Max K. Broden
Executive Vice President; Chief Financial Officer, Aflac Incorporated at Aflac
Thank you for joining me, as I provide a financial update on Aflac Incorporated's results for the first quarter of 2024. For the quarter, adjusted earnings per diluted share increased 7.1% year-over-year to $1.66 with an $0.08 negative impact from FX in the quarter. In this quarter, remeasurement gains totaled $56 million and variable investment income ran $11 million or $0.01 per share below our long-term return expectations. Adjusted book value per share, including foreign currency translation gains and losses, increased 8.7%, and the adjusted ROE was 13.7%, 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 6%. This decline reflects a JPY6.2 billion negative impact from paid-up policies. In addition, there is a JPY seven billion negative impact from internal reinsurance transactions and a JPY1.4 billion positive impact from deferred profit liability. Lapses were somewhat elevated, but within our expectations. At the same time, policies in force declined 2.3%. Japan's total benefit ratio came in at 67% for the quarter, flat year-over-year. And the third sector benefit ratio was 57.5%, down approximately 20 basis points year-over-year.
We continue to experience favorable actual to expected on our well-priced, large and mature in-force block. We estimate the impact from remeasurement gains to be 144 basis points favorable to the benefit ratio in Q1 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 93.4%, which was down 50 basis points year-over-year, but flat quarter-over-quarter. We tend to experience some elevations in lapses as customers update and refresh their coverage. This change in persistency is not out of line with expectations.
Our expense ratio in Japan was 18%, down 170 basis points year-over-year, driven primarily by good expense control and to some extent, by expense allowance from reinsurance transactions. Adjusted net investment income in yen terms was up 19.3%, mainly by lower hedge costs and favorable impact from FX on our U.S. dollar investments in yen terms as well as higher return on our alternatives portfolio compared to the first quarter of 2023. This was offset by the transfer of assets due to reinsurance in the previous year, leading to a lower asset base and lower floating rate income.
The pretax margin for Japan in the quarter was 32.8%, up 460 basis points year-over-year, a very good result. Turning to U.S. results. Net earned premium was up 3.3%. Persistency increased 80 basis points year-over-year to 78.7%. This is a function of a poor persistency quarter falling out of the metric and stabilization across numerous product categories. Our total benefit ratio came in at 46.5%, 90 basis points higher than Q1 2023, driven by product mix and lower remeasurement gains than a year ago. We estimate that the remeasurement gains impacted the benefit ratio by 200 basis points in the quarter.
Claims utilization has stabilized, but as we incorporate more recent experience into our reserve models, we have released some reserves. Our expense ratio in the U.S. was 38.7%, down 90 basis points year-over-year, primarily driven by platforms improving scale and lower acquisition expenses. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer increased our total expense ratio by 230 basis points. 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 U.S. was up 4.6%, 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 21%, driven primarily by net earned premiums growth and improved net investment income year-over-year. Our total commercial real estate watchlist remains approximately $1.2 billion, with around $600 million of these in active foreclosure proceedings.
As a result of these current low valuation marks, we increased our CECL reserves associated with these loans by $10 million in this quarter. We also moved one property into real estate owned, which resulted in a $3.7 million gain. We continue to believe that the current distressed market does not reflect the true intrinsic economic value of our portfolio, which is why we are confident in our ability to take ownership of these quality 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 well below our expectations for this point in the cycle.
In our Corporate segment, we recorded a pretax loss of $3 million. Adjusted net investment income was $43 million higher than last year due to higher volume on the investable assets at Aflac REIT and a lower volume of tax credit investments at Aflac Inc. These tax credit investments impacted a corporate net investment income line for U.S. GAAP purposes negatively by $32 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 our expectations. We are continuing to build out our reinsurance platform, and I am 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 it to be greater than 650%. Unencumbered holding company liquidity stood at $3.7 billion, $2 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 $3 million. And Japan FSA impairments were JPY3.6 billion or roughly $24 million in Q1. This is well within our expectations and with limited impact to both earnings and capital. Adjusted leverage remains at a comfortable 20.4%, at the low end of our leverage corridor of 20% to 25%. In the quarter, we issued JPY123.6 billion in multiple tranches with an average coupon of 1.72%.
As we hold approximately 60% of our debt denominated in 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 $750 million of our own stock and paid dividends of $288 million in Q1, 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.
I'll now turn the call over to David so that we can begin our Q&A.
