What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-04-29 · 214 added, 137 removed, 998 unchanged (26% of the section changed)

14 unchanged sentences

• defaults and credit downgrades of investments

• exposure to significant interest rate risk

• global fluctuations in interest rates and exposure to significant interest rate risk

• concentration of business in Japan

18 unchanged sentences

• competitive environment and ability to anticipate and respond to market trends

• catastrophic events, including, but not limited to, as a result of climate change, epidemics, pandemics (such as the coronavirus COVID-19), tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events

• catastrophic events, including, but not limited to, as a result of climate change, epidemics, pandemics (such as COVID-19), tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events

• ability to protect the Aflac brand and the Company's reputation

4 unchanged sentences

MD&A OVERVIEW

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three-month periods ended March 31, 2022 and 2021, 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 six-month periods ended June 30, 2022 and 2021, respectively.

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

21 unchanged sentences

American Family Life Assurance Company of New York (Aflac New York);

Tier One Insurance Company (TOIC) and Argus Dental & Vision, Inc.

(Argus), which provides a platform for Aflac Dental and Vision in the U.S.

Tier One Insurance Company (TOIC) and Aflac Benefits Solutions, Inc.

(ABS), formerly know as Argus Dental & Vision, Inc., which provides a platform for Aflac Dental and Vision in the U.S.

(collectively, Aflac U.S.).

1 unchanged sentence

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.

For example, economic conditions have acted as headwinds to sales in the first six months of 2022, particularly in Japan and most notably in the first quarter with a gradually decreasing impact in the second quarter, 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.

Additionally, continued widening of the differential between U.S.

and Japan interest rates has 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 three- and six-month periods ended June 30, 2022, sales for Aflac Japan, in yen terms, decreased 6.4% and 10.7%, respectively, compared to the same periods in 2021, reflecting the January 2021 launch of a new medical product and continued weakness in sales recovery, in part constrained by pandemic conditions.

In the three- and six-month periods ended June 30, 2022, sales for Aflac U.S.

increased 15.6% and 17.2%, respectively, compared to the same periods in 2021, reflecting continued investment in growth initiatives as well as productivity gains.

Performance Highlights

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;

Total revenues were $5.4 billion in the second quarter of 2022, compared with $5.6 billion in the second quarter of 2021.

Net earnings were $1.4 billion, or $2.16 per diluted share in the second quarter of 2022, compared with $1.1 billion, or $1.62 per diluted share, in the second quarter of 2021.

Total revenues were $10.7 billion in the first six months of 2022, compared with $11.4 billion in the first six months of 2021.

Net earnings were $2.4 billion, or $3.73 per diluted share in the first six months of 2022, compared with $2.4 billion, or $3.49 per diluted share, in the first six months of 2021.

Results in the second quarter of 2022 included pretax net investment gains of $564 million, compared with pretax net investment gains of $89 million in the second quarter of 2021.

Net investment gains in the second quarter of 2022 included an increase in credit loss allowances of $34 million;

$618 million of net gains from certain derivative and foreign currency gains or losses;

1 unchanged sentence

and $115 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.

Results in the first six months of 2022 included pretax net investment gains of $686 million, compared with pretax net investment gains of $396 million in the first six months of 2021.

Net investment gains in the first six months of 2022 included an increase in credit loss allowances of $9 million;

$785 million of net gains from certain derivative and foreign currency gains or losses;

$291 million of net losses on equity securities;

and $201 million of net gains from sales and redemptions.

The average yen/dollar exchange rate (1) for the three-month period ended June 30, 2022 was 129.39, or 15.4% weaker than the average yen/dollar exchange rate (1) of 109.48 for the same period in 2021.

The average yen/dollar exchange rate (1) for the six-month period ended June 30, 2022 was 122.79, or 12.2% weaker than the average yen/dollar exchange rate (1) of 107.79 for the same period in 2021.

Adjusted earnings (2) in the second quarter of 2022 were $939 million, or $1.46 per diluted share, compared with $1.1 billion, or $1.59 per diluted share, in the second quarter of 2021.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.09.

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%.

Adjusted earnings (2) in the first six months of 2022 were $1.9 billion, or $2.88 per diluted share, compared with $2.1 billion, or $3.11 per diluted share, in the first six months of 2021.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.15.

Total investments and cash at June 30, 2022 were $121.4 billion, compared with $143.0 billion at December 31, 2021.

In the first six months of 2022, Aflac Incorporated repurchased $1.2 billion, or 19.2 million of its common shares.

At June 30, 2022, the Company had 36.6 million remaining shares authorized for repurchase.

Shareholders’ equity was $26.4 billion, or $41.59 per share, at June 30, 2022, compared with $33.3 billion, or $50.99 per share, at December 31, 2021.

Shareholders’ equity at June 30, 2022 included a net unrealized gain on investment securities and derivatives of $2.9 billion, compared with a net unrealized gain of $9.6 billion at December 31, 2021.

Shareholders’ equity at June 30, 2022 also included an unrealized foreign currency translation loss of $3.3 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 second quarter of 2022 was 19.9%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $26.9 billion, or $42.45 per share at June 30, 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 second quarter of 2022 was 14.9%.

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

25 unchanged sentences

Adjusted revenues are U.S.

GAAP total revenues excluding adjusted net investment gains and losses.

revenues excluding adjusted net investment gains and losses.

Adjusted expenses are U.S.

4 unchanged sentences

• 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.

25 unchanged sentences

The Company considers U.S.

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

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

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

The most comparable U.S.

5 unchanged sentences

Reconciliation of Net Earnings to Adjusted Earnings

In Millions Per Diluted Share

Three Months Ended March 31,

In Millions Per Diluted Share In Millions Per Diluted Share

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

2022 2021 2022 2021 2022 2021 2022 2021

7 unchanged sentences

Current period foreign currency impact (2)

37 N/A .06 N/A

57 N/A .09 N/A 94 N/A .15 N/A

Adjusted earnings excluding current period foreign currency impact $ 996 $ 1,080 $ 1.55 $ 1.59 $ 1,960 $ 2,138 $ 3.02 $ 3.11

4 unchanged sentences

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

Three Months Ended March 31,

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

(In millions) 2022 2021 2022 2021

4 unchanged sentences

Net interest cash flows from derivatives associated with certain investment strategies

(1) (9) (10) (17)

Interest rate component of the change in fair value of foreign currency swaps on notes payable

41 unchanged sentences

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 its 3.625% senior notes due June 2023.

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

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

1 unchanged sentence

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.

These integration costs are excluded from adjusted earnings for one year following the acquisition and amounted to $5 million and $12 million for the three- and six-month periods ended June 30, 2021, respectively.

The Company's combined U.S.

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.

and Japanese effective income tax rate on pretax earnings was 18.4% for the three-month period ended June 30, 2022, compared with 19.5% for the same period in 2021.

The Company's combined U.S.

and Japanese effective income tax rate on pretax earnings was 18.7% for the six-month period ended June 30, 2022, compared with 19.4% for the same period in 2021.

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

46 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In millions) 2022 2021 2022 2021

21 unchanged sentences

Three Months Ended

March 31, Three Months Ended

June 30, Six Months Ended

June 30, Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021 2022 2021 2022 2021

3 unchanged sentences

Pretax adjusted earnings (14.3) 19.7 (8.9) 11.6 1.6 22.0 4.0 11.3

(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.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(2) and $(9) for the three-month periods and $(12) and $(17) for the six-month periods ended June 30, 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- and six-month periods ended June 30, 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- and six-month periods ended June 30, 2022, primarily due to higher 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 increase in pretax adjusted earnings in yen for the three- and six-month periods ended June 30, 2022 was primarily due to higher reserve releases and adjusted net investment income.

Annualized premiums in force decreased 4.3% to ¥1.33 trillion as of June 30, 2022, compared with ¥1.39 trillion as of June 30, 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.

Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $9.7 billion at June 30, 2022, compared with $12.6 billion at June 30, 2021.

Aflac Japan's investment portfolios include U.S.

11 unchanged sentences

(Yen Operating Results)

For the Periods Ended March 31,

For the Periods Ended June 30,

Including Foreign

1 unchanged sentence

Currency Changes

Three Months Three Months

Three Months Six Months Three Months Six Months

2022 2021 2022 2021 2022 2021 2022 2021

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

Ratios to total adjusted revenues:

2022 2021 2022 2021

Benefits and claims, net 51.7 % 52.7 % 52.6 % 54.2 %

9 unchanged sentences

Amortization of deferred policy acquisition costs 5.7 5.7 5.7 5.6

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.

In the three-month period ended June 30, 2022, the benefit ratio to total premiums increased, compared with the same period in the prior year, as third sector benefits were higher due substantially to an increase in medical hospitalization claims for at-home sickness benefits related to COVID-19, partially offset by the continued change in the mix of first and third sector business.

In the six-month period ended June 30, 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.

In the three- and six-month periods ended June 30, 2022, the adjusted expense ratio increased slightly, compared with the same periods in the prior year, 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- and six-month periods ended June 30, 2022 primarily due to lower benefit ratios for the full six-month period and higher adjusted net investment income.

Aflac Japan Sales

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

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

In Dollars In Yen

Three Months Three Months

Three Months Six Months Three Months Six Months

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

1 unchanged sentence

Increase (decrease) over prior period (20.9) % 36.5 % (21.6) % 16.5 % (6.4) % 38.4 % (10.7) % 15.7 %

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

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

Three Months Six Months

2022 2021 2022 2021

Cancer 53.4 % 48.9 % 53.2 % 47.1 %

2 unchanged sentences

Ordinary life:

WAYS .8 .8 .8 .7

Child endowment .2 .4 .3 .3

Other ordinary life (1)

9.2 8.9 9.1 8.9

Other 4.3 .7 4.4 .9

Total 100.0 % 100.0 % 100.0 % 100.0 %

4 unchanged sentences

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

Sales of protection-type first sector and third sector products on a yen basis 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 protection-type first sector and third sector products on a yen basis decreased 6.3% in the second quarter of 2022, compared with the second quarter of 2021, reflecting the January 2021 launch of a new medical product and continued weakness in sales recovery, in part constrained by pandemic conditions.

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

4 unchanged sentences

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 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 example, in 2021 and the first six months of 2022, 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.

1 unchanged sentence

Risk Factors in the 2021 Annual Report.

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.

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 March 31.

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

Independent corporate and individual 48.4 % 51.1 %

1 unchanged sentence

Total 100.0 % 100.0 %

(1) Includes Japan Post

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.

(1) Includes Japan Post Group

During the three-month period ended June 30, 2022, Aflac Japan recruited 12 new sales agencies.

At June 30, 2022, Aflac Japan was represented by approximately 7,600 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 March 31, 2022, Aflac Japan had agreements to sell its products at 360 banks, approximately 90% of the total number of banks in Japan.

At June 30, 2022, Aflac Japan had agreements to sell its products at 359 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 March 31,

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

(In millions) 2022 2021 2022 2021

10 unchanged sentences

Other fixed maturity securities $ 249 $ 396 $ 334 $ 1,001

Infrastructure debt 114 0 114 0

Collateralized loan obligations 431 36 498 153

Equity securities 22 8 22 8

Commercial mortgage and other loans:

Transitional real estate loans 778 638 1,285 699

Commercial mortgage loans 0 17 0 17

Middle market loans 363 484 674 1,266

3 unchanged sentences

See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 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 March 31.

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

Three Months Six Months

2022 2021 2022 2021

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

3 unchanged sentences

Return on average invested assets (3)

2.97 2.83 2.75 2.65

Portfolio book yield, including U.S.

5 unchanged sentences

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

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

The decrease in the Aflac Japan new money yield in the three-month period ended June 30, 2022 was primarily due to higher allocations to lower yielding yen-dominated asset classes.

The increase in the Aflac Japan new money yield in the six-month period ended June 30, 2022 was primarily due to increases in U.S.

interest rates.

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.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Adjusted net investment income (1)

193 189 377 366

Other income 41 30 83 58

13 unchanged sentences

Pretax adjusted earnings (15.5) (3.1) (21.5) 14.2

(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.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $1 for the three-month period and $2 for the six-month period ended June 30, 2022, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three- and six-month periods ended June 30, 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.

Adjusted net investment income increased in the three- and six-month periods ended June 30, 2022, primarily impacted by higher variable net investment income.

Other income increased in the three- and six-month periods ended June 30, 2022 due to an increase in fee income.

The decrease in pretax adjusted earnings in the three- and six-month periods ended June 30, 2022, was driven by higher incurred benefits and elevated adjusted expenses reflecting, in part, platform and growth investments.

Annualized premiums in force decreased 1.0% to $5.9 billion at June 30, 2022, compared with $6.0 billion at June 30, 2021.

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

Three Months Ended

June 30, Six Months Ended

Ratios to total adjusted revenues:

2022 2021 2022 2021

Benefits and claims 38.9 % 37.7 % 38.4 % 35.9 %

9 unchanged sentences

Amortization of deferred policy acquisition costs 9.4 7.9 10.7 8.8

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.

For the three- and six-month periods ended June 30, 2022, the benefit ratio to total premiums increased compared with the same periods in 2021, reflecting higher incurred claims, partially offset by reserve releases related to lower persistency.

The adjusted expense ratio increased in the three- and six-month periods ended June 30, 2022, when compared with the same periods 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- and six-month periods ended June 30, 2022, compared with the same periods 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 March 31.

new annualized premium sales for the periods ended June 30.

Three Months Six Months

(In millions) 2022 2021 2022 2021

6 unchanged sentences

hospital indemnity insurance sales increased 4.9%;

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

and dental/vision sales increased 36.1% in the second quarter of 2022, compared with the second 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.

in the second quarter of 2022 reflects continued investment in growth initiatives as well as productivity gains.

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

1 unchanged sentence

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

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

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

Three Months Six Months

2022 2021 2022 2021

Accident 24.6 % 27.2 % 24.9 % 26.7 %

1 unchanged sentence

Critical care (1)

20.6 21.0 20.9 21.8

Hospital indemnity 14.9 16.4 15.8 16.6

Dental/vision 6.4 5.4 6.0 5.0

Life 8.3 7.3 8.2 7.0

Total 100.0 % 100.0 % 100.0 % 100.0 %

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

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

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

sales force included an average of approximately 6,100 U.S.

18 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In millions) 2022 2021 2022 2021

13 unchanged sentences

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

investment yields for the periods ended March 31.

investment yields for the periods ended June 30.

Three Months Six Months

2022 2021 2022 2021

Total purchases for period (in millions) (1)

$ 466 $ 544 $ 988 $ 919

New money yield (1), (2)

1 unchanged sentence

Return on average invested assets (3)

4.79 4.94 4.79 4.83

Portfolio book yield, end of period (1)

5 unchanged sentences

The increase in the Aflac U.S.

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.

new money yield in the three- and six-month periods ended June 30, 2022 was primarily due to increases in U.S.

interest rates.

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.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Net investment income (loss) (1)

(9) (13) (5) 3

Amortized hedge income related to certain foreign currency management strategies 14 16 25 33

9 unchanged sentences

Pretax adjusted earnings $ (75) $ (76) $ (120) $ (102)

(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.

(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $31 and $30 for the three-month periods and $42 and $30 for the six-month periods ended June 30, 2022, and 2021, respectively, is included as a reduction to net investment income.

Tax credits on these investments of $28 and $12 for the three-month periods and $44 and $25 for the six-month periods ended June 30, 2022, and 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings.

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

In the three-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.

In the three- and six-month periods ended June 30, 2022, total adjusted revenues decreased compared to the same periods in 2021.

Pretax adjusted earnings decreased in the six-month period ended June 30, 2022 when compared to the same period in 2021.

These results reflect higher adjusted net investment income from higher interest rates offset by lower amortized hedge income and the impact of federal tax credit investments discussed below.

These results also reflect the impact of foreign currency on total net earned premiums and the corresponding benefits.

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.

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

The change in value of each

investment is recorded as a reduction to net investment income.

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

10 unchanged sentences

Investment Securities by Segment

March 31, 2022

June 30, 2022

(In millions) Aflac Japan Aflac U.S.

52 unchanged sentences

The ratings of the Company's securities referenced in the table below are based on the ratings designations provided by major rating organizations such as Moody's, Standard & Poor's and Fitch or, if not rated, are determined based on the Company's internal analysis of such securities.

When the ratings issued by the rating agencies differ, the Company utilizes

the second lowest rating when three or more rating agency ratings are available or the lowest rating when only two rating agency ratings are available.

When the ratings issued by the rating agencies differ, the Company utilizes the second lowest rating when three or more rating agency ratings are available or the lowest rating when only two rating agency ratings are available.

The distributions of fixed maturity securities the Company owns, by credit rating, were as follows:

Composition of Fixed Maturity Securities by Credit Rating

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Value Amortized

5 unchanged sentences

Total 100.0 % 100.0 % 100.0 % 100.0 %

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.

As of June 30, 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 June 30, 2022.

(In millions) Credit

1 unchanged sentence

Value Unrealized Loss

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

Investcorp Capital Limited BB $ 320 $ 273 $ (47)

JP Morgan Chase and Co.

A 206 180 (26)

Prologis LP A 167 143 (24)

Banco de Chile A 146 123 (23)

Kommunal Landspensjonskasse (KLP) BBB 123 113 (10)

Lloyds Banking Group PLC A 188 178 (10)

JPMORGAN CHASE & CO A 224 215 (9)

KLM Royal Dutch Airlines B 127 105 (22)

Oracle Corp BBB 180 161 (19)

Heathrow Funding Ltd.

BBB 82 73 (9)

BASF A 73 55 (18)

Danske Bank A/S BBB 121 104 (17)

Intesa Sanpaolo Spa BBB 127 119 (8)

Nippon Prologis REIT Inc.

AXA A 247 230 (17)

Citigroup Inc BBB 172 158 (14)

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

March 31, 2022

June 30, 2022

(In millions) Par

8 unchanged sentences

Apache Corporation 138 108 130 22

Howmet Aerospace Inc.

IKB Deutsche Industriebank AG 95 45 75 30

100 76 107 31

Generalitat de Catalunya 59 23 60 37

16 unchanged sentences

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

March 31, 2022

June 30, 2022

(In millions) Amortized Cost (1)

30 unchanged sentences

Investment Securities by Type of Issuance

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(In millions) Amortized

15 unchanged sentences

Reverse-Dual Currency Securities (1)

(Amortized cost, in millions) March 31,

(Amortized cost, in millions) June 30,

2022 December 31,

32 unchanged sentences

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.

dollar-denominated hedge program and the Parent Company's enterprise corporate hedging program, including associated amortized hedge costs/income, for the periods ended June 30.

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

Three Months Six Months

2022 2021 2022 2021

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

$4.5 $6.4 $4.5 $6.4

Weighted average remaining tenor (in months) (2)

6.8 6.6 6.8 6.6

Amortized hedge income (cost) for period (in millions) $(13) $(13) $(26) $(29)

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

$13.5 $8.0 $13.5 $8.0

Weighted average remaining tenor (in months) (2)

4.9 3.9 4.9 3.9

Amortized hedge income (cost) for period (in millions) $(17) $(4) $(29) $(7)

1 unchanged sentence

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

$5.0 $5.0 $5.0 $5.0

Weighted average remaining tenor (in months) (2)

13.0 12.6 13.0 12.6

Amortized hedge income (cost) for period (in millions) $15 $17 $27 $35

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

$2.0 $2.0 $2.0 $2.0

Weighted average remaining tenor (in months) (2)

7.9 7.2 7.9 7.2

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

21 unchanged sentences

Transitional real estate loans (floating rate) 4,951 4,931 4,226 4,293

Commercial mortgage loans 1,211 1,172 1,217 1,265

Commercial mortgage and other loans 1,198 1,111 1,217 1,265

Middle market loans (floating rate) 4,520 4,532 4,297 4,352

11 unchanged sentences

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.

As of June 30, 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.

4 unchanged sentences

dollar-denominated investments.

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

As of June 30, 2022, the fair value of Aflac Japan's unhedged U.S.

dollar-denominated portfolio was $8.7 billion (excluding certain U.S.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In millions) 2022 2021 2022 2021

2 unchanged sentences

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 $10.0 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's consolidated yen-denominated net asset position was partially hedged at $9.8 billion as of June 30, 2022, with hedging instruments comprised of $2.8 billion of yen-denominated debt and $7.0 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-month periods ended March 31, 2022 and 2021, respectively.

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

16 unchanged sentences

The following table presents deferred policy acquisition costs by segment.

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

(In millions) June 30,

2022 December 31, 2021 % Change

Aflac Japan $ 5,220 $ 6,233 (16.3) % (1)

1 unchanged sentence

Total $ 8,458 $ 9,525 (11.2) %

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

(1) Aflac Japan’s deferred policy acquisition costs decreased .5% in yen during the six months ended June 30, 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.

1 unchanged sentence

The following table presents policy liabilities by segment.

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

(In millions) June 30,

2022 December 31, 2021 % Change

Aflac Japan $ 78,946 $ 93,613 (15.7) % (1)

4 unchanged sentences

Total $ 90,618 $ 105,072 (13.8) %

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

(1) Aflac Japan’s policy liabilities increased .2% in yen during the six months ended June 30, 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.

9 unchanged sentences

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

In March 2022, the LIPPC reached the required balance for the total life industry of ¥400 billion as specified by its Articles of Incorporation.

As a result, additional contributions are not expected to be required unless the balance is reduced due to payments made by the LIPPC to the policyholders of insolvent insurers.

Accordingly, Aflac Japan did not recognize an expense for LIPPC assessments in the second quarter of 2022.

Aflac Japan recognized an expense of ¥.9 billion for both of the six-month periods ended June 30, 2022 and 2021 for LIPPC assessments.

Guaranty Fund Assessments

1 unchanged sentence

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

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

Guaranty fund assessments for the six-month periods ended June 30, 2022 and 2021 were immaterial.

LIQUIDITY AND CAPITAL RESOURCES

14 unchanged sentences

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.

At June 30, 2022, the Company held $5.2 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.

1 unchanged sentence

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.

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

Liquidity Provided by Subsidiaries to Parent Company

2 unchanged sentences

Dividends declared or paid by subsidiaries 1,653 1,552

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

The following table details Aflac Japan remittances, which are included in the totals above, for the six-month periods ended June 30.

Aflac Japan Remittances

13 unchanged sentences

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

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.

Additionally, as of June 30, 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 June 30, 2022.

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

1 unchanged sentence

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

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

As of June 30, 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.

8 unchanged sentences

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

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

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

(In millions) 2022 2021

24 unchanged sentences

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

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

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

borrowed and repaid $279 million under this program.

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

As of June 30, 2022, Aflac U.S.

had outstanding borrowings of $603 million reported in its balance sheet.

2 unchanged sentences

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.

Cash returned to shareholders through treasury stock purchases and dividends was $1.6 billion during the six-month period ended June 30, 2022, compared with $1.6 billion during the six-month period ended June 30, 2021.

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

Treasury Stock Purchased

12 unchanged sentences

Number of shares issued 805 1,157

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.

As of June 30, 2022, a remaining balance of 36.6 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 second quarter of 2022, compared with $.33 per share in the second quarter of 2021.

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

(In millions) 2022 2021

2 unchanged sentences

Total dividends to shareholders $ 517 $ 446

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.

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

The dividend is payable on September 1, 2022 to shareholders of record at the close of business on August 24, 2022.

Regulatory Restrictions

18 unchanged sentences

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

As of June 30, 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.

6 unchanged sentences

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

As of March 31, 2022, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

As of June 30, 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.

26 unchanged sentences

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

The application of these critical accounting estimates determines the values at which 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.

The application of these critical accounting estimates determines the values at which 92% of the Company's assets and 78% of its liabilities are reported as of June 30, 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 three months ended March 31, 2022.

There have been no changes in the items the Company has identified as critical accounting estimates during the six months ended June 30, 2022.

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

MD&A included in the 2021 Annual Report.

Future Adoption of Accounting Standard for Long-Duration Insurance Contracts

As previously reported, in August 2018, the FASB issued Accounting Standards Update 2018-12, “ Financial Services - Insurance, Targeted Improvements to the Accounting for Long-Duration Contracts ” (the ASU).

The update significantly changes how insurers account for long-duration contracts, amends existing recognition, measurement, presentation, and disclosure requirements applicable to the Company.

In the near term, the expected impact on the Company’s key financial ratios is limited.

Generally, including the impact of periodic assumption updates for the year ended December 31, 2021, and adjusting for the effects of the COVID-19 pandemic on the Company’s financial results for the year ended December 31, 2021, benefit ratios are expected to be slightly higher for Aflac Japan and slightly lower for Aflac U.S., while expense ratios are expected to be modestly lower due to amortizing deferred acquisition costs at a slower rate.

This results in a slightly higher pretax profit margin for Aflac Japan and a modestly higher pretax profit margin for Aflac U.S.

For additional information on the ASU, see the Future Adoption of Accounting Standard for Long-Duration Insurance Contracts section of Item 7.

MD&A in the 2021 Annual Report;

see also Note 1 of the Notes to the Consolidated Financial Statements.

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