What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 230 added, 198 removed, 1120 unchanged (28% of the section changed)

23 unchanged sentences

• concentration of the Company's investments in any particular single-issuer or sector

• the effects of COVID-19, and any resulting economic effects and government interventions, on the Company's business and financial results

• the effects of COVID-19 and its variants (both known and emerging), and any resulting economic effects and government interventions, on the Company's business and financial results

• ability to attract and retain qualified sales associates, brokers, employees, and distribution partners

16 unchanged sentences

MD&A OVERVIEW

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the six-month periods ended June 30, 2021 and 2020, respectively.

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the nine-month periods ended September 30, 2021 and 2020, respectively.

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

31 unchanged sentences

Both Aflac Japan and Aflac U.S.

have taken measures to address employee health and safety and increase employees’ ability to develop and maintain more flexible working conditions, and operations remained stable throughout the first six months of 2021.

The Company also 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.

1 unchanged sentence

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

In the three- and six-month periods ended June 30, 2021, sales for Aflac Japan, in yen terms, increased 38.4% and 15.7%, respectively, compared to the same periods in 2020, reflecting the launch of a new medical product in January 2021 and favorable comparisons due to pandemic conditions in 2020.

In the three-month period ended June 30, 2021, sales for Aflac U.S.

increased 64.1%, compared to the same period in 2020, reflecting increased sales activity as a result of the ongoing economic reopening in the U.S.

In the three-month period ended September 30, 2021, sales for Aflac Japan, in yen terms, were essentially flat, compared to the same period in 2020.

Aflac Japan sales in the nine-month period ended September 30, 2021 increased 10.3%, compared to the same period in 2020, reflecting the launch of a new medical product in January 2021 and favorable comparisons due to pandemic conditions in 2020.

In the three- and nine-month periods ended September 30, 2021, sales for Aflac U.S.

increased 35.0% and 15.5%, respectively, compared to the same periods in 2020, reflecting increased sales activity as a result of the ongoing economic reopening in the U.S.

and favorable comparisons due to pandemic conditions in 2020.

In the six-month period ended June 30, 2021, Aflac U.S.

sales increased 6.6%.

Pandemic-related claims and associated reserve increases in both Japan and the U.S.

have not materially impacted financial results in the first six months of 2021 and were more than offset by a reduction in claims related to non-COVID-19 medical needs.

have not materially impacted financial results in the first nine months of 2021 and were more than offset by a reduction in claims related to non-COVID-19 medical needs.

The pandemic’s impact on economic conditions have contributed to sales declines, pressuring premium growth rates.

15 unchanged sentences

risk-based capital (RBC) ratios.

The Company regularly evaluates adjustments to its foreign currency-hedging program in Aflac Japan to mitigate

hedging cost and settlement risk while maintaining a strong SMR, including changes in the level of hedging employed with the U.S dollar-denominated investments.

The Company regularly evaluates adjustments to its foreign currency-hedging program in Aflac Japan to mitigate hedging cost and settlement risk while maintaining a strong SMR, including changes in the level of hedging employed with the U.S dollar-denominated investments.

See the Liquidity and Capital Resources section of this MD&A for additional information regarding other potential sources of liquidity and capital resources.

2 unchanged sentences

Fundamental credit analysis and de-risking activity in prior periods contributed to the current quality of the Company’s investments.

Although economic and market conditions have continued to improve, the Company remains cautious about the continued path of the recovery and the potential longer term impacts of the pandemic.

In addition, the reopening and supply shortages have triggered price increases which have, among other things, increased inflation expectations and which may ultimately result in an increase in inflation.

The Company continues working with certain borrowers to provide temporary relief of terms by providing payment deferrals and other modifications or waivers where the Company believes it improves its overall position.

For additional information on these loan modifications, see Note 3 of the Notes to the Consolidated Financial Statements.

Economic and market conditions have continued to improve throughout most of 2021.

The continued path of the recovery remains uncertain given the potential longer term impacts of the pandemic.

This includes structural changes in employment patterns which are impacting multiple sectors of the economy and contributing to disruptions in the global supply chain, triggering price increases across several areas of the broader economy.

Supply shortages, upward pressure on wages to attract employees and higher commodity prices have all driven near-term increases in inflation.

It remains unclear whether the current elevated levels of inflation are transitory or more lasting, making the ultimate impact on the global economy and markets uncertain, with resulting uncertainty as to the impact on the Company's investments.

• Crisis Management

6 unchanged sentences

Aflac Japan has maintained certain measures implemented at the onset of the pandemic, such as restrictions on travel, working from home, staggered work hours and limitations on the number of personnel attending in-person meetings.

As of June 30, 2021, Aflac Japan had approximately 54% of its workforce working remotely.

As of September 30, 2021, Aflac Japan had approximately 57% of its workforce working remotely.

Aflac Japan continues to evaluate return to the office measures;

6 unchanged sentences

The Parent Company and Aflac U.S.

continue to maintain certain employee and worksite safety measures that were first implemented at the onset of the pandemic, including restrictions on international travel, as well as protocols to limit in-person meetings applicable to U.S.

As of June 30, 2021, over 85% of U.S.

continue to maintain certain employee and worksite safety measures that were first implemented at the onset of the pandemic, as well as protocols to limit in-person meetings applicable to U.S.

As of September 30, 2021, over 80% of U.S.

employees were working remotely.

While a small number of U.S.

employees remained at or previously returned to one of the Company's worksites, a company-wide effort to return U.S.

based employees of the Parent Company, Aflac U.S.

asset management subsidiary to the worksite began in July 2021.

The return to worksite is a phased approach throughout the rest of 2021 and into 2022, subject to factors including the availability of treatments and vaccines, the return schedule of school systems and the availability of child care, the number of COVID–19 cases and the COVID–19 replication rate in areas of the U.S.

The Company's return to worksite for U.S.

based employees is expected to be a phased approach that begins in the first quarter of 2022, subject to factors including vaccination rates, the return schedule of school systems and the availability of child care, the number of COVID–19 cases and the COVID–19 replication rate, the emergence of new variants and hospital capacity in areas of the U.S.

where the Company has significant operations.

1 unchanged sentence

After the return to worksite, the Parent Company and Aflac U.S.

expect to adopt a workforce model

comprised of a mix of full time office employees, full time remote employees, and employees who will split their time between office and remote work.

expect to adopt a workforce model comprised of a mix of full time

office employees, full time remote employees, and employees who will split their time between office and remote work.

The Parent Company and Aflac U.S.

also continues to maintain several actions taken for its employees.

also continue to maintain several actions taken for its employees.

These include a commitment to cover the costs of COVID-19 testing and extended paid leave in certain circumstances.

16 unchanged sentences

The state of emergency declaration for Okinawa was also further extended to August 22, 2021.

Subsequently, the Government of Japan further extended the state of emergency declaration to 19 prefectures, and extended the emergency declaration period until September 30, 2021.

On September 30, 2021, the state of emergency declaration was fully lifted by the Government of Japan.

In addition to the restrictions imposed by these emergency declarations, certain local governments continue to request a reduction of the onsite workforce and restraint from non-urgent traveling.

6 unchanged sentences

In January 2021, the grace period on premium payments was extended to July 31, 2021 for the policyholders who live in areas under the state of emergency and in February 2021, the scope was expanded to all regions in Japan.

Furthermore, in response to the state of emergency declaration in April 2021, in May 2021 and July 2021, the grace period on premium payments was extended to October, 31, 2021, November 30, 2021 and January 31, 2022, respectively.

Furthermore, in response to the state of emergency declaration in April 2021, in May 2021, in July 2021 and August 2021, the grace period on premium payments was extended to October, 31, 2021, November 30, 2021, January 31, 2022 and February 28, 2022, respectively.

Aflac Japan will continue to provide flexibility for policyholders who live in areas under the state of emergency, including extending the payment grace period for a maximum of six months from the state of emergency declaration.

1 unchanged sentence

During 2021, in response to fluctuations in COVID-19 infection rates and the declaration of a state of emergency by the Government of Japan, Aflac Japan has responded to requests of the Government of Japan and local governments while also giving priority to customer service quality and business continuity.

In the U.S., initial statewide shelter in place or stay at home orders were lifted and economic activity restrictions are easing in most states and have been lifted in a number of other states.

In the U.S., initial statewide shelter in place or stay at home orders were lifted although restrictions such as social distancing, mask or vaccination requirements exist in some localities.

A September 9, 2021 executive order and related September 24, 2021 guidance issued by the Biden Administration will require COVID-19 vaccination of certain federal contractor employees, except in certain limited circumstances, as well as masking and social distancing measures applicable to such employees and workplace visitors.The Company is reviewing the order and guidance to determine their potential impact on the Company's operations.

Throughout the pandemic, Aflac U.S.

has taken steps to comply with COVID-19-related directives issued by state regulatory authorities, including those requiring or requesting premium grace periods.

As of June 30, 2021, premium grace periods remained in effect in six states, Puerto Rico and the District of Columbia.

experienced some increase in policy lapses in the first six months of 2021 in certain states where premium grace periods expired.

As of September 30, 2021, premium grace periods remained in effect in three states and Puerto Rico.

experienced some increase in policy lapses in the first nine months of 2021 in certain states where premium grace periods expired.

If the premium grace periods continue to expire throughout 2021, Aflac U.S.

7 unchanged sentences

Performance Highlights

Total revenues were $5.6 billion in the second quarter of 2021, compared with $5.4 billion in the second quarter of 2020.

Net earnings were $1.1 billion, or $1.62 per diluted share in the second quarter of 2021, compared with $805 million, or $1.12 per diluted share, in the second quarter of 2020, driven by higher net investment gains.

Total revenues were $11.4 billion in the first six months of 2021, compared with $10.6 billion in the first six months of 2020.

Net earnings were $2.4 billion, or $3.49 per diluted share in the first six months of 2021, compared with $1.4 billion, or $1.89 per diluted share, in the first six months of 2020, driven by higher net investment gains.

Results in the second quarter of 2021 included pretax net investment gains of $89 million, compared with net investment losses of $170 million in the second quarter of 2020.

Net investment gains in the second quarter of 2021 included a decrease in credit loss allowances of $12 million;

Total revenues were $5.2 billion in the third quarter of 2021, compared with $5.7 billion in the third quarter of 2020.

Net earnings were $888 million, or $1.32 per diluted share in the third quarter of 2021, compared with $2.5 billion, or $3.44 per diluted share, in the third quarter of 2020.

Net earnings in the third quarter of 2020 reflects a $1.4 billion benefit primarily from the release of valuation allowances on deferred foreign tax credits, which were allowed due to U.S.

tax regulations released in September 2020.

Total revenues were $16.7 billion in the first nine months of 2021, compared with $16.2 billion in the first nine months of 2020.

Net earnings were $3.3 billion, or $4.82 per diluted share in the first nine months of 2021, compared with $3.8 billion, or $5.31 per diluted share, in the first nine months of 2020.

Net earnings in the first nine months of 2020 reflects a $1.4 billion benefit primarily from the release of valuation allowances on deferred foreign tax credits, which were allowed due to U.S.

tax regulations released in September 2020.

Results in the third quarter of 2021 included pretax net investment losses of $171 million, compared with pretax net investment gains of $108 million in the third quarter of 2020.

Net investment losses in the third quarter of 2021 included a decrease in credit loss allowances of $1 million;

$39 million of net losses from certain derivative and foreign currency gains or losses;

$170 million of net gains on equity securities;

and $6 million of net gains from sales and redemptions.

Results in the first six months of 2021 included pretax net investment gains of $396 million, compared with net investment losses of $633 million in the first six months of 2020.

Net investment gains in the first six months of 2021 included a decrease in credit loss allowances of $34 million;

$119 million of net losses on equity securities;

and $14 million of net losses from sales and redemptions.

Results in the first nine months of 2021 included pretax net investment gains of $224 million, compared with pretax net investment losses of $525 million in the first nine months of 2020.

Net investment gains in the first nine months of 2021 included a decrease in credit loss allowances of $35 million;

$226 million of net gains from certain derivative and foreign currency gains or losses;

$102 million of net gains on equity securities;

$17 million of net losses on equity securities;

and $20 million of net losses from sales and redemptions.

The average yen/dollar exchange rate (1) for the three-month period ended June 30, 2021 was 109.48, or 1.7% weaker than the average yen/dollar exchange rate (1) of 107.65 for the same period in 2020.

The average yen/dollar exchange rate (1) for the six-month period ended June 30, 2021 was 107.79, or .4% stronger than the average yen/dollar exchange rate (1) of 108.25 for the same period in 2020.

Adjusted earnings (2) in the second quarter of 2021 were $1.1 billion, or $1.59 per diluted share, compared with $921 million, or $1.28 per diluted share, in the second quarter of 2020, driven by lower-than-expected benefit ratios and higher net investment income, primarily in Japan.

The average yen/dollar exchange rate (1) for the three-month period ended September 30, 2021 was 110.11, or 3.5% weaker than the average yen/dollar exchange rate (1) of 106.23 for the same period in 2020.

The average yen/dollar exchange rate (1) for the nine-month period ended September 30, 2021 was 108.58, or .9% weaker than the average yen/dollar exchange rate (1) of 107.63 for the same period in 2020.

Adjusted earnings (2) in the third quarter of 2021 were $1.0 billion, or $1.53 per diluted share, compared with $994 million, or $1.39 per diluted share, in the third quarter of 2020.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.02.

Adjusted earnings (2) in the first six months of 2021 were $2.1 billion, or $3.11 per diluted share, compared with $1.8 billion, or $2.49 per diluted share, in the first six months of 2020.

The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $(.01).

Total investments and cash at June 30, 2021 were $146.7 billion, compared with $142.2 billion at June 30, 2020.

In the first six months of 2021, Aflac Incorporated repurchased $1.2 billion, or 22.6 million of its common shares.

At June 30, 2021, the Company had 76.5 million remaining shares authorized for repurchase.

Shareholders’ equity was $33.7 billion, or $50.20 per share, at June 30, 2021, compared with $29.4 billion, or $41.21 per share, at June 30, 2020.

Shareholders’ equity at June 30, 2021 included a net unrealized gain on investment securities and derivatives of $10.0 billion, compared with a net unrealized gain of $8.5 billion at June 30, 2020.

Shareholders’ equity

at June 30, 2021 also included an unrealized foreign currency translation loss of $1.7 billion, compared with an unrealized foreign currency translation loss of $1.5 billion at June 30, 2020.

The annualized return on average shareholders’ equity in the second quarter of 2021 was 13.4%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $25.7 billion, or $38.27 per share at June 30, 2021, compared with $22.7 billion, or $31.75 per share, at June 30, 2020.

The annualized adjusted return on equity (ROE) excluding foreign currency impact (2) in the second quarter of 2021 was 17.0%.

Adjusted earnings (2) in the first nine months of 2021 were $3.2 billion, or $4.65 per diluted share, compared with $2.8 billion, or $3.88 per diluted share, in the first nine months of 2020.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.01.

Total investments and cash at September 30, 2021 were $146.0 billion, compared with $146.1 billion at September 30, 2020.

In the first nine months of 2021, Aflac Incorporated repurchased $1.7 billion, or 32.2 million of its common shares.

At September 30, 2021, the Company had 67.0 million remaining shares authorized for repurchase.

Shareholders’ equity was $33.6 billion, or $50.62 per share, at September 30, 2021, compared with $32.5 billion, or $46.16 per share, at September 30, 2020.

Shareholders’ equity at September 30, 2021 included a net unrealized gain on investment securities and derivatives of $9.7 billion, compared with a net unrealized gain of $9.5 billion at September 30, 2020.

Shareholders’ equity at September 30, 2021 also included an unrealized foreign currency translation loss of $1.8 billion, compared with an unrealized foreign currency translation loss of $1.3 billion at September 30, 2020.

The annualized return on average shareholders’ equity in the third quarter of 2021 was 10.6%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $25.9 billion, or $39.06 per share at September 30, 2021, compared with $24.6 billion, or $34.91 per share, at September 30, 2020.

The annualized adjusted return on equity (ROE) excluding foreign currency impact (2) in the third quarter of 2021 was 16.2%.

dollar exchange rates are based on the published MUFG Bank, Ltd.

25 unchanged sentences

Adjusted revenues are U.S.

GAAP total revenues excluding adjusted net investment gains and losses.

revenues excluding adjusted net investment gains and losses.

Adjusted expenses are U.S.

3 unchanged sentences

GAAP financial measures for adjusted earnings and adjusted earnings per share (basic or diluted) are net earnings and net earnings per share, respectively.

• Adjusted net investment gains and losses are net investment gains and losses adjusted for i) amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity, ii) net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies, which are both reclassified to net investment income, and iii) the impact of interest cash flows from

derivatives associated with notes payable, which is reclassified to interest expense as a component of total adjusted expenses.

The Company considers adjusted net investment gains and losses important as it represents the remainder amount that is considered outside management’s control, while excluding the components that are within management’s control and are accordingly reclassified to net investment income and interest expense.

26 unchanged sentences

The Company considers U.S.

dollar-denominated investment income excluding foreign currency impact important as it eliminates the impact of foreign currency changes on the Aflac Japan segment results, which are outside management’s control.

dollar-denominated investment income excluding foreign currency impact important as it eliminates the impact of foreign currency

changes on the Aflac Japan segment results, which are outside management’s control.

The most comparable U.S.

6 unchanged sentences

In Millions Per Diluted Share In Millions Per Diluted Share

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020 2021 2020 2021 2020

5 unchanged sentences

Income tax (benefit) expense on items excluded from adjusted earnings (37) 72 (.06) .10 32 (125) .05 (.17)

Tax valuation allowance

0 (1,418) .00 (1.99) 0 (1,418) .00 (1.97)

Adjusted earnings 1,031 994 1.53 1.39 3,169 2,797 4.65 3.88

4 unchanged sentences

(2) See reconciliation of net investment (gains) losses to adjusted net investment (gains) losses below

(3) One-time tax benefit recognized in the third quarter of 2020 representing the release of valuation allowances on deferred foreign tax credits due to new tax regulations.

(4) Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.

2 unchanged sentences

Reconciliation of Net Investment (Gains) Losses to Adjusted Net Investment (Gains) Losses (1)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

7 unchanged sentences

(1) Amounts may not foot due to rounding.

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s growth and profitability.

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s profitability.

This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure.

The Company does not purchase securities with the intent of generating investment gains or losses.

However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing.

However, investment

gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing.

The realization of investment gains and losses is independent of the underwriting and administration of the Company's insurance products.

11 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

22 unchanged sentences

these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services.

These integration costs amounted to $5 million and $12 million for the three- and six-month periods ended June 30, 2021, respectively.

These integration costs amounted to $8 million and $20 million for the three- and nine-month periods ended September 30, 2021, respectively.

The Company considers the costs associated with the early redemption of its debt to be unrelated to the underlying fundamentals and trends in its insurance operations.

Additionally, these costs are driven by changes in interest rates subsequent to the issuance of the debt, and the Company considers these interest rate changes to represent economic conditions not directly associated with its insurance operations.

In May 2021, the Parent Company used a portion of the net proceeds from its April 2021 issuance of various series of senior notes to redeem $700 million of the its 3.625% senior notes due June 2023.

The pretax expense due to the early redemption of these notes was $48 million.

In January 2020, the Parent Company used the net proceeds from senior notes issued in December 2019 to redeem $350 million of its 4.00% senior notes due February 2022.

The pretax expense due to the early redemption of these notes was $15 million.

The Company's combined U.S.

and Japanese effective income tax rate on pretax earnings was 19.5% for the three-month period ended June 30, 2021, compared with 24.8% for the same period in 2020.

and Japanese effective income tax rate on pretax earnings was 20.2% for the three-month period ended September 30, 2021, compared with (112.9)% for the same period in 2020.

The Company's combined U.S.

and Japanese effective income tax rate on pretax earnings was 19.4% for the six-month period ended June 30, 2021, compared with 23.4% for the same period in 2020.

The reduction in the effective tax rate for the three- and six-month periods ended June 30, 2021 was driven by new tax regulations released in the third quarter of 2020 and historic and solar tax credits.

The combined effective tax rate differs from the U.S.

statutory rate primarily due to foreign earnings taxed at different rates.

For additional information, see Critical Accounting Estimates - Income Taxes section of the MD&A in the 2020 Annual Report.

and Japanese effective income tax rate on pretax earnings was 19.7% for the nine-month period ended September 30, 2021, compared with (30.0)% for the same period in 2020.

In 2021, the combined effective tax rate differs from the U.S.

statutory rate primarily due to new tax regulations released in the third quarter of 2020 and historic and solar tax credits.

In 2020, the combined effective tax rate differs from the U.S.

statutory rate primarily due to the release of certain valuation allowances established on the Company's deferred foreign tax credit benefits.

The release of these valuation allowances was a result of the issuance of Final and Proposed Regulations issued by the U.S.

Treasury and Internal Revenue Service on September 29, 2020, and resulted in a one-time income tax benefit of $1.4 billion in the third quarter of 2020.

For additional information, see Note 10 of the Notes to the Consolidated Financial Statements and the Critical Accounting Estimates - Income Taxes section of the MD&A in the 2020 Annual Report.

The Company expects that its effective tax rate for future periods will be approximately 20%.

41 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

22 unchanged sentences

Three Months Ended

June 30, Six Months Ended

June 30, Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020 2021 2020 2021 2020

4 unchanged sentences

Pretax adjusted earnings 30.7 (10.9) 17.4 (2.5) 35.8 (11.6) 18.7 (3.8)

(1) 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.

In the three- and six-month periods ended June 30, 2021, Aflac Japan's net premium income decreased, in yen terms, due to an anticipated decrease in first sector premiums as savings products reached premium paid-up status and constrained sales during the COVID-19 pandemic.

Adjusted net investment income increased in the three- and six-month periods ended June 30, 2021, primarily due to higher alternative and floating rate income and lower hedge costs.

Annualized premiums in force decreased 4.5% to ¥1.39 trillion as of June 30, 2021, compared with ¥1.46 trillion as of June 30, 2020.

(1) 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.

In the three- and nine-month periods ended September 30, 2021, Aflac Japan's net premium income decreased, in yen terms, due to an anticipated decrease in first sector premiums as savings products reached premium paid-up status and constrained sales during the COVID-19 pandemic.

Adjusted net investment income increased in the three- and nine-month periods ended September 30, 2021, primarily due to higher alternative and floating rate income and lower hedge costs.

Annualized premiums in force decreased 4.6% to ¥1.38 trillion as of September 30, 2021, compared with ¥1.44 trillion as of September 30, 2020.

The decrease in annualized premiums in force in yen was driven primarily by limited-pay products reaching paid up status and lower sales during the COVID-19 pandemic.

Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $12.6 billion at June 30, 2021, compared with $13.5 billion at June 30, 2020.

Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $12.3 billion at September 30, 2021, compared with $13.6 billion at September 30, 2020.

Aflac Japan's investment portfolios include U.S.

11 unchanged sentences

(Yen Operating Results)

For the Periods Ended June 30,

For the Periods Ended September 30,

Including Foreign

1 unchanged sentence

Currency Changes

Three Months Six Months Three Months Six Months

Three Months Nine Months Three Months Nine Months

2021 2020 2021 2020 2021 2020 2021 2020

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

11 unchanged sentences

Amortization of deferred policy acquisition costs 5.3 4.8 5.5 5.1

In the three- and six-month periods ended June 30, 2021, the benefit ratio decreased, compared with the same periods in the prior year.

This is primarily due to the continued change in mix of first and third sector business, favorable third sector claim experience, and higher surrenders in Aflac Japan's medical products.

In the three- and six-month periods ended June 30, 2021, the adjusted expense ratio increased due to an increase in expenses, mainly due to increased outsourcing expenses related primarily to enhancement of business continuity infrastructure in times of crises such as the COVID-19 pandemic situation, paperless and digital experience and an increase in DAC amortization caused by higher surrenders in Aflac Japan's medical products.

In total, the pretax adjusted profit margin increased in the three- and six-month periods ended June 30, 2021.

In the three- and nine-month periods ended September 30, 2021, the benefit ratio decreased, compared with the same periods in the prior year.

This is primarily due to the continued change in mix of first and third sector business, favorable third sector claim experience, and higher surrenders in Aflac Japan's third sector business.

In the three-month period ended September 30, 2021, the adjusted expense ratio decreased mainly due to a decrease in loss adjustment expenses, compared to the same period in the prior year.

In the nine-month period ended September 30, 2021, the adjusted expense ratio increased mainly due to an increase in outsourcing expenses related to enhancement of business continuity infrastructure in times of crisis such as the COVID-19 pandemic situation.

In total, the pretax adjusted profit margin increased in the three- and nine-month periods ended September 30, 2021 primarily due to lower benefit ratios.

For the full year of 2021, the Company will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

Aflac Japan Sales

The following table presents Aflac Japan’s new annualized premium sales for the periods ended June 30.

The following table presents Aflac Japan’s new annualized premium sales for the periods ended September 30.

In Dollars In Yen

Three Months Six Months Three Months Six Months

Three Months Nine Months Three Months Nine Months

(In millions of dollars and billions of yen) 2021 2020 2021 2020 2021 2020 2021 2020

1 unchanged sentence

Increase (decrease) over prior period (3.8) % (31.0) % 9.4 % (39.5) % .0 % (32.0) % 10.3 % (40.4) %

The following table details the contributions to Aflac Japan's new annualized premium sales by major insurance product for the periods ended June 30.

Three Months Six Months

The following table details the contributions to Aflac Japan's new annualized premium sales by major insurance product for the periods ended September 30.

Three Months Nine Months

2021 2020 2021 2020

14 unchanged sentences

With continued cost pressure on Japan’s health care system, the Company expects the need for third sector products will continue to rise in the future and that the medical and cancer insurance products Aflac Japan provides will continue to be an important part of its product portfolio.

Sales of protection-type first sector and third sector products on a yen basis increased 38.6% in the second quarter of 2021, compared with the same period in 2020, primarily due to the launch of a new medical product in January 2021 and favorable comparisons as a result of pandemic conditions in 2020.

Sales of Aflac Japan cancer products in the Japan Post Group channel experienced a material decline beginning in August 2019 which has continued into the first six months of 2021.

On March 24, 2021, Japan Post Group announced that it planned to begin resuming proactive sales of financial products on April 1, 2021, which the Company believes will lead to gradual improvement of cancer insurance sales in the second half of the year.

Sales of protection-type first sector and third sector products on a yen basis were essentially flat in the third quarter of 2021, compared with the same period in 2020.

Sales of Aflac Japan cancer products in the Japan Post Group channel experienced a material decline beginning in August 2019 which has continued in 2021.

Japan Post Group began resuming proactive sales of cancer insurance policies on April 1, 2021 and Aflac Japan continues to strengthen the strategic alliance.

The Company expects continued collaboration to further position both companies for long-term growth and a gradual improvement of Japan Post Group cancer insurance sales in the intermediate term.

For additional information, see the risk factor entitled "Events related to the ongoing Japan Post investigation and other matters regarding sales of Japan Post Insurance products could negatively impact the Company’s sales and results of operations ," in Item 1A.

3 unchanged sentences

Further, Aflac Japan continues to utilize its virtual sales tool that enables online consultations and policy applications to be completed entirely online.

The following table details the contributions to Aflac Japan's new annualized premium sales by agency type for the three-month periods ended June 30.

The following table details the contributions to Aflac Japan's new annualized premium sales by agency type for the three-month periods ended September 30.

Independent corporate and individual 49.9 % 51.7 %

2 unchanged sentences

(1) Includes Japan Post

During the three-month period ended June 30, 2021, Aflac Japan recruited 22 new sales agencies.

At June 30, 2021, Aflac Japan was represented by more than 8,300 sales agencies, with more than 113,000 licensed sales associates employed by those agencies.

During the three-month period ended September 30, 2021, Aflac Japan recruited 13 new sales agencies.

At September 30, 2021, Aflac Japan was represented by approximately 8,200 sales agencies, with more than 112,000 licensed sales associates employed by those agencies.

The number of sales agencies has declined in recent years due to Aflac Japan's focus on supporting agencies with strong management frameworks, high productivity and more producing agents.

At June 30, 2021, Aflac Japan had agreements to sell its products at 359 banks, approximately 90% of the total number of banks in Japan.

At September 30, 2021, Aflac Japan had agreements to sell its products at 360 banks, approximately 90% of the total number of banks in Japan.

Strategic Alliance with Japan Post Holdings

17 unchanged sentences

The following table details the investment purchases for Aflac Japan.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

21 unchanged sentences

See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report for more information regarding loans and loan receivables.

The following table presents the results of Aflac Japan’s investment yields for the periods ended June 30.

Three Months Six Months

The following table presents the results of Aflac Japan’s investment yields for the periods ended September 30.

Three Months Nine Months

2021 2020 2021 2020

12 unchanged sentences

(3) Net of investment expenses and amortized hedge costs, year-to-date number reflected on a quarterly average basis

The increase in the Aflac Japan new money yield in the three-month period ended June 30, 2021 was primarily due to higher allocations to floating rate asset classes.

The decrease in the Aflac Japan new money yield in the six-month period ended June 30, 2021 was primarily due to higher allocations to lower yielding yen-denominated asset classes.

The increase in the Aflac Japan new money yield in the three-month period ended September 30, 2021 was primarily due to higher allocation to floating rate asset classes.

The decrease in the Aflac Japan new money yield in the nine-month period ended September 30, 2021 was primarily due to lower yields on floating rate asset classes.

See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Investments section of this MD&A for additional information on the Company's investments and hedging strategies.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

1 unchanged sentence

Adjusted net investment income (1)

191 175 557 523

Other income 32 24 90 78

13 unchanged sentences

Pretax adjusted earnings 8.8 (1.8) 12.5 8.6

In the three- and six-month periods ended June 30, 2021, net premium income for Aflac U.S.

(1) 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.

In the three- and nine-month periods ended September 30, 2021, net premium income for Aflac U.S.

decreased primarily due to constrained sales as a result of the COVID-19 pandemic.

Total adjusted revenues decreased in the three- and six-month periods ended June 30, 2021, mainly due to the decline in net premium income from reduced sales activity, partially offset by the increase in adjusted net investment income from higher variable net investment income.

Pretax adjusted earnings decreased in the three-month period ended June 30, 2021, primarily driven by lower net premium income and higher adjusted expenses despite lower benefits.

Pretax adjusted earnings increased in the six-month period ended June 30, 2021, driven primarily by the lower-than-expected benefit ratios due to lower incurred claims related to pandemic conditions.

Annualized premiums in force decreased 1.5% to $6.0 billion at June 30, 2021, compared with $6.1 billion at June 30, 2020.

Total adjusted revenues increased in the three-month period ended September 30, 2021, mainly due to the increase in adjusted net investment income from higher variable net investment income.

Total adjusted revenues decreased in the nine-month period ended September 30, 2021, mainly due to the decline in net premium income from reduced sales activity, partially offset by the increase in adjusted net investment income from higher variable net investment income.

Pretax adjusted earnings increased in the three- and nine-month periods ended September 30, 2021, driven primarily by the lower-than-expected benefit ratios due to lower incurred claims related to pandemic conditions.

Annualized premiums in force decreased .7% to $5.9 billion at September 30, 2021, compared with $6.0 billion at September 30, 2020.

The following table presents a summary of operating ratios for Aflac U.S.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

11 unchanged sentences

Amortization of deferred policy acquisition costs 8.8 10.0 8.8 10.0

For the three- and six-month periods ended June 30, 2021, the benefit ratio decreased compared with the same period in 2020, reflecting reduced estimates of both COVID-19-related and non-COVID-19-related incurred claims since the advent of the pandemic.

The adjusted expense ratio increased in the three- and six-month periods ended June 30, 2021, when compared with the same periods in 2020, primarily due to the decline in total adjusted revenues, partially offset by lower acquisition costs and lower DAC amortization, due to the decline in sales and impacted by higher persistency.

The pretax adjusted profit margin increased in the six-month period ended June 30, 2021, as compared with the same period in 2020, primarily due to lower benefit ratios.

For the three- and nine-month periods ended September 30, 2021, the benefit ratio decreased compared with the same periods in 2020, reflecting reduced estimates of both COVID-19-related and non-COVID-19-related incurred claims since the advent of the pandemic.

The adjusted expense ratio increased in the three- and nine-month periods ended September 30, 2021, when compared with the same periods in 2020, primarily due to planned spending on buy-to-build investments, offset slightly by lower DAC amortization related to elevated persistency.

The pretax adjusted profit margin increased in the three- and nine-month periods ended September 30, 2021, compared with the same periods in 2020, primarily due to lower benefit ratios.

For the full year of 2021, the Company will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

The following table presents Aflac's U.S.

new annualized premium sales for the periods ended June 30.

Three Months Six Months

new annualized premium sales for the periods ended September 30.

Three Months Nine Months

(In millions) 2021 2020 2021 2020

2 unchanged sentences

The following table details the contributions to Aflac's U.S.

new annualized premium sales by major insurance product category for the periods ended June 30.

Three Months Six Months

new annualized premium sales by major insurance product category for the periods ended September 30.

Three Months Nine Months

2021 2020 2021 2020

12 unchanged sentences

critical care insurance sales (including cancer insurance) increased 25.4%;

and hospital indemnity insurance sales increased 57.0% in the second quarter of 2021, compared with the same period in 2020.

and hospital indemnity insurance sales increased 20.9% in the third quarter of 2021, compared with the same period in 2020.

The increase in sales for Aflac U.S.

in the second quarter of 2021 is primarily attributable to increased sales activity as a result of the ongoing economic reopening in the U.S.

in the third quarter of 2021 is primarily attributable to increased sales activity as a result of the ongoing economic reopening in the U.S.

and favorable comparisons due to pandemic conditions in 2020.

See the Executive Summary section entitled COVID-19 of this MD&A for additional information.

In the second quarter of 2021, the Aflac U.S.

In the third quarter of 2021, the Aflac U.S.

sales force included an average of approximately 5,900 U.S.

1 unchanged sentence

The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and needs, as well as serve as a leading indicator of future production capacity.

believes that limitations on face-to-face sales opportunities during the COVID-19 pandemic have tended to suppress the development of newly recruited agents into business producers and the productivity of veteran agents and brokers, which since the onset of the pandemic has resulted in fewer average weekly producers and has acted as a headwind to Aflac U.S.

While gains were made in recruiting during the second quarter of 2021 compared with the second quarter of 2020, most notably among recruited brokers, Aflac U.S.

remains focused on mitigating and reversing this trend as the U.S.

believes that during the third quarter, constraints in the labor market have limited its recruiting of new sales agents, and that during the second and third quarters of 2021 limitations on face-to-face sales opportunities during the COVID-19 pandemic suppressed the development of newly recruited agents into business producers and the productivity of veteran agents and brokers.

While gains were made in recruiting during the second and third quarter of 2021 compared with the same time in 2020, most notably among recruited brokers, Aflac U.S.

believes that the above factors have acted as a headwind to sales and to growth in the number of average weekly producers during 2021.

remains focused on mitigating and reversing these trends as the U.S.

economy continues to recover from the pandemic.

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

13 unchanged sentences

The following table presents the results of Aflac's U.S.

investment yields for the periods ended June 30.

Three Months Six Months

investment yields for the periods ended September 30.

Three Months Nine Months

2021 2020 2021 2020

12 unchanged sentences

The increase in the Aflac U.S.

new money yield for the three-month period ended June 30, 2021 was primarily due to higher allocations to floating rate asset classes.

The decrease in the Aflac U.S.

new money yield for the six-month period ended June 30, 2021 was primarily due to lower yields in fixed rate asset classes.

new money yield for the three- and nine-month periods ended September 30, 2021 was primarily due to higher yields on floating rate asset classes.

See Notes 3 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on the Company's investments.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

13 unchanged sentences

Pretax adjusted earnings $ (41) $ (39) $ (144) $ (69)

(1) 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 in the consolidated statement of earnings.

(1) 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.

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.

In the three- and six-month periods ended June 30, 2021, the decrease in total adjusted revenues was primarily driven by a decline in adjusted net investment income as a result of the amortization for federal historic rehabilitation and solar investments in partnerships discussed below, as well as lower amortized hedge income.

The decrease in pretax adjusted earnings in the three-month period ended June 30, 2021, was primarily driven by lower adjusted net investment income.

The decrease in pretax adjusted earnings for the six-month period ended June 30, 2021, was primarily driven by lower adjusted net investment income and higher interest expense associated with debt issuances.

In the three- and nine-month periods ended September 30, 2021, the decrease in total adjusted revenues was primarily driven by a decline in adjusted net investment income as a result of the change in value of federal historic rehabilitation and solar investments in partnerships discussed below, as well as lower amortized hedge income.

The decrease in pretax adjusted earnings in the three-month period ended September 30, 2021, was primarily driven by lower adjusted net investment income.

The decrease in pretax adjusted earnings for the nine-month period ended September 30, 2021, was primarily driven by lower adjusted net investment income and higher interest expense associated with debt issuances.

The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits.

These investments are classified as limited partnerships and included in other investments in the consolidated balance sheet.

These investments are classified as

limited partnerships and included in other investments in the consolidated balance sheet.

The change in value of each investment is recorded as a reduction to net investment income.

11 unchanged sentences

Investment Securities by Segment

June 30, 2021

September 30, 2021

(In millions) Aflac Japan Aflac U.S.

56 unchanged sentences

Composition of Fixed Maturity Securities by Credit Rating

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Value Amortized

5 unchanged sentences

Total 100.0 % 100.0 % 100.0 % 100.0 %

As of June 30, 2021, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of June 30, 2021.

As of September 30, 2021, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of September 30, 2021.

(In millions) Credit

1 unchanged sentence

Value Unrealized Loss

Transocean Inc.

CCC $ 49 $ 35 $ (14)

KLM Royal Dutch Airlines B $ 148 $ 135 $ (13)

Grenke Finance PLC BBB 63 55 (8)

Intesa Sanpaolo Spa BBB 139 132 (7)

Nippon Prologis REIT Inc.

Kommunal Landspensjonskasse (KLP) BBB 134 128 (6)

Nippon Prologis REIT Inc.

Alphabet Inc.

AA 173 168 (5)

National Football League A 145 141 (4)

Grenke Finance PLC BBB 63 59 (4)

Lloyds Banking Group PLC A 206 202 (4)

Commonwealth of the Bahamas BB 43 39 (4)

Heathrow Funding Ltd.

BBB 89 86 (3)

Mitsui Fudosan Co.

6 unchanged sentences

Below-Investment-Grade Investments

June 30, 2021

September 30, 2021

(In millions) Par

7 unchanged sentences

Telecom Italia SpA 179 179 236 57

Barclays Bank PLC 181 122 202 80

Apache Corporation 138 123 169 46

1 unchanged sentence

IKB Deutsche Industriebank AG 116 53 108 55

100 83 125 42

Other Issuers 415 370 471 101

2,431 2,144 2,691 547

Senior secured bank loans 120 124 118 (6)

High yield corporate bonds 805 787 843 56

3 unchanged sentences

(2) Securities initially purchased as investment grade, but have subsequently been downgraded to below investment grade

The Company invests in senior secured bank loans and middle market loans primarily to U.S.

The Company invests in middle market loans primarily to U.S.

corporate borrowers, most of which have below-investment-grade ratings.

The objectives of these programs include enhancing the yield on invested assets, achieving further diversification of credit risk, and mitigating the risk of rising interest rates and hedge costs through the acquisition of floating rate assets.

The objectives of this program include enhancing the yield on invested assets, achieving further diversification of credit risk, and mitigating the risk of rising interest rates and hedge costs through the acquisition of floating rate assets.

The Company maintains an allocation to higher yielding corporate bonds within the Aflac Japan and Aflac U.S.

5 unchanged sentences

The following table shows the distribution of fixed maturities by sector classification.

June 30, 2021

September 30, 2021

(In millions) Amortized Cost (1)

30 unchanged sentences

Investment Securities by Type of Issuance

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In millions) Amortized

15 unchanged sentences

Reverse-Dual Currency Securities (1)

(Amortized cost, in millions) June 30,

(Amortized cost, in millions) September 30,

2021 December 31,

40 unchanged sentences

dollar-denominated investments held by Aflac Japan.

September 30,

2021 December 31,

17 unchanged sentences

dollar-denominated investments in Aflac Japan other than the investments in certain consolidated VIEs where the instrument is economically converted to yen as a result of a derivative in the consolidated VIE.

Aflac Japan maintains a collar program on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange and therefore support SMR.

Depending on further developments, including the possibility of further market volatility, there may be additional costs associated with maintaining the collar program.

Aflac Japan maintains an options program (collars and one sided options) on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange and therefore support SMR.

Depending on further developments, including the possibility of further market volatility, there may be additional costs associated with maintaining the options program.

The Company is continually evaluating other adjustments, including the possibility of changing the level of hedging employed with the U.S dollar-denominated investments.

As of June 30, 2021, Aflac Japan had $6.4 billion outstanding notional amounts of foreign currency forwards and $8.0 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging its U.S.

As of September 30, 2021, Aflac Japan had $6.4 billion outstanding notional amounts of foreign currency forwards and $8.0 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging its U.S.

dollar-denominated investments.

3 unchanged sentences

Foreign exchange derivatives used for hedging are periodically settled, which results in cash receipt or payment at maturity or early termination.

The Company had net cash outflows of $6 million and net cash inflows of $1 million for the three-month periods and net cash inflows of $102 million and net cash outflows of $32 million for the six-month periods ended June 30, 2021 and 2020, respectively, associated with the currency derivatives used for hedging Aflac Japan’s U.S.

The following table presents the settlements associated with the Company's currency derivatives used for hedging Aflac Japan’s U.S.

dollar-denominated investments.

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2021 2020 2021 2020

Net cash inflows (outflows) $ (14) $ (2) $ 88 $ (34)

Enterprise Corporate Hedging Program

The Company has designated certain yen-denominated liabilities and foreign currency forwards and options of the Parent Company as accounting hedges of its net investment in Aflac Japan.

The Company's consolidated yen-denominated net asset position was partially hedged at $10.4 billion as of June 30, 2021, compared with $9.9 billion as of December 31, 2020.

The Company's consolidated yen-denominated net asset position was partially hedged at $10.3 billion as of September 30, 2021, compared with $9.9 billion as of December 31, 2020.

The Company makes its accounting designation of net investment hedge at the beginning of each quarter.

If the total of the designated Parent Company non-derivative and derivative notional is equal to or less than the Company's net investment in Aflac Japan, the hedge is deemed to be effective, and the currency exchange effect on the yen-denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income.

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

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

For additional information on the Company's net investment hedging strategy, see Note 4 of the Notes to the Consolidated Financial Statements.

4 unchanged sentences

Among other objectives, this strategy is intended to offset the enterprise-wide amortized hedge costs by generating amortized hedge income.

The portion of the enterprise-wide amortized hedge income contributed by this strategy was $ 16 million and $27 million for the three-month periods and $ 33 million and $56 million for the six-month periods ended June 30, 2021 and 2020, respectively.

The portion of the enterprise-wide amortized hedge income contributed by this strategy was $ 13 million and $22 million for the three-month periods and $ 45 million and $78 million for the nine-month periods ended September 30, 2021 and 2020, respectively.

This activity is reported in Corporate and Other.

1 unchanged sentence

See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs/income.

The following table presents metrics related to Aflac Japan amortized hedge costs and the Parent Company amortized hedge income for the periods ended June 30.

The following table presents metrics related to Aflac Japan amortized hedge costs and the Parent Company amortized hedge income for the periods ended September 30.

Hedge Cost/Income Metrics (1)

Three Months Six Months

Three Months Nine Months

2021 2020 2021 2020

35 unchanged sentences

The following table presents deferred policy acquisition costs by segment.

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

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

Aflac Japan $ 6,418 $ 6,991 (8.2) % (1)

1 unchanged sentence

Total $ 9,714 $ 10,441 (7.0) %

(1) Aflac Japan’s deferred policy acquisition costs decreased .7% in yen during the six months ended June 30, 2021.

(1) Aflac Japan’s deferred policy acquisition costs decreased .7% in yen during the nine months ended September 30, 2021.

See Note 6 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report for additional information on the Company's deferred policy acquisition costs.

1 unchanged sentence

The following table presents policy liabilities by segment.

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

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

Aflac Japan $ 96,039 $ 103,128 (6.9) % (1)

4 unchanged sentences

Total $ 107,443 $ 114,391 (6.1) %

(1) Aflac Japan’s policy liabilities increased .4% in yen during the six months ended June 30, 2021.

(1) Aflac Japan’s policy liabilities increased .7% in yen during the nine months ended September 30, 2021.

(2) Elimination entry necessary due to recapture of a portion of policy liabilities ceded externally, as a result of the reinsurance retrocession transaction as described in Note 7 of the Notes to the Consolidated Financial Statements.

10 unchanged sentences

Effective April 2014, the annual LIPPC contribution amount for the total life industry was lowered from ¥40 billion to ¥33 billion.

Aflac Japan recognized an expense of ¥.9 billion and ¥1.0 billion for the six-month periods ended June 30, 2021 and 2020, respectively, for LIPPC assessments.

Aflac Japan recognized an expense of ¥1.8 billion and ¥1.9 billion for the nine-month periods ended September 30, 2021 and 2020, respectively, for LIPPC assessments.

Guaranty Fund Assessments

1 unchanged sentence

The amount of the guaranty fund assessment that an insurer is assessed is based on its proportionate share of premiums in that state.

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

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

OFF-BALANCE SHEET ARRANGEMENTS

See Note 3 of the Notes to the Consolidated Financial Statements for details on certain investment commitments.

As of June 30, 2021, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

As of September 30, 2021, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

See Note 15 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

15 unchanged sentences

Amid the COVID-19 pandemic, the Company remains committed to prudent liquidity and capital management.

At June 30, 2021, the Company held $5.5 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion.

At September 30, 2021, the Company held $6.2 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion.

For additional information on the Company’s liquidity and capital resources in response to COVID-19, see the Executive Summary section of this MD&A.

2 unchanged sentences

The primary uses of cash by the Parent Company are shareholder dividends, the repurchase of its common stock and interest on its outstanding indebtedness and operating expenses.

The following table presents the amounts provided to the Parent Company for the six-month periods ended June 30.

The following table presents the amounts provided to the Parent Company for the nine-month periods ended September 30.

Liquidity Provided by Subsidiaries to Parent Company

2 unchanged sentences

Management fees paid by subsidiaries 96 100

The following table details Aflac Japan remittances for the six-month periods ended June 30.

The following table details Aflac Japan remittances for the nine-month periods ended September 30.

Aflac Japan Remittances

4 unchanged sentences

The Company intends to maintain higher than historical levels of liquidity and capital at the Parent Company for stress conditions and with the goals of addressing the Company’s hedge costs and related potential need for collateral and mitigating against long-term weakening of the Japanese yen.

Further, the Company plans to continue to maintain a portfolio of unhedged U.S.

dollar based investments at Aflac Japan and to consider whether the amount of such

investments should be increased or decreased relative to the Company’s view of economic equity surplus in Aflac Japan in light of potentially rising hedge costs and other factors.

Further, the Company plans to continue to maintain a

portfolio of unhedged U.S.

dollar based investments at Aflac Japan and to consider whether the amount of such investments should be increased or decreased relative to the Company’s view of economic equity surplus in Aflac Japan in light of potentially rising hedge costs and other factors.

See the Hedging Activity subsection of this MD&A for more information.

2 unchanged sentences

The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available.

Additionally, as of June 30, 2021, the Parent Company and Aflac had four lines of credit with third parties as well as nine intercompany lines of credit.

Additionally, as of September 30, 2021, the Parent Company and Aflac had four lines of credit with third parties as well as ten intercompany lines of credit.

For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

1 unchanged sentence

The Company has not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein.

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

The Company has not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards, including securities lending transactions.

6 unchanged sentences

When the yen strengthens, translating yen into dollars causes more dollars to be reported.

The following table summarizes consolidated cash flows by activity for the six-month periods ended June 30.

The following table summarizes consolidated cash flows by activity for the nine-month periods ended September 30.

(In millions) 2021 2020

14 unchanged sentences

Currently, when the Company's fixed maturity securities mature, the proceeds may be reinvested at a yield below that required for the accretion of policy benefit liabilities on policies issued in earlier years.

However, the long-term nature of the Company's business and its strong cash flows provide the Company with the ability to minimize the effect of mismatched durations and/or yields identified by various asset adequacy analyses.

time or when market opportunities arise, the Company disposes of selected fixed maturity securities that are available for sale to improve the duration matching of assets and liabilities, improve future investment yields, and/or re-balance its portfolio.

However, the long-term nature of the Company's business and its strong cash flows provide the Company with the ability

to minimize the effect of mismatched durations and/or yields identified by various asset adequacy analyses.

From time to time or when market opportunities arise, the Company disposes of selected fixed maturity securities that are available for sale to improve the duration matching of assets and liabilities, improve future investment yields, and/or re-balance its portfolio.

As a result, dispositions before maturity can vary significantly from year to year.

6 unchanged sentences

obtains low-cost funding from FHLB supported by acceptable forms of collateral pledged by Aflac U.S.

In the first six months of 2021, Aflac U.S.

In the first nine months of 2021, Aflac U.S.

borrowed and repaid $78 million under this program.

As of June 30, 2021, Aflac U.S.

As of September 30, 2021, Aflac U.S.

had outstanding borrowings of $320 million reported in its balance sheet.

1 unchanged sentence

Financing Activities

Consolidated cash used by financing activities was $1.1 billion in the first six months of 2021, compared with consolidated cash provided by financing activities of $152 million for the same period of 2020.

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.

Consolidated cash used by financing activities was $1.9 billion in the first nine months of 2021, compared with consolidated cash used by financing activities of $431 million for the same period of 2020.

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

See Note 8 of the Notes to the Consolidated Financial Statements for further information on the debt issuance discussed above.

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

Cash returned to shareholders through treasury stock purchases and dividends was $1.6 billion during the six-month period ended June 30, 2021, compared with $1.0 billion during the six-month period ended June 30, 2020.

The following tables present a summary of treasury stock activity during the six-month periods ended June 30.

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

Cash returned to shareholders through treasury stock purchases and dividends was $2.3 billion during the nine-month period ended September 30, 2021, compared with $1.6 billion during the nine-month period ended September 30, 2020.

The following tables present a summary of treasury stock activity during the nine-month periods ended September 30.

Treasury Stock Purchased

12 unchanged sentences

Number of shares issued 1,424 1,884

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.

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.

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.

For information on the impact of COVID-19 on the Company's share repurchase program, see the Executive Summary section of this MD&A.

Cash dividends paid to shareholders were $.33 per share in the second quarter of 2021, compared with $.28 per share in the second quarter of 2020.

The following table presents the dividend activity for the six-month periods ended June 30.

Cash dividends paid to shareholders were $.33 per share in the third quarter of 2021, compared with $.28 per share in the third quarter of 2020.

The following table presents the dividend activity for the nine-month periods ended September 30.

(In millions) 2021 2020

2 unchanged sentences

Total dividends to shareholders $ 670 $ 602

In July 2021, the board of directors declared the third quarter cash dividend of $.33 per share, an increase of 17.9% compared with the same period in 2020.

The dividend is payable on September 1, 2021 to shareholders of record at the close of business on August 18, 2021.

In October 2021, the board of directors declared the fourth quarter cash dividend of $.33 per share, an increase of 17.9% compared with the same period in 2020.

The dividend is payable on December 1, 2021 to shareholders of record at the close of business on November 17, 2021.

Regulatory Restrictions

18 unchanged sentences

See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.

As of June 30, 2021, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

As of September 30, 2021, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

The Company is committed to maintaining strong capital levels throughout the pandemic, consistent with maintaining current insurance financial strength and credit ratings.

7 unchanged sentences

The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations.

As of June 30, 2021, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

As of September 30, 2021, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

Aflac, CAIC and TOIC are domiciled in Nebraska and are subject to its regulations.

25 unchanged sentences

The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments.

The application of these critical accounting estimates determines the values at which 94% of the Company's assets and 80% of its liabilities are reported as of June 30, 2021, and thus has a direct effect on net earnings and shareholders’ equity.

The application of these critical accounting estimates determines the values at which 93% of the Company's assets and 80% of its liabilities are reported as of September 30, 2021, and thus has a direct effect on net earnings and shareholders’ equity.

Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items the Company has identified as critical accounting estimates during the six months ended June 30, 2021.

There have been no changes in the items the Company has identified as critical accounting estimates during the nine months ended September 30, 2021.

For additional information, see the Critical Accounting Estimates section of MD&A included in the 2020 Annual Report.

2 unchanged sentences

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 2. Management’s Discussion and Analysis