Max K. Broden
Executive Vice President; Chief Financial Officer at Aflac
Thank you, Dan, and thank you for joining me as I provide a financial update on Aflac Incorporated results for the second quarter of 2024. For the quarter, adjusted earnings per diluted share increased 15.8% year-over-year to $1.83 with a $0.07 negative impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $51 million and variable investment income ran $1 million above our long-term return expectations. We also received a make-whole payment, adding approximately $20 million or $0.03 per share to our adjusted earnings. Adjusted book value per share, including foreign currency translation gains and losses, increased 9.4% and the adjusted ROE was 14.3%, 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 5.7%. This decline reflects a JPY7.4 billion negative impact from internal reinsurance transaction executed in the fourth quarter of 2023, and the JPY4.8 billion negative impact from paid-up policies. In addition, there is a JPY1.2 billion positive impact from deferred profit liability. Lapses were somewhat elevated, but within our expectations. At the same time, policies in force declined 2.4%. Japan's total benefit ratio came in at 66.9% for the quarter, up 120 basis points year-over-year, and the third sector benefit ratio was 57.8%, up approximately 160 basis points year-over-year. We estimate the impact from remeasurement gains to be 140 basis points favorable to the benefit ratio in Q2 2024.
Long-term experience trends as it relates to treatment of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid with a rate of 93.3%, which was down 50 basis points year-over-year. This change in persistency is in line with our expectations. Our expense ratio in Japan was 17.8%, down 170 basis points year-over-year, driven primarily by the expense allowance from reinsurance transactions and continued disciplined expense management. Adjusted net investment income in yen terms was up 28.4%, mainly by favorable impact from FX on U.S. dollar investments in yen terms, lower hedge costs, higher return on our alternatives portfolio compared to second quarter of 2023 and call income. The pretax margin for Japan in the quarter was 35.3%, up 490 basis points year-over-year, a very good result.
Turning to U.S. results. Net earned premium was up 2.1%. Persistency increased 50 basis points year-over-year to 78.7%. We're encouraged by early signs from our persistency efforts and will remain focused on driving profitable growth. Our total benefit ratio came in at 46.7%, 140 basis points higher than Q2 2023, driven by product mix and lower remeasurement gains than a year ago. We estimate that remeasurement gains impacted the benefit ratio by 170 basis points in the quarter. Claims utilization has rebounded from depressed levels during the pandemic and are now more in line with our long-term expectations. Our expense ratio in the U.S. was 36.9%, down 210 basis points year-over-year, primarily driven by platforms improving scale and stronger expense management. We tend to benefit from seasonality in the first half and would expect higher expenses in the second half.
Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer increased our total expense ratio by 230 basis points. This is in line with our expectation, and we'd expect this impact to decrease going forward as these businesses grow to scale and improve their profitability. Adjusted net investment income in the U.S. was up 7.4%, mainly driven by higher yields on both our alternatives and fixed rate portfolios. Profitability in the U.S. segment was solid with a pretax margin of 22.7%, also a very good result. Our total commercial real estate loan watch list stands at approximately $1 billion, with less than $300 million in process of foreclosure currently. As a result of these current loan valuation marks, we increased our CECL reserves associated with these loans by $14 million in this quarter net of charge-offs.
We had six loan foreclosures and moved nine properties into real estate owned. We continue to believe that the current distressed market does not reflect the true intrinsic economic value of our portfolio, which is why we're confident in our ability to take ownership of these assets, manage them through this cycle and maximize our recoveries. Our portfolio of first lien senior secured middle market loans continue to perform well, with losses below our expectations for this point in the cycle.
In our corporate segment, we recorded a pretax gain of $23 million. Adjusted net investment income was $39 million higher than last year, due to lower volume of tax credit investments at Aflac Inc. and higher volume of investable assets at Aflac REIT. These tax credit investments impacted a corporate net investment income line for U.S. GAAP purposes negatively by $30 million, with an associated credit to the tax line. The net impact to our bottom line was a positive $4 million in the quarter. To date, these investments are performing well and in line with the expectations.
We're continuing to build out our reinsurance platform, and I'm pleased with the outcome and performance. Our capital position remains strong, and we ended the quarter with an SMR above 1,100% in Japan. And our combined RBC while not finalized, we estimate to be greater than 650%. Unencumbered holding company liquidity stood at $4.1 billion, $2.3 billion above our minimum balance. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks.
U.S. statutory impairments were a release of $7 million. And Japan FSA impairments were JPY10.4 billion or roughly $67 million in the quarter. This is well within our expectations and with limited impact to both earnings and capital. Adjusted leverage is 19.5% and below our leverage corridor of 20% to 25%. As we hold approximately 60% of our debt denominated in the yen, our leverage will fluctuate with movements in the yen/dollar rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms.
We repurchased $800 million of our own stock and paid dividends of $283 million in Q2, offering good relative IRR on these capital deployments. We'll continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. Thank you.
I'll now turn the call over to David.
