Aflac delivered a bifurcated Q2 FY2026 print (the three months ended June 30, 2026): a 9.3% weaker average yen, sharply higher GAAP net earnings, and a quietly shrinking share count that carried the bottom line. The most recent print, dated August 6, 2026, reported total revenues of $4.1 billion, down 1.0% year over year, and net earnings of $825 million, or $1.63 per diluted share, up 37.7% on a GAAP basis because the prior-year quarter was inflated by $421 million of net investment losses. Adjusted earnings, which strip out the swingy investment-line items, fell 7.7% to $883 million, or $1.75 per diluted share, with management attributing $0.05 of that decline to currency translation. Our interpretation is that the underlying Japanese franchise is in better shape than the headline decline suggests, because yen-neutral (a constant-currency comparison that holds the yen/dollar rate at the prior year's level) adjusted earnings were down only 4.9% and yen-neutral adjusted EPS was actually up 1.1%.
The single load-bearing risk is the yen itself. The average rate fell to 159.45 in Q2 FY2026 from 144.60 a year earlier, and management disclosed that a new yen-based external reinsurance transaction covering WAYS and Tsumitasu products added to the dollar revenue compression in Japan, where net earned premiums fell 12.7% in dollars but only 3.7% in yen. The market is, in our view, pricing AFL as a Japan-proxy trade and under-discounting the U.S. business, where pretax adjusted earnings of $370 million came in 4.6% below prior year on a 220 basis-point deterioration in the benefit ratio, the share of premiums absorbed by claims payments. The falsifiable clock is the Q3 FY2026 print, due in early November, where the headline we watch is whether U.S. pretax adjusted earnings margin recovers above 21% and whether yen-neutral Japan premium growth flips positive.
A separate non-financial event matters: on June 30, 2026, Aflac Japan disclosed a cybersecurity incident detected June 25, 2026, where an unauthorized third party accessed certain Aflac Japan systems (no ransomware; U.S. systems unaffected; potential loss not estimable). This adds a tail-risk overlay to the equity but, on the available information, does not appear to threaten the insurance franchise. We see the share repurchase pace of $1.98 billion in the first half of 2026, with 96.8 million shares remaining on the August 2025 100 million share authorization, as the load-bearing capital-return story that the market is, in our reading, mispricing as a slow grind rather than the 4.5%-of-float-per-year compounding machine it actually is.