What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-28 · 254 added, 469 removed, 881 unchanged (45% of the section changed)

24 unchanged sentences

• 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

• the Company's ability to attract and retain qualified sales associates, brokers, employees, and distribution partners

• deviations in actual experience from pricing and reserving assumptions

3 unchanged sentences

• inherent limitations to risk management policies and procedures

• the level of sales of Aflac Japan products in the Japan Post channel

• operational risks of third party vendors

• tax rates applicable to the Company may change

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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 nine-month periods ended September 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 three-month periods ended March 31, 2022 and 2021, respectively.

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

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In this MD&A, amounts may not foot due to rounding.

For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part II.

Other Information.

This MD&A is divided into the following sections:

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Policyholder Protection

Off-Balance Sheet Arrangements

Liquidity and Capital Resources

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(collectively, Aflac U.S.).

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

At the onset of the pandemic in 2020, the majority of the Company’s employees in Japan and the U.S.

shifted to remote working environments, with returns to office undertaken as warranted by local conditions.

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 nine 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.

Both Aflac Japan and Aflac U.S.

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

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.

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

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.

This has been partially offset by lower lapse rates in the U.S.

The Company has not experienced material realized losses or impairments and credit losses associated with the pandemic.

The Company continues to 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.

Those impacts may cause changes to estimates of future earnings, capital deployment, regulatory capital position, segment dividend payout ratios and other measures the Company provided under 2021 Outlook in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2020 Annual Report.

The Company’s efforts and other developments are outlined below.

• Liquidity and Capital Resources

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.

The Company remains committed to prudent liquidity and capital management.

In terms of repurchases, the Company remains in the market and is being tactical in its approach to repurchasing its stock.

The Company believes that this approach will allow it to increase or decrease repurchase activity depending on how the pandemic and market conditions evolve.

The Company is committed to maintaining a strong Aflac Japan solvency margin ratio (SMR) and Aflac U.S.

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.

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

• Investment Portfolio

The Company's investment portfolio was well-positioned entering the crisis, and the Company continues to follow its strategy of investing primarily in fixed maturity securities to generate a reliable stream of income.

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

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

The Company established command centers in Japan and the U.S.

to monitor and communicate pandemic developments to the Company's leadership.

The command centers participate in regular updates to the Company's leadership, including government and regulatory actions, operations, employee policies and conditions and distribution status.

In addition, updates on cybersecurity are provided, including with respect to the Company's remote workforce.

Moreover, the Company's financial leadership group has been meeting more frequently since the onset of the pandemic and has focused on the capital markets, capital and liquidity position, stress testing and any defensive actions that may be necessary.

• Aflac Japan initiatives

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

Aflac Japan continues to evaluate return to the office measures;

however, throughout the pandemic, Aflac Japan has evaluated its operational capabilities and anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations.

In June 2021, in response to the Government of Japan's initiative to accelerate vaccinations, Aflac Japan began offering workplace vaccinations to employees, temporary workers and contractors, including employee co-resident spouses, children and relatives who wish to be vaccinated.

Aflac Japan also introduced a special paid leave system for employees who wish to receive a COVID-19 vaccination.

Aflac Japan remains focused on generating new business to existing and prospective customers through direct mail and digital methods.

Aflac Japan has also accelerated investments in digital and paperless initiatives designed to increase long term productivity, efficiency, customer service and business continuity.

and Corporate and Other initiatives

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, 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.

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.

For those employees who are working in one of the Company's worksites, safety protocols have been put in place that align with or exceed those recommended by the Centers for Disease Control and Prevention (CDC).

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.

The Parent Company and Aflac U.S.

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.

policy sales, enrollment and agent recruiting functions are highly dependent upon face-to-face interaction between independent agents and brokers with prospective and new customers and agents.

Throughout the pandemic, opportunities for such interaction have been significantly reduced by reactions to the pandemic, such as social distancing, shelter in place orders and work from home initiatives.

Notwithstanding the general improvement of economic conditions to date in 2021, the impact of pandemic conditions on Aflac U.S.

sales remains subject to uncertainty as the effects of varying levels of vaccination and the emergence of COVID-19 variants continue to develop.

has accelerated investments in digital initiatives designed to improve long term productivity, efficiency and customer service.

Further, Aflac U.S.

is in its third year of the build-out of the Consumer Markets business for the digital direct-to-consumer sale of insurance and sales made through that platform have continued to grow.

• Major government initiatives

Government authorities in Japan and the U.S.

have implemented several initiatives in response to the COVID-19 pandemic, including actions designed to mitigate the adverse health effects of the virus and those designed to provide broad-based relief and economic support to all aspects of the economy.

In January 2021, in response to the spread of COVID-19, the Government of Japan issued a state of emergency declaration covering 11 prefectures, including Tokyo and Osaka.

The declaration was lifted in stages in areas where improvements in infection rates and lower healthcare system utilization were observed, and it was lifted in all areas on March 21, 2021.

On April 23, 2021, due to the continued spread of COVID-19, the Government of Japan issued a state of emergency declaration covering four prefectures, including Tokyo and Osaka, from April 25, 2021 until May 11, 2021.

This declaration was expanded to ten prefectures and extended until June 20, 2021, due to the emergence of COVID-19 variants and the continued increase in infections and impacts on the healthcare system.

On June 20, 2021, the declaration was lifted in nine prefectures, including Tokyo and Osaka, and extended only in Okinawa until July 11.

On July 8, 2021, due to a rise in COVID-19 infections, the Government of Japan issued a new state of emergency declaration for Tokyo for the period from July 12, 2021 to August 22, 2021.

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.

The Financial Services Agency (FSA) has requested that financial service providers in Japan respond appropriately while continuing their essential operations.

This request includes insurance companies, which have been asked to continue essential operations such as benefits and claims payment, including policyholder loans.

Moreover, following the expansion of the impact of COVID-19, the FSA requested insurance companies to consider flexible interpretation and application of insurance policy provisions and measures required for products from the standpoint of protecting policyholders.

In accordance with the FSA’s request, Aflac Life Insurance Japan Ltd.

implemented a measure to pay accidental death benefits and accidental serious disability benefits under its accidental death benefit rider in cases of death or specified serious disabilities from COVID-19.

Throughout the pandemic, Aflac Japan has also followed the guidance of the FSA in terms of treating customers with care, ensuring ease and timeliness of claims payments and extended coverage for temporary medical facilities and telemedicine in certain circumstances, and waiver of interest on certain policyholder loans.

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, 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.

Policyholders are required to file for relief through this extension.

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 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 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.

would expect an increase in lapse rates, and a decrease in corresponding persistency rates.

government took action in response to the COVID-19 pandemic by providing broad-based relief and economic support to all aspects of the economy.

The American Rescue Plan (ARP) Act of 2021 was signed into law in March 2021 and was designed to provide approximately $1.9 trillion in financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities.

Among other measures, the ARP Act provides funding for vaccines and testing;

for states, tribal and local governments;

and for small businesses.

The ARP Act also expands eligibility for the Paycheck Protection Program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March 2020.

Market Conditions

The impact of the Coronavirus Disease 2019 (COVID-19) global pandemic on the Company continues to evolve and the continued path of the global economic recovery remains uncertain given the potential longer term impacts of the pandemic.

For example, economic conditions have acted as headwinds to sales in the first quarter of 2022, particularly in Japan, pressuring premium growth rates.

Further, in the U.S., supply shortages, upward pressure on wages to attract employees and higher commodity prices have all driven near-term increases in inflation.

Central bank and government efforts to control inflation, as well the impacts of the Russia-Ukraine conflict, including volatility in energy prices and additional disruptions in the global supply chain, could lead to slower economic growth in Japan and the U.S.

Additionally, rising energy prices, along with increased widening of the differential between U.S.

and Japan interest rates, have contributed to a weakening of the yen, which has the effect of suppressing the Company's current period results in relation to the comparable prior period.

In the first quarter of 2022, sales for Aflac Japan in yen terms decreased 14.8%, compared to the first quarter of 2021, reflecting ongoing pandemic conditions and a first quarter of 2021 that included the launch of a new medical product.

In the first quarter of 2022, sales for Aflac U.S.

increased 19.0%, compared to the first quarter of 2021, reflecting continued improvement in pandemic conditions in the U.S.

and investment in growth initiatives.

Performance Highlights

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;

$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;

Total revenues were $5.3 billion in the first quarter of 2022, compared with $5.9 billion in the first quarter of 2021.

Net earnings were $1.0 billion, or $1.58 per diluted share in the first quarter of 2022, compared with $1.3 billion, or $1.87 per diluted share, in the first quarter of 2021.

Results in the first quarter of 2022 included pretax net investment gains of $122 million, compared with pretax net investment gains of $307 million in the first quarter of 2021.

Net investment gains in the first quarter of 2022 included a decrease in credit loss allowances of $25 million;

$167 million of net gains from certain derivative and foreign currency gains or losses;

$156 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 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 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.

and $86 million of net gains from sales and redemptions.

The average yen/dollar exchange rate (1) for the three-month period ended March 31, 2022 was 116.18, or 8.9% weaker than the average yen/dollar exchange rate (1) of 105.88 for the same period in 2021.

Adjusted earnings (2) in the first quarter of 2022 were $927 million, or $1.42 per diluted share, compared with $1.1 billion, or $1.53 per diluted share, in the first quarter of 2021.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.06.

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%.

Total investments and cash at March 31, 2022 were $132.6 billion, compared with $143.0 billion at December 31, 2021.

In the first quarter of 2022, Aflac Incorporated repurchased $500 million, or 8.0 million of its common shares.

At March 31, 2022, the Company had 47.8 million remaining shares authorized for repurchase.

Shareholders’ equity was $29.5 billion, or $45.75 per share, at March 31, 2022, compared with $33.3 billion, or $50.99 per share, at December 31, 2021.

Shareholders’ equity at March 31, 2022 included a net unrealized gain on investment securities and derivatives of $5.8 billion, compared with a net unrealized gain of $9.6 billion at December 31, 2021.

Shareholders’ equity at March 31, 2022 also included an unrealized foreign currency translation loss of $2.5 billion, compared with an unrealized foreign currency translation loss of $2.0 billion at December 31, 2021.

The annualized return on average shareholders’ equity in the first quarter of 2022 was 13.2%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $26.4 billion, or $40.93 per share at March 31, 2022, compared with $25.9 billion, or $39.65 per share, at December 31, 2021.

The annualized adjusted return on equity (ROE) excluding foreign currency impact (2) in the first quarter of 2022 was 14.7%.

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

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GAAP reporting purposes, which results in foreign currency impact to earnings, cash flows and book value on a U.S.

Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts on book value and the currency-neutral operating performance over time.

Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts and the currency-neutral operating performance over time.

The average yen/dollar exchange rate is based on the published MUFG Bank, Ltd.

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Adjusted revenues are U.S.

revenues excluding adjusted net investment gains and losses.

GAAP total revenues excluding adjusted net investment gains and losses.

Adjusted expenses are U.S.

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• 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.

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.

The most comparable U.S.

GAAP financial measure for adjusted net investment gains and losses is net investment gains and losses.

• Amortized hedge costs/income represent costs/income incurred or recognized as a result of using foreign currency derivatives to hedge certain foreign exchange risks in the Company's Japan segment or in the Corporate and Other segment.

These amortized hedge costs/ income are estimated at the inception of the derivatives based on the specific terms of each contract and are recognized on a straight-line basis over the term of the hedge.

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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.

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Reconciliation of Net Earnings to Adjusted Earnings

In Millions Per Diluted Share In Millions Per Diluted Share

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

In Millions Per Diluted Share

Three Months Ended March 31,

2022 2021 2022 2021

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Income tax (benefit) expense on items excluded from adjusted earnings 28 62 .04 .09

Tax valuation allowance

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

Adjusted earnings 927 1,058 1.42 1.53

Current period foreign currency impact (2)

14 N/A .02 N/A 8 N/A .01 N/A

37 N/A .06 N/A

Adjusted earnings excluding current period foreign currency impact $ 963 $ 1,058 $ 1.48 $ 1.53

(1) Amounts may not foot due to rounding.

(1) 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.

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

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

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

Three Months Ended March 31,

(In millions) 2022 2021

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Adjusted net investment (gains) losses $ (134) $ (304)

(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 profitability.

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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.

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• cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures

• foreign currency swaps that are associated with VIE bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary

• foreign currency swaps that are associated with variable interest entity (VIE) bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary

• interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments

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Based on this structure, the Company does not remove the Japan policyholder protection expenses from adjusted earnings.

Other items excluded from adjusted earnings included integration costs related to the Company's acquisition of Zurich North America's U.S.

Corporate Life and Pensions business;

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

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 20.2% for the three-month period ended September 30, 2021, compared with (112.9)% for the same period in 2020.

Other items excluded from adjusted earnings include integration costs related to the Company's acquisition of Zurich North America's U.S.

Corporate Life and Pensions business;

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

These integration costs are excluded from adjusted earnings for one year following the acquisition and amounted to $6 million for the three-month period ended March 31, 2021.

The Company's combined U.S.

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.

and Japanese effective income tax rate on pretax earnings was 19.1% for the three-month period ended March 31, 2022, compared with 19.4% for the same period in 2021.

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

statutory rate primarily due to solar, historic and foreign tax credits.

For additional information, see the Critical Accounting Estimates - Income Taxes section of Item 7.

MD&A in the 2021 Annual Report.

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

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and in foreign jurisdictions.

See risk factor entitled "Tax rates applicable to the Company may change" in the 2020 Annual Report for more information.

See the risk factor entitled "Tax rates applicable to the Company may change" in Item 1A.

Risk Factors of the 2021 Annual Report for more information.

Foreign Currency Translation

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Yen-denominated income statement accounts are translated to U.S.

dollars using a weighted average Japanese yen/U.S.

dollar foreign exchange rate, except realized gains and losses on security transactions which are translated at the exchange rate on the trade date of each transaction.

dollars using the weighted average Japanese yen/U.S.

dollar foreign exchange rate for the reporting period, except realized gains and losses on securities transactions which are translated at the exchange rate on the trade date of each transaction.

Yen-denominated balance sheet accounts are translated to U.S.

dollars using a spot Japanese yen/U.S.

dollar foreign exchange rate.

dollars using the spot Japanese yen/U.S.

dollar foreign exchange rate at the end of the reporting period.

RESULTS OF OPERATIONS BY SEGMENT

4 unchanged sentences

Aflac Japan is the principal contributor to consolidated earnings.

Businesses that are not individually reportable, such as the Parent Company, asset management subsidiaries and other business activities, including reinsurance retrocession activities, are included in the Corporate and other segment.

See the Item 1.

Business section of the 2020 Annual Report for a summary of each segment's products and distribution channels.

In addition, the Parent Company, other 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.

Business in the 2021 Annual Report for a summary of each segment's products and distribution channels.

Consistent with U.S.

18 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

Net premium income $ 2,934 $ 3,168 $ 9,045 $ 9,476

Net earned premiums $ 2,724 $ 3,123

Net investment income:

2 unchanged sentences

Net investment income 705 724

Amortized hedge costs related to certain foreign currency exposure

management strategies 20 51 55 155

Amortized hedge costs related to certain foreign currency exposure management strategies 26 19

Adjusted net investment income 680 705

14 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

March 31, Three Months Ended

2022 2021 2022 2021

Net premium income (7.4) % (2.3) % (4.5) % (1.2) % (4.0) % (3.3) % (3.8) % (2.6) %

Adjusted net investment

income 15.1 .6 16.6 3.2 19.7 (.2) 17.9 1.9

Net earned premiums (12.8) % (.9) % (4.3) % (3.6) %

Adjusted net investment income (3.5) 9.8 5.9 6.9

Total adjusted revenues (11.1) 1.0 (2.5) (1.8)

Pretax adjusted earnings (2.8) 3.7 6.8 .9

(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 $12.3 billion at September 30, 2021, compared with $13.6 billion at September 30, 2020.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(10) and $(8) for the three-month periods ended March 31, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three-month period ended March 31, 2022, Aflac Japan's net earned premiums decreased, in yen terms, mainly due to limited-pay products reaching premium paid-up status and constrained sales from the impact of pandemic conditions.

In yen terms, adjusted net investment income increased in the three-month period ended March 31, 2022, primarily due to higher alternative and floating rate income as well as the impact of a weaker yen on U.S.

dollar-denominated investment income.

The increase in pretax adjusted earnings in yen for the quarter was primarily due to continued favorable claim trends and higher adjusted net investment income.

Annualized premiums in force decreased 4.6% to ¥1.35 trillion as of March 31, 2022, compared with ¥1.41 trillion as of March 31, 2021.

The decrease in annualized premiums in force in yen was driven primarily by limited-pay products reaching premium 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 $11.0 billion at March 31, 2022, compared with $12.7 billion at March 31, 2021.

Aflac Japan's investment portfolios include U.S.

11 unchanged sentences

(Yen Operating Results)

For the Periods Ended September 30,

For the Periods Ended March 31,

Including Foreign

1 unchanged sentence

Currency Changes

Three Months Nine Months Three Months Nine Months

Three Months Three Months

2022 2021 2022 2021

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

2021 2020 2021 2020

Benefits and claims, net 53.5 % 55.6 %

9 unchanged sentences

Amortization of deferred policy acquisition costs 5.7 5.5

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.

In the three-month period ended March 31, 2022, the benefit ratio to total premiums decreased, compared with the same period in the prior year.

This is primarily due to the continued change in the mix of first and third sector business and lower benefits in Aflac Japan's third sector business.

In the three-month period ended March 31, 2022, the adjusted expense ratio decreased slightly compared to 2021 reflecting the decrease in total adjusted revenues and an offsetting decrease in total adjusted expenses.

In total, the pretax adjusted profit margin increased in the three-month period ended March 31, 2022 primarily due to lower benefit ratios and higher adjusted net investment income.

Aflac Japan Sales

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

The following table presents Aflac Japan’s new annualized premium sales for the periods ended March 31.

In Dollars In Yen

Three Months Nine Months Three Months Nine Months

Three Months Three Months

(In millions of dollars and billions of yen) 2022 2021 2022 2021

1 unchanged sentence

Increase (decrease) over prior period (22.4) % 2.6 % (14.8) % (.2) %

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

The following table details the contributions to Aflac Japan's new annualized premium sales by major insurance product for the periods ended March 31.

Cancer 53.0 % 45.4 %

2 unchanged sentences

Ordinary life:

WAYS .7 .8 .7 .7

Child endowment .3 .3

Other ordinary life (1)

9.0 9.6 9.1 9.6

Other 3.3 .6 1.4 .7

Total 100.0 % 100.0 %

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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 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.

Sales of protection-type first sector and third sector products on a yen basis decreased 14.9% in the first quarter of 2022, compared with the first quarter of 2021, reflecting ongoing pandemic conditions and a first quarter of 2021 that included the launch of a new medical product.

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

Japan Post Group resumed proactive sales of cancer insurance policies in April 2021 and Aflac Japan continues to strengthen the strategic alliance.

In April 2022, approximately 10,000 employees of Japan Post Co.

were transferred to Japan Post Insurance.

Japan Post Group has informed Aflac Japan that the transferred employees' responsibilities will include sales of Japan Post Insurance products and Aflac Japan cancer products but will not include sales of other financial products.

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.

For example, during 2021 Aflac Japan observed an increase in the number of proposals to potential customers in the Japan Post Group channel, and the Japan Post Group continues to conduct a nationwide campaign to improve certain sales process practices.

For additional information, see the risk factor entitled "Sales of the Company's products and services are dependent on its ability to attract, retain and support a network of qualified sales associates, brokers and employees in the U.S.

and sales associates and other distribution partners in Japan," in Item 1A.

Risk Factors in the 2021 Annual Report.

Beginning in the second quarter of 2020 and continuing into 2021, Aflac Japan experienced a sharp drop-off in total sales, as compared to pre-pandemic levels, due to the ongoing effects of the COVID-19 pandemic.

In response to the COVID-19 pandemic, Aflac Japan continues to promote digital and web-based sales to groups and use of its system that enables smart device-based insurance application by allowing the customer and an Aflac Japan operator to see the same screen through their smart devices.

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 September 30.

The following table details the contributions to Aflac Japan's new annualized premium sales by agency type for the three-month periods ended March 31.

Independent corporate and individual 48.9 % 54.3 %

2 unchanged sentences

(1) Includes Japan Post

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.

During the three-month period ended March 31, 2022, Aflac Japan recruited 6 new sales agencies.

At March 31, 2022, Aflac Japan was represented by approximately 7,700 sales agencies, with approximately 110,000 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 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

As previously reported, on December 19, 2018, the Parent Company and Aflac Japan entered into a Basic Agreement with Japan Post Holdings Co., Ltd., a Japanese corporation (Japan Post Holdings).

Pursuant to the terms of the Basic Agreement, among other items, Japan Post Holdings and Aflac Japan agreed to reconfirm existing initiatives regarding cancer insurance and to consider new joint initiatives, including leveraging digital technology in various processes and cooperation in new product development to promote customer-centric business management.

In June 2021, the Parent Company and Aflac Japan, Japan Post Holdings, Japan Post Co., Ltd.

and Japan Post Insurance Co., Ltd.

agreed to pursue several specific initiatives toward building a "'Co-creation Platform' to support customers and local communities," consistent with Japan Post Group's medium-term management plan announced in May 2021.

The initiatives are directed at, among other items, the promotion of Aflac Japan cancer insurance, digital transformation within the Japan Post Group, and certain diversity efforts.

At March 31, 2022, Aflac Japan had agreements to sell its products at 360 banks, approximately 90% of the total number of banks in Japan.

Aflac Japan Investments

10 unchanged sentences

The following table details the investment purchases for Aflac Japan.

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

Three Months Ended March 31,

(In millions) 2022 2021

10 unchanged sentences

Other fixed maturity securities $ 85 $ 606

Infrastructure debt 0 0 0 55

Collateralized loan obligations 67 117

Equity securities 0 0 8 0

Commercial mortgage and other loans:

Transitional real estate loans 507 61

Commercial mortgage loans 0 0 17 12

Middle market loans 311 783

Other investments 48 56

Total dollar-denominated $ 1,383 $ 863 $ 4,673 $ 3,837

dollar-denominated $ 1,018 $ 1,623

Total Aflac Japan purchases $ 1,436 $ 3,226

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 2021 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 September 30.

Three Months Nine Months

2021 2020 2021 2020

The following table presents the results of Aflac Japan’s investment yields for the periods ended March 31.

Total purchases for the period (in millions) (1)

3 unchanged sentences

Return on average invested assets (3)

2.72 2.35 2.68 2.33

Portfolio book yield, including U.S.

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(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 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.

The increase in the Aflac Japan new money yield in the three-month period ended March 31, 2022 was primarily due to increased allocations to higher yielding floating rate asset classes.

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

Pretax Adjusted Earnings

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

Net premium income $ 1,393 $ 1,407 $ 4,223 $ 4,348

Net earned premiums $ 1,413 $ 1,422

Adjusted net investment income (1)

191 175 557 523

Other income 42 30

9 unchanged sentences

Percentage change over previous period:

Net premium income (1.0) % (2.6) (2.9) % (.4) %

Net earned premiums (.6) % (4.1) %

Adjusted net investment income 4.5 (.6)

1 unchanged sentence

Pretax adjusted earnings (27.0) 36.5

(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 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.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $1 for the three-month period ended March 31, 2022, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three-month period ended March 31, 2022, net earned premiums for Aflac U.S.

decreased primarily due to lower persistency.

Adjusted net investment income increased in the three-month period ended March 31, 2022, primarily impacted by higher variable net investment income.

Other income increased in the three-month period ended March 31, 2022 due to an increase in fee income.

The decrease in pretax adjusted earnings in the three-month period ended March 31, 2022, was driven by higher incurred benefits as benefits approach pre-pandemic levels, and elevated adjusted expenses.

Annualized premiums in force decreased 1.4% to $5.9 billion at March 31, 2022, compared with $6.0 billion at March 31, 2021.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

2021 2020 2021 2020

Benefits and claims 37.9 % 34.2 %

9 unchanged sentences

Amortization of deferred policy acquisition costs 11.9 9.8

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.

For the three-month period ended March 31, 2022, the benefit ratio to total premiums increased compared with the same period in 2021, reflecting higher incurred claims, partially offset by reserve releases related to lower persistency.

The adjusted expense ratio increased in the three-month period ended March 31, 2022, when compared with the same period in 2021, primarily due to higher DAC amortization associated with lower persistency and planned spending reflecting ongoing investments in the U.S.

The pretax adjusted profit margin decreased in the three-month period ended March 31, 2022, compared with the same period in 2021, primarily due to the higher adjusted expense and benefit ratios.

The following table presents Aflac's U.S.

new annualized premium sales for the periods ended September 30.

Three Months Nine Months

new annualized premium sales for the periods ended March 31.

(In millions) 2022 2021

1 unchanged sentence

Increase (decrease) over prior period 19.0 % (22.1) %

New annualized premium sales for accident insurance, the leading Aflac U.S.

product category, increased 14.1%;

disability sales increased 21.5%;

critical care insurance sales (including cancer insurance) increased 11.6%;

hospital indemnity insurance sales increased 18.6%;

and dental/vision sales increased 47.8% in the first quarter of 2022, compared with the first quarter of 2021.

The increase in sales for Aflac U.S.

in the first quarter of 2022 reflects continued improvement in pandemic conditions in the U.S and investment in growth initiatives.

For the full year of 2022, Aflac U.S.

expects this trend of increasing sales to continue.

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

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

Three Months Nine Months

2021 2020 2021 2020

new annualized premium sales by major insurance product category for the periods ended March 31.

Accident 25.3 % 26.3 %

1 unchanged sentence

Critical care (1)

19.1 20.5 20.8 20.8

Hospital indemnity 16.7 16.7

Dental/vision 5.6 4.6

Life 9.2 7.1 7.8 7.9

Total 100.0 % 100.0 %

(1) Includes cancer, critical illness, and hospital intensive care products

New annualized premium sales for accident insurance, the leading Aflac U.S.

product category, increased 30.6%;

disability sales increased 41.7%;

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

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 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 third quarter of 2021, the Aflac U.S.

In the first quarter of 2022, the Aflac U.S.

sales force included an average of approximately 6,100 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 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.

believes that during 2021 and continuing into 2022, constraints in the labor market have limited its recruiting of new sales agents, and that 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.

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

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

13 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

4 unchanged sentences

Equity securities 9 0

Commercial mortgage and other loans:

Other investments:

Transitional real estate loans 107 24

1 unchanged sentence

Middle market loans 166 58

Other investments 10 7 27 18

Limited partnerships 5 6

Total Aflac U.S.

2 unchanged sentences

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

investment yields for the periods ended September 30.

Three Months Nine Months

2021 2020 2021 2020

investment yields for the periods ended March 31.

Total purchases for period (in millions) (1)

$ 430 $ 285 $ 1,348 $ 714

New money yield (1), (2)

1 unchanged sentence

Return on average invested assets (3)

4.88 4.75 4.84 4.86

Portfolio book yield, end of period (1)

5 unchanged sentences

The increase in the Aflac U.S.

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.

new money yield for the three-month period ended March 31, 2022 was primarily due to increased allocations to higher yielding floating rate asset classes.

See Notes 3 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.

CORPORATE AND OTHER

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

Premium income $ 45 $ 49 $ 138 $ 146

Net earned premiums $ 41 $ 48

Net investment income (loss) (1)

Amortized hedge income related to certain foreign currency

management strategies 13 22 45 78

Amortized hedge income related to certain foreign currency management strategies 11 17

Adjusted net investment income 15 33

8 unchanged sentences

Pretax adjusted earnings $ (44) $ (26)

(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.

(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $12 for the three-month period ended March 31, 2022 is included as a reduction to net investment income.

Tax credits on these investments of $16 for the three-month period ended March 31, 2022 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 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.

In the three-month period ended March 31, 2022, the decrease in total adjusted revenues was primarily driven by a decline in adjusted net investment income, partially offset by an increase in other income due to the receipt of interest on a tax refund and a gain on the sale of a parcel of non-core real estate.

The decline in adjusted net investment income was primarily due to the impact of federal tax credit investments discussed below and lower amortized hedge income as a result of changing market conditions.

The decrease in pretax adjusted earnings for the three-month period ended March 31, 2022, primarily reflects lower adjusted revenues and increases in other adjusted expenses.

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.

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

Beginning in 2020, net investment income also includes the Company's portion of earnings from its strategic equity investment in an asset management company.

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

The Company’s investment strategy utilizes disciplined asset and liability management while seeking long-term risk-adjusted investment returns and the delivery of stable income within regulatory and capital objectives, and preserving shareholder value.

5 unchanged sentences

invests in both publicly traded and privately originated investment-grade and below-investment-grade fixed maturity securities and loans.

Additionally, in November 2021, the Company became a signatory to the Principles for Responsible Investment, a global framework for incorporating environmental, social and governance (ESG) considerations into investment and ownership decisions.

For additional information concerning the Company's investments, see Notes 3, 4, and 5 of the Notes to the Consolidated Financial Statements.

1 unchanged sentence

Investment Securities by Segment

September 30, 2021

March 31, 2022

(In millions) Aflac Japan Aflac U.S.

56 unchanged sentences

Composition of Fixed Maturity Securities by Credit Rating

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Value Amortized

5 unchanged sentences

Total 100.0 % 100.0 % 100.0 % 100.0 %

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.

As of March 31, 2022, 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 March 31, 2022.

(In millions) Credit

2 unchanged sentences

KLM Royal Dutch Airlines B $ 139 $ 120 $ (19)

Intesa Sanpaolo Spa BBB 139 132 (7)

Banco de Chile A 163 149 (14)

Kommunal Landspensjonskasse (KLP) BBB 123 113 (10)

Nippon Prologis REIT Inc.

Alphabet Inc.

AA 173 168 (5)

Grenke Finance PLC BBB 63 59 (4)

Lloyds Banking Group PLC A 188 178 (10)

Commonwealth of the Bahamas BB 43 39 (4)

JPMORGAN CHASE & CO A 224 215 (9)

ORACLE CORP BBB 195 186 (9)

Heathrow Funding Ltd.

BBB 82 73 (9)

Mitsui Fudosan Co.

DANSKE BANK A/S BBB 135 126 (9)

Intesa Sanpaolo Spa BBB 127 119 (8)

Nippon Prologis REIT Inc.

Generally, declines in fair values can be a result of changes in interest rates, yen/dollar exchange rate, and changes in net spreads driven by a broad market move or a change in the issuer's underlying credit quality.

5 unchanged sentences

Below-Investment-Grade Investments

September 30, 2021

March 31, 2022

(In millions) Par

2 unchanged sentences

Investcorp Capital Limited $ 352 $ 352 $ 355 $ 3

Commerzbank 357 249 412 163

Pemex Project Funding Master Trust 245 245 248 3

Autostrade Per Litalia Spa 179 177 210 33

Commerzbank 204 152 224 72

KLM Royal Dutch Airlines 163 139 120 (19)

Telecom Italia SpA 163 163 191 28

Autostrade Per Litalia Spa 163 162 175 13

Apache Corporation 138 116 156 40

119 114 161 47

IKB Deutsche Industriebank AG 106 50 94 44

100 76 107 31

Generalitat de Catalunya 65 26 78 52

Other Issuers 281 284 298 14

15 unchanged sentences

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

September 30, 2021

March 31, 2022

(In millions) Amortized Cost (1)

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Investment Securities by Type of Issuance

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(In millions) Amortized

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Reverse-Dual Currency Securities (1)

(Amortized cost, in millions) September 30,

(Amortized cost, in millions) March 31,

2022 December 31,

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The Company uses various strategies, including derivatives, to manage these risks.

See item “7A.

Quantitative and Qualitative Disclosures About Market Risk in the 2021 Annual Report for more information about market risk and the Company’s use of derivatives.

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( see Enterprise Corporate Hedging Program below ).

The following table presents metrics related to Aflac Japan's U.S.

dollar-denominated hedge program and the Parent Company's enterprise corporate hedging program, including associated amortized hedge costs/income, for the three-month periods ended March 31.

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

FX forward (sell USD, buy yen) notional at end of period (in billions) (1)

Weighted average remaining tenor (in months) (2)

Amortized hedge income (cost) for period (in millions) $(13) $(17)

FX option notional at the end of period (in billions) (1)

Weighted average remaining tenor (in months) (2)

Amortized hedge income (cost) for period (in millions) $(13) $(3)

Corporate and Other (Parent Company):

FX forward (buy USD, sell yen) notional at end of period (in billions) (1)

Weighted average remaining tenor (in months) (2)

Amortized hedge income (cost) for period (in millions) $12 $18

FX option notional at the end of period (in billions) (1)

Weighted average remaining tenor (in months) (2)

Amortized hedge income (cost) for period (in millions) $(1) $(1)

(1) Notional is reported net of any offsetting positions within Aflac Japan or the Parent Company, respectively.

(2) Tenor based on period reporting date to settlement date

Amortized hedge costs/income can fluctuate based upon many factors, including the derivative notional amount, the length of time of the derivative contract, changes in both U.S.

and Japan interest rates, and supply and demand for dollar funding.

Amortized hedge costs/income have fluctuated in recent periods due to changes in the previously mentioned factors.

Aflac Japan’s U.S.

Dollar-Denominated Hedge Program

Dollar-Denominated Hedge Program (U.S.

Dollar Program)

Aflac Japan buys U.S.

dollar-denominated investments, typically corporate bonds, and hedges them back to yen with foreign currency forwards and options to hedge foreign currency exchange rate risk.

This economically creates yen assets that match yen liabilities during the life of the derivative and provides capital relief.

This economically creates yen assets that match yen liabilities during the life of the derivative and provides favorable capital treatment under the Japan solvency margin ratio (SMR) calculations.

The currency risk being hedged is generally based on fair value of hedged investments.

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dollar-denominated investments held by Aflac Japan.

September 30,

2022 December 31,

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Fixed maturity securities (excluding bank loans) $ 16,543 $ 18,715 $ 17,615 $ 20,478

Fixed maturity securities - bank loans (floating rate) 0 0 319 283

Equity securities 22 22 24 24

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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 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.

The Company 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, Aflac Japan also maintains a collar program on a portion of its U.S.

Dollar Program to mitigate against more extreme moves in foreign exchange and therefore support SMR.

As of March 31, 2022, there were no collars in Aflac Japan, and none of the Company's foreign currency options hedging Aflac Japan's U.S.

dollar-denominated assets were in-the-money.

In 2021, the Company moved to a strategy that contains one-sided put options, fewer foreign currency forwards and no collars.

The Company believes that the new strategy will reduce its exposure to pricing volatility and the related risk of negative settlements should there be a material weakening in the yen.

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 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.

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

dollar-denominated investments.

The fair value of Aflac Japan's unhedged U.S.

As of March 31, 2022, the fair value of Aflac Japan's unhedged U.S.

dollar-denominated portfolio was $9.9 billion (excluding certain U.S.

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Three Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021

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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 $10.3 billion as of September 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 $10.0 billion as of March 31, 2022, with hedging instruments comprised of $3.1 billion of yen-denominated debt and $6.9 billion of foreign currency forwards and options, compared with $10.2 billion as of December 31, 2021, with hedging instruments comprised of $3.3 billion of yen-denominated debt and $6.9 billion of foreign currency forwards and options .

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 three- and nine-month periods ended September 30, 2021 and 2020, respectively.

The Company's net investment hedge was effective during the three-month periods ended March 31, 2022 and 2021, respectively.

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

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By buying U.S.

dollars and selling yen, the Parent Company is effectively lowering its overall economic exposure to the yen, while Aflac Japan's U.S dollar exposure remains reduced as a result of Aflac Japan's U.S.

dollar-denominated hedge program that economically creates yen assets.

dollars and selling yen, the Parent Company is effectively lowering its overall economic exposure to the yen, while Aflac Japan's U.S.

dollar exposure remains reduced as a result of Aflac Japan's U.S.

Dollar Program that economically creates yen assets.

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 $ 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.

As this program evolves, the Company will continue to evaluate the program’s efficacy.

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 September 30.

Hedge Cost/Income Metrics (1)

Three Months Nine Months

2021 2020 2021 2020

FX forward (sell USD, buy yen) notional at end of period (in billions) (2)

$6.4 $9.2 $6.4 $9.2

Weighted average remaining tenor (in months) (3)

3.7 10.3 3.7 10.3

Amortized hedge income (cost) for period (in millions) $(13) $(49) $(42) $(150)

FX option notional at the end of period (in billions) (2)

$8.0 $9.0 $8.0 $9.0

Weighted average remaining tenor (in months) (3)

3.6 1.2 3.6 1.2

Amortized hedge income (cost) for period (in millions) $(7) $(2) $(13) $(5)

Corporate and Other (Parent Company):

FX forward (buy USD, sell yen) notional at end of period (in billions) (2)

$5.0 $5.0 $5.0 $5.0

Weighted average remaining tenor (in months) (3)

12.2 12.5 12.2 12.5

Amortized hedge income (cost) for period (in millions) $14 $24 $49 $81

FX option notional at the end of period (in billions) (2)

$2.0 $2.1 $2.0 $2.1

Weighted average remaining tenor (in months) (3)

7.2 6.8 7.2 6.8

Amortized hedge income (cost) for period (in millions) $(1) $(2) $(4) $(3)

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

(2) Notional is reported net of any offsetting positions within Aflac Japan or the Parent Company, respectively.

(3) Tenor based on period reporting date to settlement date

Amortized hedge costs/income can fluctuate based upon many factors, including the derivative notional amount, the length of time of the derivative contract, changes in both U.S.

and Japan interest rates, and supply and demand for dollar funding.

Amortized hedge costs and income have fluctuated in recent periods due to changes in the previously mentioned factors.

The Company continually evaluates the program’s efficacy.

Interest Rate Risk Hedge Program

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dollar-denominated investments held by Aflac Japan, from time to time the Company utilizes interest rate swaptions.

For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, and Item 1A, specifically to the Risk Factor titled “The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and “Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity" in the 2020 Annual Report.

For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, and Item 1A, specifically to the Risk Factors titled “The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and “Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity" in the 2021 Annual Report.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on the Company's hedging activities.

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The following table presents deferred policy acquisition costs by segment.

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

(In millions) March 31, 2022 December 31, 2021 % Change

Aflac Japan $ 5,842 $ 6,233 (6.3) % (1)

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Total $ 9,082 $ 9,525 (4.7) %

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

(1) Aflac Japan’s deferred policy acquisition costs decreased .3% in yen during the three months ended March 31, 2022.

See Note 6 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report for additional information on the Company's deferred policy acquisition costs.

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The following table presents policy liabilities by segment.

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

(In millions) March 31, 2022 December 31, 2021 % Change

Aflac Japan $ 88,089 $ 93,613 (5.9) % (1)

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Total $ 99,643 $ 105,072 (5.2) %

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

(1) Aflac Japan’s policy liabilities increased .1% in yen during the three months ended March 31, 2022.

(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.

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Legislation enacted regarding the framework of the Life Insurance Policyholder Protection Corporation (LIPPC) included government fiscal measures supporting the LIPPC.

In November 2016, Japan's Diet passed legislation that extended the government's fiscal support of the LIPPC through March 2022.

In March 2022, Japan's Diet passed legislation that extended the government's fiscal support of the LIPPC through March 2027.

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 ¥1.8 billion and ¥1.9 billion for the nine-month periods ended September 30, 2021 and 2020, respectively, for LIPPC assessments.

Aflac Japan recognized an expense of ¥.9 billion for both of the three-month periods ended March 31, 2022 and 2021 for LIPPC assessments.

Guaranty Fund Assessments

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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 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 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.

Guaranty fund assessments for the three-month periods ended March 31, 2022 and 2021 were immaterial.

LIQUIDITY AND CAPITAL RESOURCES

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The target minimum amount for the Parent Company’s cash and cash equivalents is approximately $2.0 billion to provide a capital buffer and liquidity support at the holding company.

This amount excludes $400 million of proceeds from the issuance of senior sustainability notes discussed below, which proceeds contribute to the capital buffer but are not intended to support holding company liquidity.

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

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.

This amount excludes $400 million of proceeds from the issuance of senior sustainability notes in 2021, unallocated proceeds of which contribute to total cash but are not intended to support holding company liquidity.

The Company remains committed to prudent liquidity and capital management.

At March 31, 2022, the Company held $4.3 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion.

Aflac Japan and Aflac U.S.

provide the primary sources of liquidity to the Parent Company through management fees and dividends, with Aflac Japan being the largest contributor.

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 nine-month periods ended September 30.

generate cash flows from their operations and provide the primary sources of liquidity to the Parent Company through management fees and dividends, with Aflac Japan being the largest contributor.

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

The following table presents the amounts provided to the Parent Company for the three-month periods ended March 31.

Liquidity Provided by Subsidiaries to Parent Company

(In millions) 2022 2021

Dividends declared or paid by subsidiaries $ 2,016 $ 892

Management fees paid by subsidiaries $ 33 $ 32

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

Dividends declared or paid by subsidiaries 514 427

The following table details Aflac Japan remittances, which are included in the totals above, for the three-month periods ended March 31.

Aflac Japan Remittances

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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-denominated 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.

In addition to cash and equivalents, the Company also maintains credit facilities, both intercompany and with external partners, and a number of other available tools to support liquidity needs on a global basis.

The Company believes that its balance of cash and cash equivalents and cash generated by operations will be sufficient to satisfy both its short-term and long-term cash requirements and plans for cash, including material cash requirements from known contractual obligations and returning capital to shareholders through share repurchases and dividends.

For additional information, see the Liquidity and Capital Resources section of Item 7.

MD&A in the 2021 Annual Report.

In addition to cash and cash equivalents, the Company also maintains credit facilities, both intercompany and with external partners, and a number of other available tools to support liquidity needs on a global basis.

In September 2021, the Parent Company filed a shelf registration statement with the SEC that allows the Company to issue an indefinite amount of debt securities, in one or more series, from time to time until September 2024.

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

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.

Additionally, as of March 31, 2022, the Parent Company and Aflac had four lines of credit with third parties and ten intercompany lines of credit.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2022.

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

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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 September 30, 2021.

As of March 31, 2022, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

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.

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 2021 Annual Report for more information on the Company's securities lending and derivative activities.

See Note 15 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

With the exception of disclosed activities in those referenced footnotes and the Risk Factors in the 2021 Annual Report entitled, "The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and "Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity," the Company is not aware of any trend, demand, commitment, event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount.

Consolidated Cash Flows

The Company consistently generates positive cash flows from operations, and has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments in order to meet short-term cash needs.

The Company translates cash flows for Aflac Japan’s yen-denominated items into U.S.

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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 nine-month periods ended September 30.

The following table summarizes consolidated cash flows by activity for the three-month periods ended March 31.

(In millions) 2022 2021

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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.

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.

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As part of its overall corporate strategy, the Company has committed $400 million to Aflac Ventures, LLC (Aflac Ventures), as opportunities emerge.

Aflac Ventures is a subsidiary of Aflac Global Ventures, LLC (Aflac Global Ventures) which is reported in the Corporate and Other segment.

Aflac Ventures is a subsidiary of Aflac Global Ventures, LLC (Aflac Global Ventures) which is reported in Corporate and other.

The central mission of Aflac Global Ventures is to support the organic growth and business development needs of Aflac Japan and Aflac U.S.

with emphasis on digital applications designed to improve the customer experience, gain efficiencies, and develop new markets in an effort to enhance and defend long-term shareholder value.

with an emphasis on digital applications designed to improve the customer experience, gain efficiencies, and develop new markets in an effort to enhance and defend long-term shareholder value.

Investments are included in equity securities or the other investments line in the consolidated balance sheets.

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

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

In the first three months of 2022, Aflac U.S.

borrowed and repaid $171 million under this program.

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

As of March 31, 2022, Aflac U.S.

had outstanding borrowings of $471 million reported in its balance sheet.

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Financing Activities

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.

The first series, which totaled ¥30.0 billion, bears interest at a fixed rate of .633% per annum, payable semi-annually, and will mature in April 2031.

The second series, which totaled ¥12.0 billion, bears interest at a fixed rate of .844% per annum, payable semi-annually, and will mature in April 2033.

The third series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.039% per annum, payable semi-annually, and will mature in April 2036.

The fourth series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.264% per annum, payable semi-annually, and will mature in April 2041.

The fifth series, which totaled ¥20.0 billion, bears interest at a fixed rate of 1.560% per annum, payable semi-annually, and will mature in April 2051.

The notes are redeemable at the Parent Company’s option (i) at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S.

taxation, as specified in the indenture governing the terms of the issuance or (ii) on or after the date that is six months prior to the stated maturity date of the series, in whole or in part, at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.

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

In March 2021, the Parent Company issued $400 million of senior sustainability notes through a U.S.

public debt offering.

The notes bear interest at a fixed rate of 1.125% per annum, payable semi-annually, and will mature in March 2026.

The Company intends, but is not contractually committed, to allocate an amount at least equivalent to the net proceeds from this issuance exclusively to existing or future investments in, or financing of, assets, businesses or projects that meet the eligibility criteria of the Company's sustainability bond framework described in the offering documentation in connection with such notes.

These notes are redeemable at the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of:

(i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S.

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.

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 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.

Cash flows from financing activities consist primarily of share repurchases, dividends to shareholders and from time to time debt issuances and redemptions.

Cash returned to shareholders through treasury stock purchases and dividends was $750 million during the three-month period ended March 31, 2022, compared with $869 million during the three-month period ended March 31, 2021.

The following tables present a summary of treasury stock activity during the three-month periods ended March 31.

Treasury Stock Purchased

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Number of shares issued 526 810

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 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.

As of March 31, 2022, a remaining balance of 47.8 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Cash dividends paid to shareholders were $.40 per share in the first quarter of 2022, compared with $.33 per share in the first quarter of 2021.

The following table presents the dividend activity for the three-month periods ended March 31.

(In millions) 2022 2021

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Total dividends to shareholders $ 259 $ 227

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.

In April 2022, the board of directors declared the second quarter cash dividend of $.40 per share, an increase of 21.2% compared with the same period in 2021.

The dividend is payable on June 1, 2022 to shareholders of record at the close of business on May 18, 2022.

Regulatory Restrictions

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Aflac Japan's SMR is sensitive to interest rate, credit spread, and foreign exchange rate changes, therefore the Company continues to evaluate alternatives for reducing this sensitivity, including the reduction of subsidiary dividends paid to the Parent Company and Parent Company capital contributions.

In the event of a rapid change in market risk conditions causing SMR to decline, the Company has one senior unsecured revolving credit facility in the amount of ¥100 billion and a committed reinsurance facility in the amount of approximately ¥120 billion as a capital contingency plan.

of a rapid change in market risk conditions causing SMR to decline, the Company has one senior unsecured revolving credit facility in the amount of ¥100 billion and a committed reinsurance facility in the amount of approximately ¥120 billion as a capital contingency plan.

Additionally, the Company could take action to enter into derivatives on unhedged U.S.

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See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.

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.

For additional information see the Executive Summary COVID-19 section of this MD&A.

As of March 31, 2022, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

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

A life insurance company’s statutory capital and surplus is determined according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance department in the insurance company’s state of domicile.

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The Company's insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, reduced dividends paid to the Parent Company, capital contributions by the Parent Company from funds generated through debt or equity offerings, or reinsurance transactions.

The NAIC’s RBC formula is used by insurance regulators to help identify inadequately capitalized insurance companies.

The NAIC’s Risk-based capital (RBC) formula is used by insurance regulators to help identify inadequately capitalized insurance companies.

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

As of March 31, 2022, 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.

The maximum amount of dividends that can be paid to the Parent Company by Aflac, CAIC and TOIC without prior approval of Nebraska's director of insurance is the greater of the net income from operations, which excludes net investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end.

Dividends declared by Aflac during 2021 in excess of $872 million would be considered extraordinary and require such approval.

Dividends declared by Aflac during 2022 in excess of $1.1 billion would be considered extraordinary and require such approval.

Similar laws apply in New York, the domiciliary jurisdiction of Aflac New York.

4 unchanged sentences

The global information security program also includes a cybersecurity incident response plan that is designed to provide a management framework across Company functions for a coordinated assessment and response to potential security incidents.

This framework establishes a protocol to report certain incidents to the Global Security and Chief Information Security Officer and other senior officers, with the goal of timely assessing such incidents, determining applicable disclosure requirements and communicating with the Audit and Risk Committee.

communicating with the Audit and Risk Committee.

The incident response plan directs the executive officers to report certain incidents immediately and directly to the Lead Non-Management Director.

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The Company prepares its financial statements in accordance with U.S.

These principles are established primarily by the FASB.

These principles are established primarily by the Financial Accounting Standards Board (FASB).

In this MD&A, references to U.S.

2 unchanged sentences

GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations.

The estimates that the Company deems to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to the valuation of investments and derivatives, DAC, liabilities for future policy benefits and unpaid policy claims, and income taxes.

The estimates that the Company deems to be most critical to an understanding of its results of operations and financial condition are those related to the valuation of investments and derivatives, DAC, liabilities for future policy benefits and unpaid policy claims, and income taxes.

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 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.

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 March 31, 2022, 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 nine months ended September 30, 2021.

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

There have been no changes in the items the Company has identified as critical accounting estimates during the three months ended March 31, 2022.

For additional information, see the Critical Accounting Estimates section of Item 7.

MD&A included in the 2021 Annual Report.

New Accounting Pronouncements

1 unchanged sentence

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