Max K. Broden
Executive Vice President, Chief Financial Officer at Aflac
Thank you, Dan. Thank you for joining me as I'll provide a financial update on Aflac Incorporated results for the third quarter of 2024. For the quarter, adjusted earnings per diluted share increased 17.4% year-over-year to $2.16, with a $0.03 negative impact from FX in the quarter. In the quarter, remeasurement gains on reserves totaled $408 million, reducing benefits, while an offsetting unlock of their deferred profit liability in Japan reduced earned premium by $75 million. Variable investment income ran $27 million below our long-term return expectations. Adjusted book-value per share, including foreign currency translation gains and losses increased 7.3%, and the adjusted ROE was 16.7%, an acceptable spread to our cost-of-capital. Overall, we view these results in the quarter as solid.
Starting with our Japan segment, net premiums for the quarter declined 10.5%. This decline reflects a JPY7.3 billion negative impact from an internal cancer reinsurance transaction executed in the fourth quarter of 2023, and JPY4.6 billion negative impact from paid-up policies. In addition, there is a JPY13.3 billion negative impact from deferred profit liability, the majority of which is a one-time impact from unlocking of LDTI assumptions. At the same time, policies in-force declined 2.3%.
Japan's total benefit ratio came in at 49.2% for the quarter, down 15.9 percentage points year-over-year. And the third segment benefit ratio was 41.8%, down approximately 13 percentage points year-over-year. We estimate the impact from remeasurement gains to be approximately 18 percentage points favorable to the benefit ratio in Q3 2024. Long-term experience trends as it relates to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Given the impact from unlocking, we now expect the full-year benefit ratio to-end up in the range of 62% to 63%.
Persistency remains solid with a rate of 93.3%, which was down 20 basis points year-over-year. This change in persistency is in-line with our expectations. Our expense ratio in Japan was 20%, up 100 basis points year-over-year, driven primarily by decline in revenues. Adjusted net investment income in yen terms was up 0.1% as the benefits from lower hedge costs and favorable impact from foreign currency on U.S. dollar investments in yen terms were largely offset by lower floating-rate income and lower volume as we have continued to shift assets from Aflac Japan to Aflac Re Bermuda. The pre-tax margin for Japan in the quarter was 44.7%, up 11.9 percentage points year-over-year, a very good result. For the full-year, we now expect the pretax margin to be in the range of 35% to 36%.
Turning to U.S. results. Net earned premium was up 2.8%. Persistency increased 20 basis points year-over-year to 78.9%. Considering our year-to-date results, we now expect full-year net premium to be towards the lower-end of our guidance range of 3% to 5%. Our total benefit ratio came in at 47.6%, 11.7 percentage points higher than Q3 2023, driven by lower remeasurement gains than a year-ago. We estimate that the remeasurement gains impacted the benefit ratio by approximately 120 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, we would expect the benefit ratio to be towards the higher-end of our guidance range of 45% to 47%.
Our expense ratio in the U.S. was 38%, down 260 basis-points year-over-year, primarily driven by platforms improving scale and strong expense management. Given business seasonality, we would expect an uptick in expense ratio for Q4, but to remain with our guidance range of 38% to 40% for the full-year.
Our growth initiatives, group life and disability, network dental, vision, and direct-to-consumer increased our total expense ratio by 100 basis points. 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 U.S. was up 0.5%, mainly driven by higher fixed rate income. Profitability in the U.S. segment was solid with a pretax margin of 20.8%, also a good result.
Our total commercial real estate loan watch-list remains approximately $1 billion with less than $250 million in process of foreclosure currently. As a result of these current low valuation marks, we increased our CECL reserves associated with these loans by $3 million in this quarter net of charge-offs. We've had one foreclosure moved into real estate owned. 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 this cycle and maximize our recoveries. Our portfolio of first-lien senior secured middle-market loans continued to perform well, with losses below our expectations for this point in the cycle.
In our Corporate segment, we recorded a pretax gain of $15 million. Adjusted net investment income was $37 million higher than last year due to a combination of higher rates and asset balances, which included the impact of reinsurance transactions in Q4 of 2023, as well as continued lower-volume of tax credit investments. These tax credit investments impacted the corporate net investment income line for U.S. GAAP purposes negatively by $57 million in the quarter, with an associated credit to the tax line. The net impact to our bottom line was a positive $5 million in the quarter. To date, these investments are performing well, and in-line with our expectations.
We are continuing to build-out our internal reinsurance platform, and I'm pleased with the outcome and performance. In the fourth quarter, we intend to execute another tranche with similar structure and economics in yen terms to our October 2023 transaction. Our capital position remains strong and we ended the quarter with an SMR above 1,100%. In 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.
U.S. statutory impairments were $58 million, and there were no additional Japan FSA impairments in Q3. This is well within our expectations and with limited impact to both earnings and capital. As we hold approximately 60% of our debt in yen, our leverage increased to 21%, as a result of a move-in the yen-dollar exchange rate, well within our target range of 20% to 25%. 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.
Unencumbered holding company liquidity stood at $3.9 billion, $2.1 billion above our minimum balance. We repurchased $500 million of our own stock and paid dividends of $280 million in Q3, 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. Thank you.
And I will now hand over to David to begin Q&A.
