Aflac Inc (AFL)

How it makes money

Aflac earns most of its revenue from net earned insurance premiums, supplemented by net investment income on the large fixed-income portfolios it holds against policy liabilities (particularly in Japan, where yen-denominated Japan Government Bonds dominate); a smaller residual comes from other income. Individual policies are guaranteed-renewable and typically paid for by policyholders themselves, often via payroll deduction in the U.S. worksite channel, so revenue depends on renewal premiums from a large in-force policy book rather than one-off sales.

Revenue by segment

Aflac has been Japan's number one cancer insurer since pioneering the category in 1974, and it attributes its continued leadership to a well-known brand (built around the Aflac Duck), an extensive multi-channel distribution network (its own agencies plus alliances with Dai-ichi Life, Japan Post Group, Daido Life and roughly 358 banks), and low-cost operations. In the U.S. it leans on worksite distribution and brand recognition rather than on price. The company itself notes that competition intensified after Japan's 2001 insurance-market deregulation and that large medical carriers are pushing into supplemental products, so the advantage looks durable but not unassailable.

In Japan, an aging population and rising out-of-pocket costs under the national health system are structural tailwinds for cancer and medical insurance demand. In the U.S., new sales are seasonal (a large share close in the fourth quarter around employer open enrollment) and track hiring and employment levels, since Aflac's discretionary, worksite-sold products are among the first things employees and employers may cut or fail to renew in a weaker economy or during high job turnover.

Key risks

• Concentration of business in Japan — Aflac Japan generated 53% of the company's total adjusted revenues in 2025 (down from 55% in 2024 and 60% in 2023) and held 76% of total assets, so any deterioration in Japan's economy, credit quality or market access would disproportionately hit the whole company.
• Yen/dollar exchange-rate exposure — Because Aflac Japan's functional currency is the yen while it also holds U.S. dollar-denominated investments (partly unhedged by design), fluctuations in the yen/dollar rate directly move reported results, equity and regulatory capital, and changes in U.S.-Japan interest-rate differentials raise the cost of the hedging program.
• Interest-rate risk — Persistently low rates in Japan reduce investment income and pressure product pricing, while rising rates hurt the fair value of the fixed-maturity portfolio and can trigger policy surrenders; the company says its hedging programs are not designed to fully offset these effects.
• Dependence on sales associates, brokers and distribution allies — Sales rely on independent, non-exclusive agents and brokers in the U.S. and on distribution partners in Japan such as Japan Post Group, which the company says has accounted for a significant portion of Aflac Japan's total sales in recent periods; these partners can also sell competitors' products.
• Reserve and pricing assumption risk — Premiums and reserves are set using judgmental assumptions about claim incidence, lapse rates and medical trends; if actual experience differs, reserves may prove inadequate and results would be hit.
• Cybersecurity and IT system risk — The company depends on ageing technology systems and disclosed a June 2025 cyber incident in which personal information of a substantial number of U.S. customers, beneficiaries, employees and agents was exfiltrated; it warns future breaches may not be prevented or fully mitigated.

Aflac sells to millions of individual policyholders in Japan and the U.S., so there is no meaningful concentration among end customers. The real concentration sits upstream in distribution: banks represented 3.3% of Aflac Japan's new annualized premium sales in 2025, and the filing states that Japan Post Group has accounted for a significant, but unquantified, portion of Aflac Japan's total sales in recent periods.