Supplemental insurance provider Aflac (NYSE: AFL) missed Wall Street’s revenue expectations in Q1 CY2026, with sales falling 1.8% year on year to $4.24 billion. Its non-GAAP profit of $1.75 per share was 2.5% below analysts’ consensus estimates.

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StockStory’s Take

Aflac’s first quarter results fell short of Wall Street’s expectations, with both revenue and adjusted earnings per share missing consensus estimates. The market responded negatively, with shares declining after the announcement. Management highlighted strong sales momentum in Japan, particularly from new medical and cancer insurance products, but acknowledged ongoing challenges in maintaining earned premium growth. CEO Daniel Amos pointed to the company’s focus on persistency and distribution channel expansion as key operational themes, while CFO Max Broden discussed pressures from lapses and the impact of reinsurance transactions on near-term earnings.

Looking ahead, Aflac’s guidance is shaped by its ability to grow sales in both Japan and the U.S., while navigating persistency challenges and changes in customer mix. Management sees opportunity in expanding their reinsurance franchise in Japan and expects sales of core products to remain robust. However, CFO Max Broden cautioned that improving earned premium growth will require sustained sales momentum, stating, "We have a line of sight of getting to that level, but for the time being, we expect to remain in the range of negative 1% to 2% on underlying earned premium."

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to softer earned premiums in Japan, higher lapses, and near-term headwinds from a new external reinsurance transaction, while emphasizing ongoing product momentum and disciplined cost control.

• Japan product launches drive sales: Strong performance in Aflac Japan was fueled by new medical and cancer insurance products (Onsen Tallett and Miraito), with management noting a 25.5% increase in sales. However, this did not immediately translate into higher earned premiums due to persistency and lapses.
• Persistency and lapse dynamics: Persistency rates in Japan remained high but dipped slightly, while the mix of lapse and reissue activity shifted toward younger policies. Management explained that this trend has only a minor overall impact on long-term profitability, but acknowledged it can temporarily weigh on reported premium growth.
• U.S. group business momentum: In the United States, sales growth was led by group voluntary products, group life, and absence disability, with these segments up over 12% year-over-year. Core agent-driven business remained flat to slightly down, as Aflac continued investing in agent recruitment and onboarding.
• Expense management aids margins: Both Japan and the U.S. benefited from disciplined expense management, with Japan’s expense ratio improving year-over-year and the U.S. maintaining strong profitability despite higher amortization and advertising spend.
• Reinsurance strategy expands: Aflac executed its first third-party reinsurance deal in Japan, which management described as a strategic milestone. While the initial financial impact was minor, the company views this as a platform for future growth and diversification of earnings through additional reinsurance transactions.

Drivers of Future Performance

Aflac’s outlook is driven by product innovation, sales execution in Japan and the U.S., and selective expansion into reinsurance, but faces headwinds from persistency, premium growth challenges, and industry-wide cost pressures.

• Japan premium growth hurdles: Management expects continued strong sales of new products in Japan, but acknowledges that lapses and reissues will keep underlying earned premium growth flat to slightly negative until sales volumes rise further. Aflac is targeting at least JPY 80 billion in annual sales to offset lapsation effects and return to premium growth.
• U.S. segment growth and channel mix: Growth in group voluntary and employer-based products is expected to continue, while the traditional agent channel remains under pressure. Management is focused on boosting agent conversion rates and improving onboarding processes to support this segment.
• Reinsurance and capital deployment: The company plans to selectively pursue additional reinsurance blocks in Japan to diversify earnings and utilize excess capital. Management stated these deals are expected to be accretive over time, but short-term earnings impact may be negative or neutral as new blocks ramp up.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will closely monitor (1) whether new product launches in Japan continue to drive sales momentum and begin to improve underlying earned premium growth, (2) progress in revitalizing the U.S. agent channel and sustaining group business gains, and (3) the scale and profitability of further reinsurance transactions in Japan. Additionally, we will track how persistency trends and cost controls impact margins across segments.

Aflac currently trades at $112.74, down from $116.21 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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