, we have gone through this marketing and sales transformation starting January. This is to conduct integrated or end-to-end marketing activities based on the different brand group pipelines starting with medical, cancer, asset formation, and nursing care. And we will be continuously injecting our competitive product centered around our main products, cancer and medical insurance. And we plan to launch a new cancer insurance product in stages from March to April in order to respond to change in customer needs. And now with the launch of the new product Sumitasso, which was launched last June 2024, we have managed to expand our product lineup and now been able to approach a greater customer audience. And we will be executing measures in order to develop and enhance the potential of the solicitor or agent. With these efforts, we would like to recover our performance on the pre-COVID level. That's all.

And then maybe for Virgil, in the US business, I think there have been a couple of reasons that you've cited for sales being weak in 2024. One is just the dental DPA issues, and then secondly, competition in and margins in supplemental products or in the voluntary market. I'm assuming that the competition and market issue is something that's not going to change, but and if that is the case, assuming that that'll be an ongoing headwind to your sales, but then on the dental rollout, should is that starting to get to normal, or is that more of a 2026 event?

No. I thank you for the question. We absolutely want everyone listening to know we're open for business. We've invested time, resources, and dollars to make sure we got a strong platform. We went through a very diligent process to get the right partner who is an industry-leading partner to make sure that we're prepared to deliver on the customer experience that we need. So we are confident in our dental platform the way we have it now. The concern though is making sure that the brokers and the agents are back in market with it and that they're on board to sell it. I expected to see a stronger return for them in the fourth quarter, but I'm looking forward to see how we deliver on that this year. We're out meeting with them. We'll let them know about how the process works. We're energetic to say come back and sell the product. I would also say, though, what's going well for us is you look at the investments we made in our life and assets disability platform, we term as PLAT. We exceeded our sales expectations there. We are strong in that large case market now. Very competitive against some very known brands that have been in that space for a long time. Our disability products are competitive. Have a world-class absence management discipline. Where we're doing it for, you know, one state in particular, and we're delivering well on that. And then we are also selling our what we would call our paid-up life or employee life product. We also invested in a direct-to-consumer flat as consumer markets. We draw a better than expected sales year there. So those are the things that are going well. We get our dental platform back in line this year, and I expect it to demonstrate an increase.

And this is Dan. I am encouraged about what I'm seeing. Virgil talked to me early on in the first quarter and said, you know, there's some ways we can make this sales number. And do you know, I but I've got to push some areas. And I said, don't push lower profits for the sake of making the sale now. That's the wrong way. I want to look at earned premium. I want to look at what's going on. And I think our model for the future is much stronger to date than it was a year ago, especially on the dental and vision side. And we are expecting that to come through for the full year.

Okay. Thank you.

The next question comes from Mike Ward of UBS. Please go ahead.

Thank you. Good morning. I was just wondering just on the contribution to the Japan sales growth from Sumikasu seems like a primary driver of the growth. I guess, is it how fair is it to assume that we might be relying on first sector sales maybe more heavily than we previously thought in order to reach the Japan sales targets?

To begin with, we do not announce or disclose the sales percentage or contribution. However, Aflac is a company centered around the third sector insurance product. And the main way to conduct our sales activity today is to also offer medical or cancer insurance whenever the product Sumitasso is being offered. Although we didn't show that Sumitasso will make a certain contribution to our first sector performance, our goal is to grow our third sector performance. And last year, right after the launch of this, we have enjoyed significant growth in sales. And we expect sales to settle compared to 2024. However, we believe the product will continue to generate solid results. And Sumitasso is unlike the traditional product features in the first sector product. It is developed to respond to the needs of the younger generation who are looking to accumulate their assets. Another nature of this product is that in addition to the asset formation nature, it also carries a nursing care feature. And another characteristic is that after the policy premiums are paid up, they can convert it to medical insurance or other types of insurance. And it also carries a strategic objective, which is to expand our customer base by capturing the younger generation and through concurrently offering this product together with a third sector product. So this is a very unique product. That's all.

Thank you. I just wanted to add a few comments as well, Mike. We do not have a sales cap on our Sumitomo sales. And the reason why is that number one, we do believe that we get very good profitability out of this product. This is both on a GAAP basis but also on an IRR basis post-reinsurance. And what it means is that we also now have a very good hook product that ultimately will drive higher third sector sales as well. So we definitely see ourselves as a third sector company but this is an additional product that will help grow both our first sector business and the third sector business while also giving another tool to our distribution to sell more and make more commissions. Now I do want to say that the reason why now is because interest rates are higher in yen terms. But more importantly, we have built reinsurance expertise in and around the company which means that we can now conduct these operations and get the better capital efficiency associated with these products so we can really make them work.

And I will add that I have been so impressed with the job that Koichiro and his team have done in monitoring this through the guidance of Max, and what and Steve Bieber and what we've done to watch this. And every Sunday night, I get a report when we have our call on what is taking place and how interest rates are going, and where the lines are and our actuarial department is on it. And it's just I think you'd be proud if you saw the inner workings of what has taken place over the last couple of years with reinsurance. It shows that we're a company that's evolving over time. And just getting stronger in what we're doing and having better financial controls over the things that are taking place.

The next question comes from Wes Carmichael of Autonomous Research. Please go ahead.

Hey. Good morning. My first question, just on remeasurement gains losses. It appears that the gains benefit has been flowing, which is, you know, perhaps not surprisingly given a pretty sizable unlocking in the third quarter. But when you look at trends going forward, would you expect that to continue, Max, or should that be relatively muted?

We obviously have experienced very significant remeasurement gains and also favorable gains from the unlock of our actuarial assumptions in the US in 2023 and in Japan in 2024. As it relates to our assumptions going forward, we do feel that we obviously have realistic and very good assumptions that by definition, otherwise, we would have to change it. This is something that we look at every quarter. But we and if something material were to change, we will unlock assumptions but our deep dive study occurs in the third quarter of every year. Each quarter, though, there are remeasurement gains, losses, that are coming through our results as we true up for the experience in that quarter. And that has continued to be favorable as we have come out of the pandemic. That being said, I do want to be a little bit cautious as we are seeing higher claims come through, especially on products, for example, in the US on our accident and our hospital product and to some extent also cancer. And that means that our remeasurement gains may not be as strong going forward as they have been in the past. But generally speaking, we are a company that takes a cautious approach to our underwriting to make sure that we get good results. And I think that the remeasurement gains that you have seen is a testament to the underwriting decisions that a company has taken in the past.

Thank you. And my follow-up, I guess, in the press release, Dan, you mentioned efforts on reengaging agents in the US. Can you just talk about the recruiting environment in the US? Are you seeing progress there, or is that kind of slowed?

Hey. Good morning. This is Virgil. Let me give you a color on that. I mentioned last year, so we're in a new regime out here. So definitely, there's a lot of competition. There are things like, you know, the economy that would impact recruitings from time to time. But all in all, I'm sticking to the point that we're going to always be around the ten thousand mark with our recruiting. We've demonstrated that now back to back. Although it's a little bit down from the year over year, we're still right around that ten thousand mark. Here's what I would say is that the core strength of our Aflac has always been our distribution. When you think about that, we will continue to go out, recruit agents, convert them, make the field force strong and dominant in that small market. I've added some new levels of leadership where we continue that focus. Our compensation plans are built around recruitment, and conversion to average week of producer and opening new small accounts. We continue to be strong doing our partnership with brokers in the mid-market and as I mentioned earlier, very strong in the upper case market now with the relationships we formed in our life and as the disability discipline. So we've got the market covered when it comes to distribution. I expect to recruit another ten thousand, around ten thousand this year. And continue to invest in what we're doing in that field force.

Thank you.

The next question comes from Elyse Greenspan of Wells Fargo. Please go ahead.

Hi. Thanks. Good morning. I guess my first one's on capital. You know, buyback picked up $750 million the quarter. You know, you guys obviously have pretty healthy capital positions in both the US and Japan. Does that $750 million, you know, feel like a good run rate level, or, you know, how should we think about share repurchase in 2025?

Thank you, Elyse. Your observation is correct that we obviously have a very healthy capital position around the company. And together with that, we also have a very good free cash flow generation overall as well, and that is what gives us the opportunity to reinvest into our operations and to redeploy capital back to our shareholders as well. We are very IRR driven, and as of right now, I would say that we get by far the best IRR on selling another policy. So as it relates to capital, that is the number one area. There are capital is going to. So we're looking for areas to grow our business organically. On top of that, we obviously have increased our dividends quite significantly over the last five years where we almost doubled our dividend per share. And on top of that, we want to be opportunistic and tactical in the way we redeploy capital back to shareholders through share repurchase. We stepped that up a little bit in the fourth quarter by $750 million, which I believe is the most that we've done in a single quarter. So that's a meaningful return back to shareholders. But going forward, we will continue to obviously evaluate all the opportunities that we have and make sure that we get good IRRs on all the deployments that we do.

Thanks. And then my second question, you know, I believe there was, you know, a data sharing issue with Japan Post. Not related to Aflac, I believe. Right? But in general, you could just comment on that. And then did that have any impact on your sales in the fourth quarter? Would you expect there to be an impact in 2025?

This is speaking from Aflac Japan. First of all, let me be clear, there were no issues with the sales of Aflac Japan's cancer insurance upon this incident. And given its past experience, Japan Post is taking a conservative approach to addressing this matter. The Japan Post Group is committed to selling your products and for our standard practice, Aflac Japan is in close communication with Japan Post Group at all levels of the organization. We'll continue to work closely with Japan Post Group in support of its sales of Aflac Cancer Insurance.

Thank you.

The next question comes from John Barnidge of Piper Sandler. Please go ahead.

Good morning. Thank you for the opportunity. Virgil, in your comments, you talked about a failed implementation that was corrected. And how much of the market was dental and vision not present?

Hey, John. Great to hear from you. Ask me that question one more time. I didn't catch the last part, please.

So, yeah, you talked about a failed implementation that was corrected. And how much of the market was dental and vision not present as a result of the failed implementation?

Oh, no. I have it. Thanks, John. Yeah. We were available, John. So I would tell you this, though, that we had some service degradation earlier in the year. That definitely impacts the perception of trust. And making sure that the brokers and the agents will come back and sell it. So during the fourth quarter, we were open for business and ready to go. We have tested all of our processes. We work with a partner who has a strong reputation and who's doing a good job with Aflac. Our network of dentists is one of the largest out in the industry. We do a rented network, and we also have a proprietary network, both to offer. What I would say to you though is that in this business where agents and brokers have a choice of business, we have to earn trust. That's what we're focused on, getting back that trust and demonstrating that the processes work. So if you look again, just to mention, in Q4, sales from the prior year were down 33%. Now although they don't make up a large part of our overall sales right now, I would say to you though that we get additional voluntary benefits alongside. So it's not just impacting dental, it also has this halo effect where you're not bringing other business that you normally would have. Seeing progress here, as we look into January. We're regaining some confidence. We are going around to all of our broker partners, and we put all types of messages out, demonstrating confidence to our agents. And I'm looking forward to seeing them come back and sell the product. It is a competitive product. We spend a lot of time developing it, I think it's good for all consumers out there to give it a try.

Thank you for that. And my follow-up question is remains on distribution. Ahead of the anticipated new cancer product launch. Should we expect more modest sales in the near term for that?

Hi. Yoshizumi speaking. This new cancer insurance will be launched in March 2025. And we're expecting this to be a big driver. And we have been introducing innovative cancer insurance to the market this past year. But this time, in addition to the insurance coverage, we'll be integrating our Aflac Yodizel Cancer Consultation Support, which is our unique concierge service into the coverage. And I would like to mention three characteristics. It carries a very rich and simple coverage structure. And not only during the treatment, but there will be a coverage will be enhanced before and after the treatment. And we have changed the payment conditions for the benefit to be more easy to understand. The next major is the fact that it has a very flexible coverage design that allows combining the existing policies and other products. And we have also newly established a child plan with lower premiums to support pediatric cancer patient families whose economic burden tends to be high with longer treatment periods. And we expect to see a big increase in performance by introducing this product to various channels in stages.

Let me add one thing that I think is part of your question is that anytime we introduce a new product or revised product, we'll call it, there's a little dip in sales waiting for the new product and then the product should take off with the excitement of it being introduced throughout the country. So I just want to be clear on that. You can see a little dip and then strong growth.

Thank you.

The next question comes from Wilma Burdis of Raymond James. Please go ahead.

Hey. Good morning. First question, could you talk a little bit about any change in your thinking regarding the 10% reinsurance of the Japan block to Bermuda? And also just maybe touch on how you would reevaluate that, if at all. Thanks.

Thank you, Wilma. So we currently have no change in our thinking. To date, we have seeded roughly 6% of our asset base of Aflac Japan to Bermuda. And so we have significant capacity as it relates to our internal cap of 10%. I want to stress that this is not an external cap, but it's an internal cap. And I think it's good risk management practice to have these kinds of caps in place because it means that we now have an opportunity to evaluate what we have done. And once we get closer to that 10%, then, obviously, all legal entities involved will make their own evaluation of if it makes sense to then move forward and increase that level for reasons where it may make sense for that legal entity. That applies to Aflac Bermuda, that applies to Aflac Japan, and obviously to Aflac Inc, as well. To date, we are very pleased with the outcomes of our reinsurance operations both in how they are being conducted, but also the overall outcome of it as it relates to improved balance sheet efficiency. And as you can see, improved return on equity overall for the group. And in fact, it has also reduced the risk of our Aflac Japan operations as well. So overall, we're quite pleased with where we are. And as we get closer to that 10% level, we will reassess.

Thank you. And then, are there any dynamics of the weaker yen that could impact Aflac's operations or results aside from, I guess, the repatriation impacts? Thank you.

So, Wilma, the yen-dollar exchange rate does have an impact on our GAAP financials. As you know, we do not hedge our GAAP financials. So as you translate our yen-denominated earnings into US dollars, it does have an impact. And you obviously have seen that, especially over the last three years when you have experienced a significant depreciation of the yen versus the dollar. That being said, we do believe and we have the philosophy that we protect the economic value of Aflac Japan through an enterprise hedging program, and this is, as you know, three components to it. Where we hold US dollar assets on the Aflac Japan balance sheet, it is us at Aflac Inc. We are borrowing in yen and we also have an overlay of FX forwards at the holding company as well. And you add that up, and we believe that gives us very good protection on an economic basis to any moves, both small and significant, to the yen-dollar rate.

Okay. Thank you.

The next question comes from Tom Gallagher of Evercore ISI. Please go ahead.

Morning. Max, how much of the Japan margin coming in at the low end of the guide is floating rate impact on NII and how much of it is more limited benefit ratio improvement? If you can unpack that.

I would say that the vast majority of it is obviously driven by net investment income. And I'll let Brad comment a little bit on that because, obviously, we're coming off a very good base here in 2024. That being said, when you think about the components of the benefit ratio, I would expect that over the forecast period at 2025 to 2027, that as we travel through that forecast period, the benefit ratio, all things being equal, we would expect to decline. Yeah. So it will start at the high end of the range and end at the lower end of the range. And the reason for that is that as our in-force mix is changing and it's each year tilting a little bit more towards third sector and a little bit less towards first sector, that means that the third sector lower benefit ratio business makes up a bigger component. So the mix impact of that is going to push us from the higher end of the benefit ratio range towards the lower end of the benefit ratio range. But it also means that from a pretax margin standpoint, it means that we expect to travel throughout the forecast period starting at the lower end of the range and then travel higher towards the higher end of the range throughout the forecast period. But I'll let Brad give some more color on net investment income as we go into 2025.

Yeah, Tom. You're right that we are definitely facing some headwinds with the floating rate portfolio. As discussed, this is driven by the decrease in short rates, the 100 basis points decline we saw last year in SOFR. It does hit our $9 billion floating rate portfolio, but it also impacts our cash holdings and other short-term opportunities that we can see throughout the year, which we were able to take advantage of in 2024. But we also had a couple of one-off items that had a strong contribution last year. That we're facing this year. One was a rather large make-whole. And then we were also able to accelerate deployment in certain asset classes that had very attractive spreads earlier in the year. So there's a variety of things that contributed to a very strong 2024 that puts us up against some very difficult comps for 2025 that is the source of that headwind.

Gotcha. And then just for a follow-up around looking at your capital position in Japan, it looks like you have about $4 billion of excess under the new ESR framework anyway. Would you anticipate getting an extraordinary dividend out of that entity? And any updated thoughts on what you might do with that much level of excess? I guess it's a high-class problem, but still, you know, without robust growth opportunities, I can't imagine it makes a lot of economic sense to leave that much excess in Japan.

So, Tom, I would characterize it. Our capital position in Japan is very strong. We are still going through the transition of the capital regime framework from SMR to ESR. And while ESR has not formally been implemented yet, I think it would not be very smart to go and try to right-size your capital base on a future capital regime basis. So step one is we would expect to certainly wait and fully evaluate this until after the ESR has been implemented. And as you know, that is at the end of the first quarter of 2026. So that means that over time, we would expect to be in the target operating range of 170% to 230%. But for the time being, I would not expect any special dividend in the near term.

Okay. Thanks.

The next question comes from Josh Shanker of Bank of America. Please go ahead.

Yeah. Thanks for fitting in. I guess this is for Virgil. I was wondering with the elevated expense ratio in Aflac US, how long do you expect the investments in the work you're doing to accelerate growth to weigh on the expense ratio?

Yeah. Hi. Thanks, Josh. I would say, you know, we started to bend that curve. You know, we had one time been up to around 41% with the expense ratio. This year, we came in around 38.5%, I think, to be exact. So very, very pleased with that performance that we are bending it. And that is why we're still, as you pointed out, investing in the buy the bills. The key is to get these buy the bills to scale. And we are experiencing solid better than expected growth on the PLAS platform, better than expected growth on the consumer markets platform. And like I said, it sounds like I'm a broken record, but we've got to turn the curve with the dental vision platform. We're doing all the right things to get that done. If we do that right, that will help not only contribute to the expense ratio by bringing in additional new sales revenue that we need to offset that expense ratio, but we will continue to do strong, though, disciplined expense management. I expect the curve to come down even further this year in 2025.

Are you know, if we think out more long term, you know, 2026, 2027, are we thinking it's on the margin or this is several hundred basis points?

Yeah. So I would tell you that we would at FAL, we put forth a range on the margin between 17 and 20%. We're going to stay within our range because we're going to make sure that our disciplined expense management hits those marks. If you look at 2025, 2026, and 2027, I am showing a decrease though in expense margin in expense ratio incrementally year over year over year.

Okay. Thank you very much.

I think the important factor to get from this sales part of dental and vision is we got it right in the we want that distance. We just didn't execute to the level we needed to. And made a mistake, and I've got that now on target. And we've just got an outcome through with it. So we can achieve and will achieve.

Appreciate it. Appreciate it. Thank you.

The next question comes from Alex Scott of Barclays. Please go ahead.

Hey. Good morning. First question I had is just on the competitive environment a bit. And going back to some of the comments you all made around sales and, you know, you remain disciplined, like, you know, you could've shown better sales, but you're remaining disciplined. And I just want to dig into that a bit. I mean, when I think about, like, the signpost that I look at, I mean, it seems like well, reinsurance to Bermuda. The new money yields were in excess of 9% in the US and 8% in Japan. So I'm just trying to understand, you know, you're pulling are you getting those targeted IRRs because of some of the leverage or, you know, do you still feel like there's the same opportunity here that you've had in the past?

Let me address our life insurance business in Japan in particular because I think that's what you're really driving at. Obviously, higher yields matter, especially in yen terms as we sell yen-denominated products. But it's really the new business strain associated with these products and high reserving levels still puts the IRRs under significant pressure. But if you look at it on a post-reinsurance basis, we get very, very good IRRs, and that's why we feel very confident selling both our waste and our consummator product into the marketplace.

Okay. And maybe as a follow-up, I mean, one of the themes we've seen in group benefits this quarter from some of the peers is there seems to be sort of a have versus have-nots in terms of, like, capabilities on the platform and, you know, having that translate to sales growth being favorable or less favorable. And I guess I just pose the question to you. I mean, how do you feel about the capabilities in your group benefits platform, the scale? Do you have what you need? Is there more that you could go out and acquire whether inorganically or things that you may need to invest in?

I would say this is, Virgil. I would say this that when we acquired the life and disability business, we had invested to make sure we've got the right platform for that business line. I'm very technical on this, meaning that we have the right technology. We have the right resources, the talent to scale. On our group BB, we've made significant investments over the years to get the same with talent, with technology. And then we're doing that. We just did the same with our dental platform. Where I'm going with this is we have put forth what I would call a market segmentation strategy. We've got the right products for each segment. We've got the right distribution for each segment. What we're investing in right now is the ability to bring those things together so we're able to be more competitive with the ability to bundle and to present one unique experience to the market. Each platform stands strong independently. The talent stands strong independently. The product stands strong independently. Our core strategy will be bringing those things together. So there will be little additional investment to do that over the next couple of years. We're currently doing it right now. We respond to RFPs in the market as one Aflac, and we're going to really demonstrate the ability to be best in class with the technology and the discipline to have those things fit together going forward.

Got it. Thank you.

The next question comes from Jack Matting of BMO Capital Markets. Please go ahead.

Hi. Good morning. Most might have answered, but maybe just one on commercial real estate. Could you just talk a little bit more about trends in that market and how you expect things to develop on Aflac's portfolio in 2025?

Sure. Thank you, Jack, for the question. As you're undoubtedly aware, the market remains pretty difficult. It does seem that we may have hit the bottom, but we're very slow to recover. We'll continue working through our portfolio. Our preference is to work with borrowers to find a solution, but if the best way to protect our interest is to foreclose, we've demonstrated we're willing to do that to maximize our recoveries. We do expect this to be a long recovery. We have seen some early signs that things are moving the right way, but it's very early and values remain still quite depressed. At this point, we expect 2025 to largely play out much like 2024. We'll continue working through our watch list. We will manage our REO portfolio to maximize our long-term returns. We expect it is going to take quite some time for this recovery to happen. But that's our general outlook at this point. We do think it's going to be one that's going to take time to work through.

Thank you. And then, just a quick follow-up on the Japan sales outlook. I guess other than the major kind of cancer product launch you have coming in a couple of months, are there any kind of other launches or refreshes that you have planned this year that could impact the cadence of sales in 2025?

Yes. As for the new product, we'll be launching the new cancer insurance in stages from March to April. And for the medical insurance, we have rebranded and improved the service last August. And we have also been strengthening our sales with a new plan targeting the middle-aged and older customers that was launched in September 2024. And we'll be able to provide one more strengthened promotion through our end-to-end structure, and that has been developed recently. And this structure is developed by each brand. In terms of the parameters, in comparison to the sales volume of 2024, this year will settle down. However, we believe that this will continue to generate solid results. With regards to the channel, we started an effort two years ago to enhance and increase other agents. And in 2023, we have hired approximately 600 agents. And they have made a great deal of contribution to our activities last year in 2024. But we have succeeded in hiring much more than 600 people in 2024. And we expect these new agents to be more active in 2025. As I said earlier, we will be utilizing the first sector product as a hook to expand the third sector business, actually. And such training is being implemented and strengthened. That's all.

Thank you.

This concludes our question and answer session. I'd like to turn the call back over to David Young for any closing remarks.

Thank you, Andrea, and thank you all for joining us on today's call. We appreciate your interest in Aflac Incorporated and look forward to hearing from you and seeing you soon. Have a good day.

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