Max K. Broden
Senior Executive Vice President; Chief Financial Officer at Aflac
Thank you for joining me as I provide a financial update on Aflac Incorporated results for the 4th-quarter of 2024. For the quarter, adjusted earnings per diluted share increased 24.8% year-over-year to $1.56 with a $0.01 negative impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $43 million, reducing benefits. Variable investment income ran $17 million above our long-term return expectations. Adjusted book-value per share, excluding foreign currency remeasurement increased 3.2%. The adjusted ROE was 12% and 14.5% excluding FX remeasurement, an acceptable spread to our cost-of-capital. Overall, we view these results in the quarter as solid.
Starting with our Japan segment, net demand premiums for the quarter declined 5.4%. This decline reflects a JPY7.2 billion negative impact from an internal cancer reinsurance transaction executed in the 4th-quarter of 2024 and a JPY4.4 billion negative impact from paid-up policies. In addition, there is a JPY300 million positive impact from deferred profit liability. At the same time, policies in-force declined 2.3%. Japan's total benefit ratio came in at 66.5% for the quarter, up 40 basis-points year-over-year and 62.5% for the year. The third sector benefit ratio was 56.9% for the quarter, up approximately 70 basis-points year-over-year. We estimate the impact from remeasurement gains to be approximately 100 basis-points favorable to the benefit ratio in Q4 2024.
Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in-place, leading to continued favorable underwriting experience. Persistency remained solid at 93.4%, which was unchanged year-over-year and in-line with our expectations. Our expense ratio in Japan was 20.8% for the quarter, down 30 basis-points year-over-year, driven primarily by a decline in expenses. For the year, the expense ratio in Japan was 19.1%. For the quarter, adjusted net investment income in yen terms was up 3.7% as the transfer of assets to Bermuda associated with reinsurance and lower floating-rate income was more than offset by higher returns from structured private credit, infrastructure and our alternatives portfolio. Adjusted net investment income was up 12.1% for the year. The pretax margin for Japan in the quarter was 31.6%, up 120 basis-points year-over-year, a very good result. For the full-year, the pretax margin was even stronger, 36%, which is also the highest in 30 years.
Turning to US results. Net premium was up 2.7%. Persistency increased 70 basis-points year-over-year to 79.3%. Our US total benefit ratio came in at 46.3%, 170 basis-points higher than Q4 2023, driven by lower remeasurement gains than a year-ago. We estimate that the re-measurement gains impacted the benefit ratio by approximately 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. For the full-year, the US total benefit ratio was 46.8%.
Our expense ratio in the US was 40.3%, down 310 basis-points year-over-year, primarily driven by platforms improving scale and strong expense management. For the year, the US expense ratio was 38.5%. Our growth initiatives, Group life and disability, network general and direct-to-consumer increased our total expense ratio by 170 basis-points for the quarter. This is in-line with our expectations and we would expect this impact to decrease going-forward as these businesses grow to scale and improve their profitability.
Adjusted net investment income in the US was up 0.9% for the quarter, mainly driven by high returns from alternatives and 3.3% for the year. Profitability in the US segment was solid with a pretax margin of 19.7%, also a good result, as was the 21.1% for the full-year. We continue managing through the worst commercial real-estate downturn in decades.
During the quarter, we increased our CECL reserves associated with our commercial real-estate portfolio by $40 million, net of charge-offs as property values remain at distressed valuations. We also foreclosed on two loans, adding them to our real estate-owned portfolio. We continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we are confident in our ability to take ownership of these assets, manage them through-the-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 loss of $4 million. Adjusted net investment income was $153 million higher than last year due to a combination of continued lower-volume of tax credit investments, higher rates and asset balances, which included the impact of the reinsurance transaction in Q4 2024, which was similar in structure and economics in yen terms to our October 2023 transaction. These tax credit investments impacted the corporate-net investment income line for US GAAP purposes negatively by $46 million in the quarter 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 our expectations.
Our capital position remains strong and we ended the quarter with an SMR above 1,150%, an estimated ESR above 270%. Our combined RBC, while not finalized, we estimate to be greater than 650%. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks. US statutory impairments were $3 million and it was JPY700 million of Japan FSA impairments in Q4. This is well within our expectations and with limited impact to both earnings and capital. Our leverage was 19.7% for the quarter, which is just below our target range of 20% to 25%.
As we hold approximately 60% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in US dollar terms. Unencumbered holding company liquidity stood at $4.1 billion, $2.3 billion above our minimum balance. We repurchased $750 million of our own stock and paid dividends of $277 million in Q4, offering good relative IRR on these capital deployments. We will 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.
On December 3, we shared estimated ranges for annual key metrics for both segments for 2025 through 2027 at our financial analysts briefing and we continue to stand-by these ranges. However, for 2025, we expect the benefit ratio in Japan to be toward the higher-end of the 64% to 66% range. And we continue to expect the expense ratio to be at the lower-end of the 20% to 23% range as we pursue various growth and strategic initiatives. As a result, we expect the Aflac Japan's pre-tax profit margin to be at the lower-end of the 30% to 33% range. In the US, we expect the benefit ratio for 2025 to be at the lower-end of the 48% to 52% range and the expense ratio to be at the upper-end of the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2025 in the US to be at the upper-end of the 17% to 20% range. Thank you.
I'll now hand it back to David to begin Q&A.
