What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 304 added, 208 removed, 2124 unchanged (19% of the section changed)

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions, except for share and per-share amounts - Unaudited) 2021 2020 2021 2020

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Cash dividends per share $ .33 $ .28 $ .99 $ .84

(1) Includes expense of $ 48 for the three- and six-month periods ended June 30, 2021 and $ 15 for the six-month period ended June 30, 2020 for the early extinguishment of debt.

(1) Includes expense of $ 48 and $ 15 for the nine-month periods ended September 30, 2021 and 2020, respectively, for the early extinguishment of debt.

See the accompanying Notes to the Consolidated Financial Statements.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions - Unaudited) 2021 2020 2021 2020

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Consolidated Balance Sheets

(In millions, except for share and per-share amounts) June 30,

(In millions, except for share and per-share amounts) September 30,

(Unaudited) December 31,

Investments and cash:

Fixed maturity securities available for sale, at fair value, (allowance for credit losses of $ 26 in

2021 and $ 38 in 2020, amortized cost $ 85,193 in 2021 and amortized cost $ 88,143 in 2020)

Fixed maturity securities available for sale, at fair value, ( no allowance for credit losses in

2021 and $ 38 in 2020, amortized cost $ 84,000 in 2021 and $ 88,143 in 2020)

$ 96,285 $ 101,286

Fixed maturity securities available for sale - consolidated variable interest entities, at fair value

(amortized cost $ 3,295 in 2021 and amortized cost of $ 3,487 in 2020)

(amortized cost $ 3,228 in 2021 and $ 3,487 in 2020)

Fixed maturity securities held to maturity, at amortized cost, net of allowance

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Consolidated Statements of Shareholders’ Equity (continued)

(In millions, except for per share amounts - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total

Shareholders'

Balance at June 30, 2021 $ 135 $ 2,465 $ 40,162 $ 8,019 $ ( 17,046 ) $ 33,735

Net earnings 0 0 888 0 0 888

Unrealized foreign currency translation

gains (losses) during period, net of

income taxes 0 0 0 ( 99 ) 0 ( 99 )

Unrealized gains (losses) on fixed maturity

securities during period, net of income

taxes and reclassification adjustments 0 0 0 ( 261 ) 0 ( 261 )

Unrealized gains (losses) on derivatives

during period, net of income taxes 0 0 0 2 0 2

Pension liability adjustment during period,

net of income taxes 0 0 0 1 0 1

Dividends to shareholders

($ .33 per share)

0 0 ( 220 ) 0 0 ( 220 )

Exercise of stock options 0 2 0 0 0 2

Share-based compensation 0 16 0 0 0 16

Purchases of treasury stock 0 0 0 0 ( 527 ) ( 527 )

Treasury stock reissued 0 8 0 0 7 15

Balance at September 30, 2021 $ 135 $ 2,491 $ 40,830 $ 7,662 $ ( 17,566 ) $ 33,552

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

(In millions, except for per share amounts - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders'

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Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

(In millions, except for per share amounts - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders'

Balance at June 30, 2020 $ 135 $ 2,358 $ 35,204 $ 6,750 $ ( 15,027 ) $ 29,420

Net earnings 0 0 2,456 0 0 2,456

Unrealized foreign currency translation

gains (losses) during period, net of

income taxes 0 0 0 179 0 179

Unrealized gains (losses) on fixed maturity

securities during period, net of income

taxes and reclassification adjustments 0 0 0 988 0 988

Unrealized gains (losses) on derivatives

during period, net of income taxes 0 0 0 1 0 1

Pension liability adjustment during period,

net of income taxes 0 0 0 ( 1 ) 0 ( 1 )

Dividends to shareholders

($ .28 per share)

0 0 ( 200 ) 0 0 ( 200 )

Exercise of stock options 0 2 0 0 0 2

Share-based compensation 0 16 0 0 0 16

Purchases of treasury stock 0 0 0 0 ( 400 ) ( 400 )

Treasury stock reissued 0 7 0 0 11 18

Balance at September 30, 2020 $ 135 $ 2,383 $ 37,460 $ 7,917 $ ( 15,416 ) $ 32,479

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions - Unaudited) 2021 2020

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and Japan service the two markets for the Company's insurance business.

Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 69 % and 67 % of the Company's total revenues in the six-month periods ended June 30, 2021 and 2020, respectively.

The percentage of the Company's total assets attributable to Aflac Japan was 82 % at June 30, 2021, compared with 83 % at December 31, 2020.

Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 69 % and 68 % of the Company's total revenues in the nine-month periods ended September 30, 2021 and 2020, respectively.

The percentage of the Company's total assets attributable to Aflac Japan was 82 % at September 30, 2021, compared with 83 % at December 31, 2020.

Basis of Presentation

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As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results.

Although some variability is inherent in these estimates, the Company believes the amounts provided are adequate.

Although some variability is inherent in these estimates, the Company believes the amounts provided are reasonable and reflective of the best estimates of management.

The unaudited consolidated financial statements include the accounts of the Parent Company, its subsidiaries and those entities required to be consolidated under applicable accounting standards.

All material intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of June 30, 2021 and December 31, 2020, and the consolidated statements of earnings and comprehensive income (loss) for the three- and six-month periods ended June 30, 2021 and 2020, the consolidated statement of shareholders' equity for the three-month periods ended March 31, 2021 and 2020 and June 30, 2021 and 2020, and the consolidated statement of cash flows for the six-month periods ended June 30, 2021 and 2020.

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of September 30, 2021 and December 31, 2020, the consolidated statements of earnings and comprehensive income (loss) for the three- and nine-month periods ended September 30, 2021 and 2020, the consolidated statement of shareholders' equity for the three-month periods ended March 31, 2021 and 2020, June 30, 2021 and 2020, and September 30, 2021 and 2020, and the consolidated statement of cash flows for the nine-month periods ended September 30, 2021 and 2020.

Results of operations for interim periods are not necessarily indicative of results for the entire year.

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The impact of the COVID-19 global pandemic on the Company continues to evolve, and its future effects remain uncertain.

The Company took prompt action at the beginning of the pandemic to strengthen its capital and liquidity position, and continues to monitor its investment portfolios to adjust to market conditions, including the continuing recovery and inflation expectations.

Both Aflac Japan and Aflac U.S.

have accelerated investments in digital initiatives to improve productivity, efficiency and customer service over the long term.

The Company continues to closely monitor the effects and risks of COVID-19, including its variants, to assess its impact on economic conditions in Japan and the U.S.

and on the Company's business, financial condition, results of operations, liquidity and capital position.

The Company entered the crisis in a strong capital and liquidity position, having maintained capital ratios in Japan and the U.S.

at a level designed to absorb a degree of market volatility.

The Company has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments.

Reclassifications :

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Accounting Pronouncements Pending Adoption

Standard Description Effect on Financial Statements or Other Significant Matters

Financial Services - Insurance, Targeted Improvements to the Accounting for Long-Duration Contracts

as clarified and amended by:

Financial Services - Insurance (Topic 944):

ASU 2018-12 Financial Services - Insurance:

Targeted Improvements to the Accounting for Long-Duration Contracts , as clarified and amended by:

ASU 2019-09 Financial Services - Insurance:

Effective Date

Financial Services - Insurance (Topic 944):

ASU 2020-11 Financial Services - Insurance:

Effective Date and Early Application

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Early application of the amendments is permitted.

The Company continues to thoroughly evaluate the impact of adoption and expects that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures.

The Company anticipates that the requirement to update assumptions for liability for future policy benefits will have a significant impact on its results of operations, systems, processes and controls while the requirement to update the discount rate will have a significant impact on its equity.

The Company has no products with market risk benefits.

The Company has created a robust governance framework and a detailed implementation plan to support timely implementation of the ASU.

As part of the implementation, the Company has made significant progress on key accounting policy decisions (discount rate, cash flow assumptions, deferred acquisition costs amortization, and disclosures), and is working toward modernization of its actuarial platform to increase automation of key reporting and analytical processes and optimize a control framework around new technologies, data sourcing and maintenance solutions.

The Company has also incorporated into its ASU implementation project other functional areas, such as Financial Planning and Analysis and Executive Compensation, not directly associated with U.S.

GAAP reporting that nonetheless will be impacted by the accounting changes.

The Company continues to evaluate the impact of adoption and expects that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures.

The Company anticipates that the requirement to update assumptions for liability for future policy benefits (LFPB) will have a significant impact on its results of operations, systems, processes and controls and that the requirement to update discount rates will have a significant impact on its equity.

As part of working toward implementation of the updated standard, the Company has made progress on key accounting policy decisions, including processes to identify insurance policy groupings (cohorts) for LFPB measurement and DAC amortization purposes, applicable discount rates, development of liability cash flow and claim expense assumptions, and DAC amortization methodology.

The Company will not early adopt the updated standard and has selected the modified retrospective transition method.

Based upon this transition method, the Company currently estimates that the January 1, 2021 transition date (Transition Date) impact from adoption is likely to result in a decrease in accumulated other comprehensive income (AOCI) in a range between $ 18 billion and $ 20 billion.

This is due to updating the LFPB discount rate assumptions from the rates locked in for reserves held as of the Transition Date to rates determined by reference to the Transition Date market level yields for upper-medium-grade (low credit risk) fixed income instruments (as of December 31, 2020).

The variability around the impact of adoption results from the Company making certain estimates, primarily related to the determination of Transition Date market level yields.

The Company has advanced and continues to refine the design of its discount rate methodology for both the U.S.

and Japan insurance business.

The methodology incorporates constructing a discount rate curve separately for discounting cash flows used to calculate the U.S.

and Japan LFPB, with each curve intended to be reflective of the currency, tenor and characteristics of the insurance liabilities.

Discount rates comprising each curve will be determined by reference to upper-medium grade (low credit risk) fixed-income instrument yields that are intended to reflect the duration characteristics of the corresponding insurance liabilities.

The Company intends to use for these yields single-A rated fixed income instruments with credit ratings based on international rating standards.

Where only local ratings are available, the Company intends to select the fixed-income instruments with local ratings that are equivalent to a single-A rating based on international rating standards.

The methodology will be designed to prioritize observable inputs based on market data available in the local debt markets where the respective policies were issued in the currency in which the policies are

For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company will use various estimation techniques consistent with the fair value guidance in ASC 820, which include, but are not limited to:

(i) for tenors where there is less observable market data and/or the observable market data is available for similar instruments, estimating tenor-specific single-A credit spreads and applying them to risk-free government rates;

(ii) for tenors where there is very limited or no observable single-A or similar market data, interpolation and extrapolation techniques.

Discount rates will be updated each reporting period.

Long duration insurance contracts issued by the Company will be grouped into annual calendar-year cohorts based on the contract issue date, reportable segment, legal entity and product type.

Limited pay contracts will be grouped into separate cohorts from other traditional products in the same manner and will be further separated based on their premium payment structures.

Riders will be combined with base policies with similar insurance coverage types and the same contract issue years.

In addition to the preliminary policy elections related to cohorts and LFPB discount rates directly impacting Transition Date AOCI, the Company has also advanced the following accounting policies relevant to the post-Transition Date accounting:

• Cash flow assumptions underlying insurance liabilities will be evaluated as to whether an update is needed at least annually in the same fiscal quarter each year.

To facilitate the review, experience studies will be performed annually in the consistent quarter year-to-year to substantiate assumptions, including mortality, morbidity, and terminations in future periods.

• Locked-in discount rates used for the computation of interest accretion on LFPB for policies issued on or after January 1, 2021 will be determined for each issue-year cohort as a single discount rate, calculated as the weighted-average of monthly upper-medium grade (low-credit risk) fixed-income instrument forward curves over the calendar year, determined using the methodology described above and weighted using issued annualized premiums for each issue month.

The single discount rate for each issue-year cohort will remain unchanged after the calendar year of issue.

Locked-in discount rates on the policies held at Transition Date reflect the locked-in rates in existence immediately before the Transition Date.

• For DAC amortization, the Company has made a preliminary election to group insurance policies into cohorts that are consistent with the groupings used in estimating the associated LFPB.

DAC will be amortized on a constant-level basis for the grouped contracts over the expected remaining term of the related contracts.

For both life and health products issued by Aflac Japan, the constant-level basis used will be units in force, which is a proxy for face amount and insurance in force, respectively.

For life products issued by Aflac U.S., the constant level basis used will be face amount of policies in force;

for health products issued by Aflac U.S., the constant level basis used will be the number of policies in force.

• The Company has made a preliminary entity-wide election to use locked-in claim expense assumptions determined for each issue-year cohort as a percentage of incurred claims;

these assumptions would remain unchanged over the term of the insurance policy.

The Company has created a governance framework and a plan to support implementation of the updated standard.

As part of its implementation plan, the Company has also advanced the modernization of its actuarial technology platform to enhance its modeling, data management, experience study and analytical capabilities, increase the end-to-end automation of key reporting and analytical processes and optimize its control framework.

The Company has also put in place internal controls related to the new processes created as part of implementing the updated standard and will continue to refine and maturate these internal controls until the formal implementation in the first quarter of 2023.

The Company has recently begun testing its reporting and disclosure capabilities under the new ASU for post-Transition Date accounting periods.

The Company does not expect to early adopt the updated standard and has selected a modified retrospective transition method.

The Company currently has no products with market risk benefits.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company's business.

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Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance.

In addition, operating business units that are not individually reportable and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S.

In addition, the Parent Company, other operating business units that are not individually reportable, and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S.

are included in Corporate and other.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

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Adjusted net investment income (3)

191 175 557 523

Other income 32 24 90 78

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Total revenues $ 5,237 $ 5,665 $ 16,670 $ 16,234

(1) Amortized hedge costs of $ 17 and $ 50 for the three-month periods and $ 36 and $ 105 for the six-month periods ended June 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $( 9 ) and $ 6 for the three-month periods and $( 17 ) and an immaterial amount for the six-month periods ended June 30, 2021 and 2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(3) Amortized hedge income of $ 16 and $ 27 for the three-month periods and $ 33 and $ 56 for the six-month periods ended June 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(4) Amortization of federal historic rehabilitation and solar investments in partnerships of $ 30 for the three- and six-month periods ended June 30, 2021, are included as a reduction to net investment income.

Offsetting tax credits on these investments of $ 12 and $ 25 for the three- and six-month periods ended June 30, 2021, respectively, have been recorded as an income tax benefit on the consolidated statement of earnings.

(1) Amortized hedge costs of $ 20 and $ 51 for the three-month periods and $ 55 and $ 155 for the nine-month periods ended September 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $( 7 ) and $ 6 for the three-month periods and $( 24 ) and $ 5 for the nine-month periods ended September 30, 2021 and 2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(3) Net interest cash flows from derivatives associated with certain investment strategies of $ 1 for both three-month periods and $ 1 and $ 2 for the nine-month periods ended September 30, 2021 and 2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

(4) Amortized hedge income of $ 13 and $ 22 for the three-month periods and $ 45 and $ 78 for the nine-month periods ended September 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 5 and $ 35 for the three- and nine-month periods ended September 30, 2021, respectively, are included as a reduction to net investment income.

Offsetting tax credits on these investments of $ 10 and $ 35 for the three- and nine-month periods ended September 30, 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings.

See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

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adjusted earnings ( 14 ) 3 ( 8 ) 17

(3) Amortized hedge income of $ 16 and $ 27 for the three-month periods and $ 33 and $ 56 for the six-month periods ended June 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(4) A gain of $ 14 for the three-month periods and $ 27 and $ 30 for the six-month periods ended June 30, 2021, and 2020, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(5) Amortization of federal historic rehabilitation and solar investments in partnerships of $ 30 for the three- and six-month periods ended June 30, 2021, is included as a reduction to net investment income.

Offsetting tax credits on these investments of $ 12 and $ 25 for the three- and six-month periods ended June 30, 2021, respectively, have been recorded as an income tax benefit.

(4) Amortized hedge income of $ 13 and $ 22 for the three-month periods and $ 45 and $ 78 for the nine-month periods ended September 30, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(5) A gain of $ 14 and $ 13 for the three-month periods and $ 41 and $ 43 for the nine-month periods ended September 30, 2021, and 2020, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(6) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 5 and $ 35 for the three- and nine-month periods ended September 30, 2021, respectively, is included as a reduction to net investment income.

See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

(6) Includes $ 45 and $ 44 for the three-month periods and $ 89 and $ 77 for the six-month periods ended June 30, 2021, and 2020, respectively, of interest expense on debt.

(7) Includes $ 40 and $ 44 for the three-month periods and $ 130 and $ 122 for the nine-month periods ended September 30, 2021, and 2020, respectively, of interest expense on debt.

Assets were as follows:

(In millions) June 30,

(In millions) September 30,

2021 December 31,

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The amortized cost for the Company's investments in fixed maturity securities, the cost for equity securities and the fair values of these investments are shown in the following tables.

June 30, 2021

September 30, 2021

(In millions)

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Total securities available for sale $ 91,630 $ 38 $ 14,771 $ 481 $ 105,882

June 30, 2021

September 30, 2021

(In millions)

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Total securities held to maturity $ 24,474 $ 10 $ 24,464 $ 5,935 $ 0 $ 30,399

(In millions) June 30, 2021 December 31, 2020

(In millions) September 30, 2021 December 31, 2020

Equity securities, carried at fair value through net earnings:

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The methods of determining the fair values of the Company's investments in fixed maturity securities and equity securities are described in Note 5.

During the first and second quarters of 2021, the Company did no t reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the second quarter of 2020, the Company did no t reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the first nine months of 2021, the Company did no t reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the second and third quarter of 2020, the Company did no t reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the first quarter of 2020, as a result of the adoption of ASU 2019-04, the Company reclassified $ 6.9 billion (at amortized cost) of pre-payable fixed-maturity securities from the held-to-maturity category to the available-for-sale category.

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Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at June 30, 2021, were as follows:

The contractual and economic maturities of the Company's investments in fixed maturity securities at September 30, 2021, were as follows:

(In millions) Amortized

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Investment exposures that individually exceeded 10% of shareholders' equity were as follows:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Credit

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

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Total net investment gains (losses) $ ( 171 ) $ 108 $ 224 $ ( 525 )

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the three-month period ended June 30, 2021, that relate to equity securities still held at the June 30, 2021 reporting date, were $ 170 million.

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the six-month period ended June 30, 2021, that relate to equity securities still held at the June 30, 2021 reporting date, were $ 93 million.

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the three-month period ended September 30, 2021, that relate to equity securities still held at the September 30, 2021 reporting date, were $ 170 million.

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the nine-month period ended September 30, 2021, that relate to equity securities still held at the September 30, 2021 reporting date, were $ 33 million.

Unrealized Investment Gains and Losses

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The net effect on shareholders’ equity of unrealized gains and losses from fixed maturity securities was as follows:

(In millions) June 30, 2021 December 31,

(In millions) September 30, 2021 December 31,

Unrealized gains (losses) on securities available for sale $ 13,494 $ 14,290

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Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended June 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

June 30, 2021

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended September 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

September 30, 2021

Total Less than 12 months 12 months or longer

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Yen-denominated 242 2 182 1 60 1

Sovereign and supranational:

dollar-denominated 6 4 6 1 0 3

Banks/financial institutions:

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Based on its credit analysis, the Company believes that the issuers of its fixed maturity investments in the sectors shown in the table above have the ability to service their obligations to the Company, and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

However, the Company has identified certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit

allowance has been calculated.

As of June 30, 2021, the Company held an allowance of $ 26 million.

Refer to the Credit Losses section below for additional information.

However, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a

result, a credit allowance will be calculated.

Refer to the Allowance for Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

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The following table reflects the composition of the carrying value for commercial mortgage and other loans by property type as of the periods presented.

(In millions) June 30, 2021 December 31, 2020

(In millions) September 30, 2021 December 31, 2020

Amortized Cost % of Total Amortized Cost % of Total

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This loan portfolio is generally considered to be investment grade.

As of June 30, 2021, the Company had $ 1.0 billion in outstanding commitments to fund TREs.

As of September 30, 2021, the Company had $ 645 million in outstanding commitments to fund TREs.

These commitments are contingent on the final underwriting and due diligence to be performed.

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This loan portfolio is generally considered higher quality investment grade loans.

As of June 30, 2021, the Company had no outstanding commitments to fund CMLs.

As of September 30, 2021, the Company had no outstanding commitments to fund CMLs.

These commitments are contingent on the final underwriting and due diligence to be performed.

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These loans are generally considered to be below investment grade.

The carrying value for MMLs included $ 29 million and $ 25 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of June 30, 2021, and December 31, 2020, respectively.

As of June 30, 2021, the Company had commitments of approximately $ 2.1 billion to fund future MMLs.

The carrying value for MMLs included $ 25 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of September 30, 2021, and December 31, 2020.

As of September 30, 2021, the Company had commitments of approximately $ 1.7 billion to fund future MMLs.

These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

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The Company uses external credit ratings focused on the reinsurer’s financial strength and credit worthiness.

The Company's counterparties are rated A+.

The Company's reinsurance counterparties are rated A+.

The Company monitors the credit ratings periodically, but not less frequently than quarterly.

The following tables present as of June 30, 2021 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator .

The following tables present as of September 30, 2021 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator .

Transitional Real Estate Loans

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70%-79.99% 0 0 0 0 0 25 25 1.67

80% or greater 0 0 0 0 0 26 26 1.63

Total 208 47 646 168 68 724 1,861 2.42

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The Company’s methodology for estimating credit losses utilizes the contractual maturity date of the financial asset, adjusted when necessary to reflect the expected timing of repayment (such as prepayment options, renewal options, call options, or extension options).

The Company applies reasonable and

supportable forecasts of macroeconomic variables that impact the determination of PD/LGD over a two-year period for held-to-maturity fixed maturity securities and MMLs.

The Company applies reasonable and supportable forecasts of macroeconomic variables that impact the determination of PD/LGD over a two-year period for

held-to-maturity fixed maturity securities and MMLs.

The Company reverts to historical loss information over one year, following the two-year forecast period.

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The Company continuously monitors the estimation methodology, due to changes in portfolio composition, changes in underwriting practices and significant events or conditions and makes adjustments as necessary.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $ 21.8 billion amortized cost as of June 30, 2021 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $ 21.5 billion amortized cost as of September 30, 2021 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

An investment in an available-for-sale fixed maturity security is impaired if the fair value falls below amortized cost.

7 unchanged sentences

In addition, the Company evaluates the specific issuer’s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and/or security of other debt holders in the issuer when developing management’s best estimate of expected cash flows.

The Company granted certain loan modifications in its MML and TRE portfolios during the period ended June 30, 2021.

As of June 30, 2021, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no troubled debt restructurings (TDRs) during the period ended June 30, 2021 and an immaterial amount due to COVID-19 during the year ended December 31, 2020.

The Company granted certain loan modifications in its MML and TRE portfolios during the period ended September 30, 2021.

As of September 30, 2021, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no troubled debt restructurings (TDRs) during the period ended September 30, 2021 and an immaterial amount due to COVID-19 during the year ended December 31, 2020.

The Company designates nonaccrual status for a nonperforming debt security or a loan that is not generating its stated interest rate because of nonpayment of periodic interest by the borrower.

1 unchanged sentence

The Company resumes the accrual of interest on fixed maturity securities and loans that are currently making contractual payments or for those that are not current where the borrower has paid timely (less than 30 days outstanding).

As of June 30, 2021 and December 31, 2020, the Company had no loans or fixed maturities on nonaccrual status.

As of September 30, 2021 and December 31, 2020, the Company had an immaterial amount of loans or fixed maturities on nonaccrual status.

The following table presents the roll forward of the allowance for credit losses by portfolio segment.

(in millions) Transitional Real Estate Loans Commercial Mortgage Loans Middle Market Loans Held to Maturity Securities Available for Sale Securities Reinsurance Recoverables

Three Months Ended June 30, 2021:

Balance at March 31, 2021 $ ( 47 ) $ ( 24 ) $ ( 83 ) $ ( 8 ) $ ( 27 ) $ ( 13 )

Three Months Ended September 30, 2021:

Balance at June 30, 2021 $ ( 41 ) $ ( 22 ) $ ( 76 ) $ ( 8 ) $ ( 26 ) $ ( 13 )

(Addition to) release of allowance for credit

losses ( 18 ) 5 ( 13 ) ( 1 ) 0 0

Write-offs, net of recoveries 0 0 0 0 26 0

Balance at September 30, 2021 $ ( 59 ) $ ( 17 ) $ ( 89 ) $ ( 9 ) $ 0 $ ( 13 )

Three Months Ended September 30, 2020:

Balance at June 30, 2020

Three Months Ended June 30, 2020:

Balance at March 31, 2020

$ ( 66 ) $ ( 42 ) $ ( 134 ) $ ( 9 ) $ ( 38 ) $ ( 11 )

2 unchanged sentences

Write-offs, net of recoveries 0 0 ( 9 ) 0 1 0

Balance at June 30, 2020 $ ( 66 ) $ ( 42 ) $ ( 134 ) $ ( 9 ) $ ( 38 ) $ ( 11 )

Six Months Ended June 30, 2021:

Balance at September 30, 2020 $ ( 53 ) $ ( 28 ) $ ( 84 ) $ ( 9 ) $ ( 38 ) $ ( 11 )

Nine Months Ended September 30, 2021:

Balance at December 31, 2020 $ ( 63 ) $ ( 32 ) $ ( 85 ) $ ( 10 ) $ ( 38 ) $ ( 12 )

2 unchanged sentences

Write-offs, net of recoveries 0 0 0 0 12 0

Balance at June 30, 2021 $ ( 41 ) $ ( 22 ) $ ( 76 ) $ ( 8 ) $ ( 26 ) $ ( 13 )

Six Months Ended June 30, 2020:

Balance at September 30, 2021 $ ( 59 ) $ ( 17 ) $ ( 89 ) $ ( 9 ) $ 0 $ ( 13 )

Nine Months Ended September 30, 2020:

Balance at December 31, 2019 (1)

4 unchanged sentences

Write-offs, net of recoveries 0 0 0 0 37 0

Balance at June 30, 2020 $ ( 66 ) $ ( 42 ) $ ( 134 ) $ ( 9 ) $ ( 38 ) $ ( 11 )

Balance at September 30, 2020 $ ( 53 ) $ ( 28 ) $ ( 84 ) $ ( 9 ) $ ( 38 ) $ ( 11 )

GAAP guidance adopted as of January 1, 2020 has superseded these losses, included for comparative purposes only.

For assets that are subject to the credit loss measurement, the change in credit loss allowance will be significantly impacted by purchases and sales in those assets during the period as well as entering into new non-cancelable loan commitments.

The estimate of credit losses for loan commitments as of June 30, 2021 was $ 35 million.

The estimate of credit losses for loan commitments as of September 30, 2021 was $ 32 million.

Other Investments

The table below reflects the composition of the carrying value for other investments as of the periods presented.

(In millions) June 30, 2021 December 31, 2020

(In millions) September 30, 2021 December 31, 2020

Other investments:

8 unchanged sentences

Offsetting tax credits generated by these investments are recorded as an income tax benefit in the consolidated statement of earnings.

As of June 30, 2021, the Company had $ 180 million in outstanding commitments to fund alternative investments in limited partnerships.

As of September 30, 2021, the Company had $ 1.9 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

10 unchanged sentences

Investments in Consolidated Variable Interest Entities

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Amortized

28 unchanged sentences

Investments in Variable Interest Entities Not Consolidated

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Amortized

26 unchanged sentences

Remaining Contractual Maturity of the Agreements

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Overnight

16 unchanged sentences

therefore, they are classified as Overnight and Continuous.

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $ 8,202 million and $ 6,654 million at June 30, 2021 and December 31, 2020, respectively, which may not be sold or re-pledged, unless the counterparty is in default.

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $ 7,969 million and $ 6,654 million at September 30, 2021 and December 31, 2020, respectively, which may not be sold or re-pledged, unless the counterparty is in default.

Such securities collateral is not reflected on the consolidated financial statements.

The Company did no t have any repurchase agreements or repurchase-to-maturity transactions outstanding as of June 30, 2021, and December 31, 2020, respectively.

The Company did no t have any repurchase agreements or repurchase-to-maturity transactions outstanding as of September 30, 2021, and December 31, 2020, respectively.

Certain fixed maturity securities can be pledged as collateral as part of derivative transactions, or pledged to support state deposit requirements on certain investment programs.

3 unchanged sentences

• foreign currency forwards and options used in hedging foreign exchange risk on U.S.

dollar-denominated investments in Aflac Japan's portfolio

dollar-denominated investments in Aflac Japan's portfolio, with options used on a standalone basis and/or in a collar strategy

• foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen

17 unchanged sentences

dollars at a specified future date.

In the sold call transaction, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S.

In the sold call transactions, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S.

dollars at a specified future date.

1 unchanged sentence

a costless or zero-cost collar).

The Company also uses one sided foreign currency put options to mitigate the settlement risk on U.S.

dollar-denominated assets related to extreme foreign currency rate changes.

From time to time, the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan.

In these forward transactions, Aflac agrees with another party to buy a fixed amount of U.S.

In these forward transactions, the Company agrees with another party to buy a fixed amount of U.S.

dollars and sell a corresponding amount of yen at a specified price at a specified future date.

23 unchanged sentences

The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk.

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Asset

54 unchanged sentences

Net Investment Gains (Losses) Recognized for Fair Value Hedge

Three Months Ended June 30, 2021:

Three Months Ended September 30, 2021:

Foreign currency

forwards Fixed maturity securities $ ( 1 ) $ 0 $ ( 1 ) $ 1 $ 0

Foreign currency options Fixed maturity securities ( 5 ) ( 5 ) 0 0 0

Total gains (losses) $ ( 6 ) $ ( 5 ) $ ( 1 ) $ 1 $ 0

Six Months Ended June 30, 2021:

Nine Months Ended September 30, 2021:

Foreign currency forwards Fixed maturity securities $ ( 5 ) $ 0 $ ( 5 ) $ 5 $ 0

1 unchanged sentence

Total gains (losses) $ ( 21 ) $ ( 15 ) $ ( 6 ) $ 9 $ 3

Three Months Ended June 30, 2020:

Three Months Ended September 30, 2020:

Foreign currency forwards Fixed maturity securities $ 1 $ 0 $ 1 $ ( 1 ) $ 0

1 unchanged sentence

Total gains (losses) $ ( 1 ) $ ( 2 ) $ 1 $ ( 1 ) $ 0

Six Months Ended June 30, 2020:

Nine Months Ended September 30, 2020:

Foreign currency forwards Fixed maturity securities $ ( 15 ) $ ( 8 ) $ ( 7 ) $ 8 $ 1

6 unchanged sentences

The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains and losses consistent with the impact of the hedged item.

For the three-month and six-month periods ended June 30, 2021 and 2020, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

For the three-month and nine-month periods ended September 30, 2021 and 2020, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

The following table shows the carrying amounts of assets designated and qualifying as hedged items in fair value hedges of interest rate risk and the related cumulative hedge adjustment included in the carrying amount.

1 unchanged sentence

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)

June 30, 2021 December 31, 2020 June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

Fixed maturity securities $ 3,261 $ 4,331 $ 216 $ 237

2 unchanged sentences

The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate.

To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative hedges.

Beginning in July 2019, certain foreign currency forwards and options were designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and six-month periods ended June 30, 2021 and 2020, respectively.

To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative hedges and certain foreign currency forwards and options have designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and nine-month periods ended September 30, 2021 and 2020, respectively.

Non-qualifying Strategies

2 unchanged sentences

While the change in value of the swaps is recorded through current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded through other comprehensive income.

As of June 30, 2021, the Parent Company had $ 2.3 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S.

As of September 30, 2021, the Parent Company had $ 2.3 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S.

dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen.

3 unchanged sentences

dollar-denominated loan receivables held within the Aflac Japan segment.

These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and generally offsets gains and losses from foreign exchange forwards within net investment gains (losses).

These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and substantially offsets gains and losses from foreign exchange forwards within net investment gains (losses).

The Company also has certain foreign exchange forwards on U.S.

3 unchanged sentences

The following table summarizes the impact to earnings and other comprehensive income (loss) from all derivatives and hedging instruments.

Three Months Ended June 30,

Three Months Ended September 30,

(In millions) Net Investment Income (1)

38 unchanged sentences

(2) Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses).

Gains and losses on net investment hedges related to change in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 1 million of losses reclassified from accumulated other comprehensive income (loss) into earnings.

It also includes an immaterial amount excluded from effectiveness testing during the three-month periods ended June 30, 2021 and 2020.

In addition, an immaterial amount of gain (loss) was reclassified from accumulated other comprehensive income (loss) into earnings during the three-month periods ended June 30, 2021 and 2020, respectively, related to fair value hedges excluded component .

Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended September 30, 2021.

In addition, $ 1 of losses and an immaterial amount were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month periods ended September 30, 2021 and 2020, respectively, related to fair value hedges excluded component .

Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions) Net Investment Income (1)

39 unchanged sentences

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 2 million of losses reclassified from accumulated other comprehensive income (loss) into earnings.

It also includes an immaterial amount excluded from effectiveness testing during the six-month periods ended June 30, 2021 and 2020.

In addition, an immaterial amount of income/(loss) was reclassified from accumulated other comprehensive income (loss) into earnings during the six-month periods ended June 30, 2021 and 2020, respectively, related to fair value hedges excluded component.

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 3 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month period ended September 30, 2021.

In addition, $ 1 of losses and an immaterial amount were reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month periods ended September 30, 2021 and 2020, respectively, related to fair value hedges excluded component.

Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).

As of June 30, 2021, $5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified to earnings during the next twelve months.

As of September 30, 2021, $ 5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified to earnings during the next twelve months.

Credit Risk Assumed through Derivatives

4 unchanged sentences

The risk of counterparty default for the Company's foreign currency swaps, certain foreign currency forwards, and foreign currency options is mitigated by collateral posting requirements that counterparties to those transactions must meet.

As of June 30, 2021, all of the Company's derivative agreement counterparties were investment grade.

As of September 30, 2021, all of the Company's derivative agreement counterparties were investment grade.

The Company engages in over-the-counter (OTC) bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc.

7 unchanged sentences

Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $ 555 million and $ 268 million as of June 30, 2021, and December 31, 2020, respectively.

If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2021, the Company estimates that it would be required to post a maximum of $ 103 million of additional collateral to these derivative counterparties.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $ 694 million and $ 268 million as of September 30, 2021, and December 31, 2020, respectively.

If the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2021, the Company estimates that it would be required to post a maximum of $ 169 million of additional collateral to these derivative counterparties.

The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights.

9 unchanged sentences

Offsetting of Financial Assets and Derivative Assets

June 30, 2021

September 30, 2021

Gross Amounts Not Offset

7 unchanged sentences

OTC - bilateral $ 646 $ 0 $ 646 $ ( 375 ) $ ( 21 ) $ ( 249 ) $ 1

OTC - cleared 1 0 1 ( 1 ) 0 0 0

Total derivative

41 unchanged sentences

Offsetting of Financial Liabilities and Derivative Liabilities

June 30, 2021

September 30, 2021

Gross Amounts Not Offset

59 unchanged sentences

The following tables present the fair value hierarchy levels of the Company's assets and liabilities that are measured and carried at fair value on a recurring basis.

June 30, 2021

September 30, 2021

(In millions) Quoted Prices in

21 unchanged sentences

Foreign currency options 0 1 0 1

Interest rate swaps 0 1 0 1

Forward bond purchase commitment 0 1 0 1

Total other assets 0 646 99 745

3 unchanged sentences

Foreign currency forwards 0 875 0 875

Foreign currency options 0 1 0 1

Interest rate swaps 0 16 0 16

Forward bond purchase commitment 0 1 0 1

Total liabilities $ 0 $ 914 $ 356 $ 1,270

30 unchanged sentences

The following tables present the carrying amount and fair value categorized by fair value hierarchy level for the Company's financial instruments that are not carried at fair value.

June 30, 2021

September 30, 2021

(In millions) Carrying

72 unchanged sentences

The following tables present the pricing sources for the fair values of the Company's fixed maturity and equity securities.

June 30, 2021

September 30, 2021

(In millions) Quoted Prices in Active Markets for Identical Assets

6 unchanged sentences

Third party pricing vendor $ 33,903 $ 831 $ 0 $ 34,734

Broker/other (1)

Internal 0 492 0 492

Total government and agencies 33,903 1,323 0 35,226

1 unchanged sentence

Third party pricing vendor 0 2,114 0 2,114

Broker/other (1)

Internal 0 823 0 823

Total municipalities 0 2,937 0 2,937

5 unchanged sentences

Third party pricing vendor 0 4,628 0 4,628

Internal 0 5,163 0 5,163

Broker/other 0 1 523 524

0 5,269 480 5,749

Total public utilities 0 9,792 523 10,315

1 unchanged sentence

Third party pricing vendor 0 279 0 279

Internal 0 818 0 818

Broker/other 0 0 45 45

2 unchanged sentences

Third party pricing vendor 0 5,191 0 5,191

Internal 0 6,505 0 6,505

Broker/other 0 0 46 46

0 6,623 38 6,661

Total banks/financial institutions 0 11,696 46 11,742

1 unchanged sentence

Third party pricing vendor 0 29,601 0 29,601

Internal 0 8,155 0 8,155

Broker/other 0 6 306 312

0 8,298 316 8,614

Total other corporate 0 37,762 306 38,068

4 unchanged sentences

Total equity securities $ 1,210 $ 90 $ 161 $ 1,461

(1) Other includes in-house valuations generated by DCF models which utilize observable market data inputs.

June 30, 2021

September 30, 2021

(In millions) Quoted Prices in Active Markets for Identical Assets

21 unchanged sentences

Total securities held to maturity $ 26,304 $ 1,444 $ 0 $ 27,748

(1) Other includes in-house valuations generated by DCF models which utilize observable market data inputs.

December 31, 2020

127 unchanged sentences

Three Months Ended

June 30, 2021

September 30, 2021

Fixed Maturity Securities Equity

23 unchanged sentences

Three Months Ended

June 30, 2020

September 30, 2020

Fixed Maturity Securities Equity

22 unchanged sentences

included in earnings $ 0 $ 0 $ 0 $ 0 $ 0 $ 23 $ 23

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Fixed Maturity Securities Equity

24 unchanged sentences

of the period included in earnings $ ( 19 ) $ ( 13 ) $ ( 3 ) $ ( 1 ) $ ( 5 ) $ 21 $ ( 158 ) $ ( 178 )

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

Fixed Maturity Securities Equity

25 unchanged sentences

Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments.

June 30, 2021

September 30, 2021

(In millions) Fair Value Valuation Technique(s) Unobservable Input Range

81 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

17 unchanged sentences

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates.

The favorable claims development of $ 518 million for the six-month period ended June 30, 2021 comprises approximately $ 220 million from Japan and $ 298 million from the U.S., representing approximately 42 % and 58 % of the total, respectively.

Excluding the impact of foreign exchange of a loss of approximately $ 5 million from December 31, 2020 to June 30, 2021, the favorable claims development in Japan would have been approximately $ 225 million, representing approximately 43 % of the total.

The favorable claims development of $ 739 million for the nine-month period ended September 30, 2021 comprises approximately $ 369 million from Japan and $ 370 million from the U.S., representing 49.9 % and 50.1 % of the total, respectively.

Excluding the impact of foreign exchange of a loss of approximately $ 11 million from December 31, 2020 to September 30, 2021, the favorable claims development in Japan would have been approximately $ 380 million, representing approximately 51 % of the total.

The Company has experienced continued favorable claim trends in 2021 for its core health products in Japan.

During the first six months of 2021, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic.

This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits, and was staying home more.

During the first nine months of 2021, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic.

This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits and staying home more.

This resulted in lower sickness, accident, and cancer incurred claims.

10 unchanged sentences

The Company has recorded a deferred profit liability related to reinsurance transactions.

The remaining deferred profit liability of $ 926 million and $ 1.0 billion as of June 30, 2021 and December 31, 2020, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies.

The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $ 972 million and $ 1.0 billion as of June 30, 2021 and December 31, 2020, respectively.

The spot yen/dollar exchange rate weakened by approximately 6.4 % and ceded reserves decreased approximately 6.2 % from December 31, 2020 to June 30, 2021.

The remaining deferred profit liability of $ 900 million and $ 1.0 billion as of September 30, 2021 and December 31, 2020, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies.

The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $ 962 million and $ 1.0 billion as of September 30, 2021 and December 31, 2020, respectively.

The spot yen/dollar exchange rate weakened by approximately 7.5 % and ceded reserves decreased approximately 7.2 % from December 31, 2020 to September 30, 2021.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance which also includes the elimination of inter-segment amounts associated with affiliated reinsurance.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

23 unchanged sentences

The reinsurer can withdraw from the committed facility if Aflac's Standard and Poor's (S&P) rating drops below BBB-.

As of June 30, 2021, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

As of September 30, 2021, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

NOTES PAYABLE AND LEASE OBLIGATIONS

A summary of notes payable and lease obligations follows:

(In millions) June 30, 2021 December 31, 2020

(In millions) September 30, 2021 December 31, 2020

3.625 % senior notes paid May 2021

37 unchanged sentences

Amounts in the table above are reported net of debt issuance costs and issuance premiums or discounts, if applicable, that are being amortized over the life of the notes.

In April 2021, the Parent Company issued five series of senior notes totaling ¥ 82.0 billion through a public debt offering under its U.S.

In April 2021, the Parent Company issued five series of senior notes totaling ¥ 82.0 billion through a public debt offering under its then existing U.S.

shelf registration statement.

15 unchanged sentences

Treasury security with a maturity comparable to the remaining term of the notes, plus 10 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.

A summary of the Company's lines of credit as of June 30, 2021 follows:

A summary of the Company's lines of credit as of September 30, 2021 follows:

Borrower(s) Type Term Expiration Date Capacity Amount Outstanding Interest Rate on Borrowed Amount Maturity Period Commitment Fee Business Purpose

13 unchanged sentences

$ 0.0 billion

A rate per annum equal to, at the Company's option, either, (a) LIBOR adjusted for certain costs or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd.

A rate per annum equal to, at the Company's option, either, (a) London Interbank Offered Rate (LIBOR) for U.S.

dollar denominated borrowings or TIBOR for Japanese yen denominated borrowings, in either case adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd.

as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin No later than November 18, 2024 .085 % to

3 unchanged sentences

and Aflac uncommitted bilateral None specified None specified $ 50 million

A rate per annum equal to, at the Parent Company's option, either (a) a eurocurrency rate determined by reference to the agent's LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the greater of (i) the prime rate as determined by the agent, and (ii) the sum of 0.50% and the federal funds rate for such day Up to 3 months

A rate per annum equal to, at the Company's option, either (a) a rate determined by reference to LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the highest of (a) the lender's U.S.

dollar short-term commercial loan rate, (b) the federal funds rate plus 1/2 of 1% and (c) one-month LIBOR plus 1%.

LIBOR is subject to replacement with Secured Overnight Financing Rate (SOFR) under certain circumstances Up to 3 months

None General corporate purposes

14 unchanged sentences

USD three-month LIBOR plus 75 basis points per annum 3 months None General corporate purposes

(1) Intercompany credit agreement

Borrower(s) Type Term Expiration Date Capacity Amount Outstanding Interest Rate on Borrowed Amount Maturity Period Commitment Fee Business Purpose

Tier One Insurance Company (1)

1 unchanged sentence

USD three-month LIBOR plus 75 basis points per annum 3 months None General corporate purposes

(1) Intercompany credit agreement

Borrower(s) Type Term Expiration Date Capacity Amount Outstanding Interest Rate on Borrowed Amount Maturity Period Commitment Fee Business Purpose

AGV Management Services Japan K.K.

9 unchanged sentences

A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period No later than January 3, 2022 None General corporate purposes

Aflac GI Holdings LLC (1)

uncommitted revolving 364 days July 18, 2022 $ 30 million

USD three-month LIBOR plus 75 basis points per annum No later than July 18, 2022 None General corporate purposes

(1) Intercompany credit agreement

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, 2021.

No events of default or defaults occurred during the six-month period ended June 30, 2021.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at September 30, 2021.

No events of default or defaults occurred during the nine-month period ended September 30, 2021.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

SHAREHOLDERS’ EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the six-month periods ended June 30.

The following table is a reconciliation of the number of shares of the Company's common stock for the nine-month periods ended September 30.

(In thousands of shares) 2021 2020

17 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In thousands) 2021 2020 2021 2020

1 unchanged sentence

Share Repurchase Program

During the first six months of 2021, the Company repurchased 22.6 million shares of its common stock for $ 1.2 billion as part of its share repurchase program.

During the first six months of 2020, the Company repurchased 15.2 million shares of its common stock for $ 637 million as part of its share repurchase program.

As of June 30, 2021, a remaining balance of 76.5 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

During the first nine months of 2021, the Company repurchased 32.2 million shares of its common stock for $ 1.7 billion as part of its share repurchase program.

During the first nine months of 2020, the Company repurchased 26.1 million shares of its common stock for $ 1.0 billion as part of its share repurchase program.

As of September 30, 2021, a remaining balance of 67.0 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Reclassifications from Accumulated Other Comprehensive Income

2 unchanged sentences

Three Months Ended

June 30, 2021

September 30, 2021

(In millions) Unrealized Foreign

6 unchanged sentences

Adjustment Total

Balance at March 31, 2021 $ ( 1,674 ) $ 8,794 $ ( 33 ) $ ( 280 ) $ 6,807

Balance at June 30, 2021 $ ( 1,661 ) $ 9,992 $ ( 33 ) $ ( 279 ) $ 8,019

Other comprehensive

8 unchanged sentences

income (loss) ( 99 ) ( 261 ) 2 1 ( 357 )

Balance at June 30, 2021 $ ( 1,661 ) $ 9,992 $ ( 33 ) $ ( 279 ) $ 8,019

Balance at September 30, 2021 $ ( 1,760 ) $ 9,731 $ ( 31 ) $ ( 278 ) $ 7,662

All amounts in the table above are net of tax.

Three Months Ended

June 30, 2020

September 30, 2020

(In millions) Unrealized Foreign

5 unchanged sentences

on Derivatives Pension Liability Adjustment Total

Balance at March 31, 2020 $ ( 1,543 ) $ 6,043 $ ( 35 ) $ ( 277 ) $ 4,188

Balance at June 30, 2020 $ ( 1,469 ) $ 8,532 $ ( 36 ) $ ( 277 ) $ 6,750

Other comprehensive

8 unchanged sentences

income (loss) 179 988 1 ( 1 ) 1,167

Balance at June 30, 2020 $ ( 1,469 ) $ 8,532 $ ( 36 ) $ ( 277 ) $ 6,750

Balance at September 30, 2020 $ ( 1,290 ) $ 9,520 $ ( 35 ) $ ( 278 ) $ 7,917

All amounts in the table above are net of tax.

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

(In millions) Unrealized Foreign

17 unchanged sentences

income (loss) ( 651 ) ( 630 ) 3 6 ( 1,272 )

Balance at June 30, 2021 $ ( 1,661 ) $ 9,992 $ ( 33 ) $ ( 279 ) $ 8,019

Balance at September 30, 2021 $ ( 1,760 ) $ 9,731 $ ( 31 ) $ ( 278 ) $ 7,662

All amounts in the table above are net of tax.

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

(In millions) Unrealized Foreign

20 unchanged sentences

income (loss) 333 124 ( 2 ) ( 1 ) 454

Balance at June 30, 2020 $ ( 1,469 ) $ 8,532 $ ( 36 ) $ ( 277 ) $ 6,750

Balance at September 30, 2020 $ ( 1,290 ) $ 9,520 $ ( 35 ) $ ( 278 ) $ 7,917

All amounts in the table above are net of tax.

2 unchanged sentences

(In millions) Three Months Ended

June 30, 2021

September 30, 2021

Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the

16 unchanged sentences

(In millions) Three Months Ended

June 30, 2020

September 30, 2020

Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the

10 unchanged sentences

Total reclassifications for the period $ 3 Net of tax

(1) Based on 25 % blended tax rate

(1) Based on 21 % tax rate, with a cumulative adjustment to the first six months of 2020 due to the effects of Final and Proposed Regulations released on September 29, 2020 by the U.S.

Treasury and Internal Revenue Service and addressing, among other items, the allocation of insurance expenses in the calculation of the foreign tax credit limitation.

See Note 10 of the Notes to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11 for additional details).

(In millions) Six Months Ended

June 30, 2021

(In millions) Nine Months Ended

September 30, 2021

Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the

15 unchanged sentences

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11 for additional details).

(In millions) Six Months Ended

June 30, 2020

(In millions) Nine Months Ended

September 30, 2020

Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the

10 unchanged sentences

Total reclassifications for the period $ ( 121 ) Net of tax

(1) Based on 23 % blended tax rate

(1) Based on 21 % tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11 for additional details).

SHARE-BASED COMPENSATION

As of June 30, 2021, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan).

As of September 30, 2021, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan).

Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company.

4 unchanged sentences

Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights.

As of June 30, 2021, approximately 36.7 million shares were available for future grants under this plan.

As of September 30, 2021, approximately 36.7 million shares were available for future grants under this plan.

The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions.

1 unchanged sentence

Performance-based vesting conditions generally include the attainment of goals related to Company financial performance.

As of June 30, 2021, the only performance-based awards issued and outstanding were restricted stock awards and units.

As of September 30, 2021, the only performance-based awards issued and outstanding were restricted stock awards and units.

Stock options and stock appreciation rights granted under the amended Plan have an exercise price of at least the fair market value of the underlying stock on the grant date and have an expiration date no later than 10 years from the grant date.

2 unchanged sentences

Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares.

The following table provides information on stock options outstanding and exercisable at June 30, 2021.

The following table provides information on stock options outstanding and exercisable at September 30, 2021.

Option Shares

6 unchanged sentences

Exercisable 2,317 3.6 49 30.87

The Company received cash from the exercise of stock options in the amount of $ 18 million during the first six months of 2021, compared with $ 7 million in the first six months of 2020.

The tax benefit realized as a result of stock option exercises and restricted stock releases was $ 15 million in the first six months of 2021, compared with $ 18 million in the first six months of 2020.

As of June 30, 2021, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $ 60 million, of which $ 27 million ( 1.7 million shares) was related to restricted stock awards and units with a performance-based vesting condition.

The Company received cash from the exercise of stock options in the amount of $ 20 million during the first nine months of 2021, compared with $ 9 million in the first nine months of 2020.

The tax benefit realized as a result of stock option exercises and restricted stock releases was $ 16 million in the first nine months of 2021, compared with $ 19 million in the first nine months of 2020.

As of September 30, 2021, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $ 45 million, of which $ 19 million ( 1.7 million shares) was related to restricted stock awards and units with a performance-based vesting condition.

The Company expects to recognize these amounts over a weighted-average period of approximately 1.7 years.

There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the six-month period ended June 30, 2021.

The following table summarizes restricted stock activity during the nine-month period ended September 30, 2021.

(In thousands of shares) Shares Weighted-Average

4 unchanged sentences

Vested in 2021 ( 1,317 ) 45.91

Restricted stock at June 30, 2021 2,687 $ 49.05

Restricted stock at September 30, 2021 2,615 $ 49.20

In February 2021, the Company granted 474 thousand performance-based stock awards, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions.

23 unchanged sentences

For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statement of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) $ 7 million and $ 6 million for the three-month periods and $ 14 million and $ 12 million for the six-month periods ended June 30, 2021 and 2020, respectively.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statement of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) $ 4 million and $ 6 million for the three-month periods ended September 30, 2021 and 2020, respectively and $ 18 million for the nine-month periods ended September 30, 2021 and 2020.

Total net periodic cost includes the following components:

Three Months Ended June 30,

Three Months Ended September 30,

Pension Benefits Other

8 unchanged sentences

Net periodic (benefit) cost $ 6 $ 6 $ 11 $ 13 $ 0 $ 0

Six Months Ended June 30,

Nine Months Ended September 30,

Pension Benefits Other

8 unchanged sentences

Net periodic (benefit) cost $ 17 $ 18 $ 37 $ 37 $ 3 $ 2

During the six months ended June 30, 2021, Aflac Japan contributed approximately $ 19 million (using the weighted-average yen/dollar exchange rate for the six-month period ended June 30, 2021) to the Japanese funded defined benefit plan, and Aflac U.S.

During the nine months ended September 30, 2021, Aflac Japan contributed approximately $ 29 million (using the weighted-average yen/dollar exchange rate for the nine-month period ended September 30, 2021) to the Japanese funded defined benefit plan, and Aflac U.S.

did no t make a contribution to the U.S.

4 unchanged sentences

Effective for 2021, the Company entered into an outsourcing agreement with a technology and consulting company to provide mainframe computer operations for Aflac Japan.

As of June 30, 2021, the agreement has a remaining term of four years and an aggregate remaining cost of ¥ 31.6 billion ($ 285 million using the June 30, 2021 exchange rate).

As of September 30, 2021, the agreement has a remaining term of four years and an aggregate remaining cost of ¥ 29.3 billion ($ 262 million using the September 30, 2021 exchange rate).

Effective for 2021, the Company entered into an outsourcing agreement with a management consulting and technology services company to provide application maintenance and development services for Aflac Japan.

As of June 30, 2021, the agreement has a remaining term of six years and an aggregate remaining cost of ¥ 17.8 billion ($ 161 million using the June 30, 2021 exchange rate).

As of September 30, 2021, the agreement has a remaining term of six years and an aggregate remaining cost of ¥ 16.9 billion ($ 151 million using the September 30, 2021 exchange rate).

Effective for 2021, the Company entered into an enterprise agreement with an information technology and data services company to license software for Aflac Japan.

As of June 30, 2021, the agreement has a remaining term of three years and an aggregate remaining cost of ¥ 1.9 billion ($ 17 million using the June 30, 2021 exchange rate).

As of September 30, 2021, the agreement has a remaining term of three years and an aggregate remaining cost of ¥ 1.8 billion ($ 16 million using the September 30, 2021 exchange rate).

The Company is a defendant in various lawsuits considered to be in the normal course of business.

12 unchanged sentences

The Company recognized a discounted liability for the assessments of $ 62 million (undiscounted $ 94 million), offset by discounted premium tax credits of $ 48 million (undiscounted $ 74 million), for a net $ 14 million impact to net income in the quarter ended March 31, 2017.

The Company paid a majority of these assessments by June 30, 2021.

The Company paid a majority of these assessments by September 30, 2021.

The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the six-month period ended June 30, 2021 were immaterial.

Guaranty fund assessments for the nine-month periods ended September 30, 2021 and 2020 were immaterial.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements