Aflac (AFL)

Supplemental insurance provider Aflac (NYSE:AFL) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 10.6% year on year to $4.74 billion. Its non-GAAP profit of $2.49 per share was 40.2% above analysts’ consensus estimates.

Company Overview

Known for its iconic duck mascot that has quacked "Aflac!" in commercials since 2000, Aflac (NYSE:AFL) provides supplemental health and life insurance policies that pay cash benefits directly to policyholders for expenses not covered by their primary insurance.

Life insurance companies collect premiums from policyholders in exchange for providing a future death benefit or retirement income stream. Interest rates matter for the sector (and make it cyclical), with higher rates allowing insurers to reinvest their fixed-income portfolios at more attractive yields and vice versa. Additionally, favorable demographic shifts, such as an aging population, are driving strong demand for retirement products while AI and data analytics offer significant opportunities to improve underwriting accuracy and operational efficiency. Conversely, the industry faces headwinds from persistent competition from agile insurtechs that threaten traditional distribution models.

Aflac's competitors in the supplemental insurance market include MetLife (NYSE:MET), Unum Group (NYSE:UNM), Colonial Life (a subsidiary of Unum), and Allstate (NYSE:ALL). In Japan, Aflac competes with domestic insurers like Nippon Life Insurance Company and Dai-ichi Life Holdings (TYO:8750).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Over the last five years, Aflac’s demand was weak and its revenue declined by 4.2% per year. This wasn’t a great result and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Aflac’s revenue over the last two years was flat, sugggesting its demand was weak but stabilized after its initial drop. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Aflac reported year-on-year revenue growth of 10.6%, and its $4.74 billion of revenue exceeded Wall Street’s estimates by 6.6%.

Net premiums earned made up 79.8% of the company’s total revenue during the last five years, meaning insurance operations are Aflac’s largest source of revenue.

Markets consistently prioritize net premiums earned growth over investment and fee income, recognizing its superior quality as a core indicator of the company’s underwriting success and market penetration.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are:

• Gross premiums - what’s ceded to reinsurers as a risk mitigation and transfer strategy

Aflac’s net premiums earned has declined by 6% annually over the last five years, much worse than the broader insurance industry. This shows that policy underwriting underperformed its other business lines.

When analyzing Aflac’s net premiums earned over the last two years, we can see that income dropped by 2.8% annually. Since two-year net premiums earned underperformed total revenue over this period, it’s implied that insurance policies were a detractor of consolidated growth.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

The economics of insurers are driven by their balance sheets, where assets (investing the float + premiums receivable) and liabilities (claims to pay) define the fundamentals. Interest income and expense should therefore be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last four years, Aflac’s pre-tax profit margin has fallen by 4.4 percentage points, going from 24.1% to 28.5%. However, the company gave back some of its expense savings as its pre-tax profit margin declined by 2.3 percentage points on a two-year basis.

In Q3, Aflac’s pre-tax profit margin was 42.1%. This result was 39.9 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Aflac’s EPS grew at an unimpressive 8.8% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.2% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Aflac, its two-year annual EPS growth of 9.4% is similar to its five-year trend, implying stable earnings.

In Q3, Aflac reported adjusted EPS of $2.49, up from $2.16 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Aflac’s full-year EPS of $7.49 to shrink by 3.5%.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float–premiums collected but not yet paid out–are invested, creating an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Aflac’s BVPS grew at a sluggish 3.4% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 18.9% annually over the last two years from $38.63 to $54.57 per share.

Over the next 12 months, Consensus estimates call for Aflac’s BVPS to shrink by 1.9% to $50.55, a sour projection.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Aflac currently has $8.69 billion of debt and $28.69 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of negative 9.7×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Aflac has averaged an ROE of 17.1%, excellent for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This is a bright spot for Aflac.

We were impressed by how significantly Aflac blew past analysts’ book value per share expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $108.81 immediately following the results.

Updated: December 4, 2025 at 11:24 PM EST

Before making an investment decision, investors should account for Aflac’s business fundamentals and valuation in addition to what happened in the latest quarter.

Aflac isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue has declined over the last five years. And while its improving combined ratio shows the business has become more productive, the downside is its estimated sales for the next 12 months are weak. On top of that, its projected EPS for the next year is lacking.

Aflac’s P/B ratio based on the next 12 months is 2x. This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $111.08 on the company (compared to the current share price of $109.23).