What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-02 · 225 added, 166 removed, 1046 unchanged (27% of the section changed)

42 unchanged sentences

MD&A OVERVIEW

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

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

22 unchanged sentences

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.

(ABS), formerly known 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 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.

For example, economic conditions have acted as headwinds to sales in the first nine months of 2022, particularly in Japan and most notably in the first quarter with a gradually decreasing impact in the second and third quarters, pressuring net earned premiums.

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.

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, have led to slower economic growth in Japan and the U.S.

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.

In the three-month period ended September 30, 2022, sales for Aflac Japan in yen terms increased 10.2%, compared to the same period in 2021, reflecting the August 2022 launch of a new cancer insurance product.

In the nine-month period ended September 30, 2022, sales for Aflac Japan in yen terms decreased 4.1%, compared to the same period in 2021, reflecting the January 2021 launch of a new medical insurance product and continued weakness in sales recovery, in part constrained by pandemic conditions.

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

increased 11.8% and 15.2%, respectively, compared to the same periods in 2021, reflecting continued improvement from investment in growth initiatives as well as productivity gains.

Performance Highlights

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;

Total revenues were $4.8 billion in the third quarter of 2022, compared with $5.2 billion in the third quarter of 2021.

Net earnings were $1.6 billion, or $2.53 per diluted share in the third quarter of 2022, compared with $888 million, or $1.32 per diluted share, in the third quarter of 2021, reflecting an income tax benefit of $695 million from a release of deferred taxes in the third quarter of 2022.

Total revenues were $15.5 billion in the first nine months of 2022, compared with $16.7 billion in the first nine months of 2021.

Net earnings were $4.0 billion, or $6.25 per diluted share in the first nine months of 2022, compared with $3.3 billion, or $4.82 per diluted share, in the first nine months of 2021, reflecting an income tax benefit of $695 million from a release of deferred taxes in the third quarter of 2022.

Results in the third quarter of 2022 included pretax net investment gains of $199 million, compared with pretax net investment losses of $171 million in the third quarter of 2021.

Net investment gains in the third quarter of 2022 included an increase in credit loss allowances of $11 million;

$173 million of net gains from certain derivative and foreign currency gains or losses;

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and $59 million of net gains from sales and redemptions.

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;

Results in the first nine months of 2022 included pretax net investment gains of $885 million, compared with pretax net investment gains of $224 million in the first nine months of 2021.

Net investment gains in the first nine months of 2022 included an increase in credit loss allowances of $20 million;

$958 million of net gains from certain derivative and foreign currency gains or losses;

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and $260 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 average yen/dollar exchange rate (1) for the three-month period ended September 30, 2022 was 137.08, or 19.7% weaker than the average yen/dollar exchange rate (1) of 110.11 for the same period in 2021.

The average yen/dollar

exchange rate (1) for the nine-month period ended September 30, 2022 was 126.65, or 14.3% weaker than the average yen/dollar exchange rate (1) of 108.58 for the same period in 2021.

Adjusted earnings (2) in the third quarter of 2022 were $725 million, or $1.15 per diluted share, compared with $1.0 billion, or $1.53 per diluted share, in the third quarter of 2021.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.08.

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.

Adjusted earnings (2) in the first nine months of 2022 were $2.6 billion, or $4.03 per diluted share, compared with $3.2 billion, or $4.65 per diluted share, in the first nine months of 2021.

The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.23.

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%.

Total investments and cash at September 30, 2022 were $114.5 billion, compared with $143.0 billion at December 31, 2021.

In the first nine months of 2022, Aflac Incorporated repurchased $1.8 billion, or 30.2 million of its common shares.

At September 30, 2022, the Company had 25.6 million remaining shares authorized for repurchase.

Shareholders’ equity was $24.2 billion, or $38.71 per share, at September 30, 2022, compared with $33.3 billion, or $50.99 per share, at December 31, 2021.

Shareholders’ equity at September 30, 2022 included a net unrealized gain on investment securities and derivatives of $1.1 billion, compared with a net unrealized gain of $9.6 billion at December 31, 2021.

Shareholders’ equity at September 30, 2022 also included an unrealized foreign currency translation loss of $4.5 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 third quarter of 2022 was 25.3%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $27.7 billion, or $44.34 per share at September 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 third quarter of 2022 was 11.4%.

dollar exchange rates are 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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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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In Millions Per Diluted Share In Millions Per Diluted Share

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

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

2022 2021 2022 2021 2022 2021 2022 2021

5 unchanged sentences

Income tax (benefit) expense on items excluded from adjusted earnings (2)

(648) (37) (1.03) (.06) (501) 32 (.78) .05

Adjusted earnings 725 1,031 1.15 1.53 2,591 3,169 4.03 4.65

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

(2) Primarily reflects release of $695 million in deferred taxes in the third quarter of 2022.

(3) 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 June 30, Six Months Ended June 30,

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

(In millions) 2022 2021 2022 2021

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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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however, these costs are calculated and administered differently than in the U.S.

In Japan, these costs are not directly related to specific insolvencies or bankruptcies, but are rather a regular operational cost for an insurance company.

In Japan, these costs are not directly related to specific insolvencies or bankruptcies, but are rather a

regular operational cost for an insurance company.

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

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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 $5 million and $12 million for the three- and six-month periods ended June 30, 2021, respectively.

These integration costs are excluded from adjusted earnings for one year following the acquisition and amounted to $8 million and $20 million for the three- and nine-month periods ended September 30, 2021, respectively.

The Company's combined U.S.

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.

and Japanese effective income tax rate on pretax earnings was (44.7)% for the three-month period ended September 30, 2022, compared with 20.2% 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.

and Japanese effective income tax rate on pretax earnings was 1.6% for the nine-month period ended September 30, 2022, compared with 19.7% 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.

statutory rate primarily due to the impact of the tax accounting method change discussed below, as well as 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.

Aflac Japan holds certain U.S.

dollar-denominated assets in a Delaware Statutory Trust (DST).

These assets are mostly comprised of various U.S.

dollar-denominated commercial mortgage loans.

The functional currency of the DST for U.S.

tax purposes was historically the Japanese yen.

In the third quarter of 2022, the Company requested a change in tax accounting method through the Internal Revenue Service's automatic consent procedures to change its functional currency on the DST for U.S.

tax purposes to the U.S.

dollar (USD).

Based on the volatility of foreign exchange rates between the Japanese yen and USD, the Company's management determined that this tax accounting method better positions the Company for U.S.

tax purposes.

As a result, foreign currency translation gains or losses on assets held in the DST will no longer be recognized for U.S.

tax purposes.

The Company historically recorded a deferred tax liability for foreign currency translation gains on the DST assets, which was released in the third quarter of 2022 as a result of the functional currency change.

The release of the deferred tax liability resulted in the Company recognizing an income tax benefit of $695 million ($1.10 per basic and diluted share, respectively) in the third quarter of 2022.

The Company has determined that the change in tax accounting method will impact its combined effective tax rate in future periods as a function of changes in the foreign exchange rate between the Japanese yen and USD.

In August 2022, the Inflation Reduction Act of 2022 (IRA) was signed into U.S.

Effective January 1, 2023, the law will impose a 15% alternative minimum corporate tax rate and imposes a 1% excise tax on the Company’s repurchases of its common stock.

The Company does not anticipate any impacts from the new corporate minimum tax rate since its current tax rate is above the 15% minimum rate.

Further, the Company expects the charges associated with the excise tax to be recognized in equity consistent with other costs related to treasury stock.

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021 2022 2021

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Three Months Ended

June 30, Six Months Ended

June 30, Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021 2022 2021 2022 2021

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Pretax adjusted earnings (35.5) 30.7 (18.0) 17.4 (19.2) 35.8 (4.0) 18.7

(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 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.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(25) and $(7) for the three-month periods and $(37) and $(24) for the nine-month periods ended September 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 nine-month periods ended September 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 nine-month periods ended September 30, 2022, primarily due to the impact of a weaker yen on U.S.

dollar-denominated investment income, a make whole of a security, and higher floating rate income.

The decrease in pretax adjusted earnings in yen for the three- and nine-month periods ended September 30, 2022 was primarily due to the increase in the benefit ratio resulting from a wider scope of "deemed hospitalization" that was in effect through most of the third quarter.

Annualized premiums in force decreased 4.3% to ¥1.32 trillion as of September 30, 2022, compared with ¥1.38 trillion as of September 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 $9.7 billion at June 30, 2022, compared with $12.6 billion at June 30, 2021.

Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $9.1 billion at September 30, 2022, compared with $12.3 billion at September 30, 2021.

Aflac Japan's investment portfolios include U.S.

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(Yen Operating Results)

For the Periods Ended June 30,

For the Periods Ended September 30,

Including Foreign

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Currency Changes

Three Months Six Months Three Months Six Months

Three Months Nine Months Three Months Nine Months

2022 2021 2022 2021 2022 2021 2022 2021

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

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Amortization of deferred policy acquisition costs 5.5 5.3 5.6 5.5

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- 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.

In the three- and nine-month period ended September 30, 2022, the benefit ratio to total premiums increased, compared with the same periods in the prior year, primarily due to a decrease in total premiums and higher third sector benefits due substantially to an increase in medical hospitalization claims as a result of a wider scope of "deemed hospitalization" related to COVID-19, partially offset by the continued change in the mix of first and third sector business.

In the three- and nine-month periods ended September 30, 2022, the adjusted expense ratio decreased 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 decreased in the three- and nine-month periods ended September 30, 2022 primarily due to lower total adjusted revenues and higher benefit ratios partially offset by lower expense ratios.

Aflac Japan Sales

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

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

In Dollars In Yen

Three Months Six Months Three Months Six Months

Three Months Nine Months Three Months Nine Months

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

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Increase (decrease) over prior period (12.0) % (3.8) % (18.9) % 9.4 % 10.2 % .0 % (4.1) % 10.3 %

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

Three Months Six Months

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

Three Months Nine Months

2022 2021 2022 2021

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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 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 protection-type first sector and third sector products on a yen basis increased 10.5% in the third quarter of 2022, compared with the third quarter of 2021, reflecting the August 2022 launch of a new cancer insurance product through the agency channel.

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

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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, 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 example, in 2021 and the first nine 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.

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

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

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

Independent corporate and individual 49.3 % 49.9 %

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(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.

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

At September 30, 2022, Aflac Japan was represented by approximately 7,500 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 June 30, 2022, Aflac Japan had agreements to sell its products at 359 banks, approximately 90% of the total number of banks in Japan.

At September 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 June 30, Six Months Ended June 30,

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

(In millions) 2022 2021 2022 2021

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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 June 30.

Three Months Six Months

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

Three Months Nine Months

2022 2021 2022 2021

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

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.

The increase in the Aflac Japan new money yield in the three- and nine-month periods ended September 30, 2022 was primarily due to increases in U.S.

interest rates.

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(In millions) 2022 2021 2022 2021

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Pretax adjusted earnings (13.7) 8.8 (19.1) 12.5

(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.

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(1) and $1 for the three-month periods and $1 and $1 for the nine-month periods ended September 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 nine-month periods ended September 30, 2022, net earned premiums for Aflac U.S.

decreased primarily due to lower persistency.

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.

Adjusted net investment income decreased in the three-month period ended September 30, 2022 due to lower variable net investment income, offset by higher floating rate income and increased in the nine-month period ended September 30, 2022, primarily due to higher floating rate income due to higher volumes and rates.

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

The decrease in pretax adjusted earnings in the three- and nine-month periods ended September 30, 2022 was driven primarily by higher DAC amortization associated with lower persistency and planned spending reflecting, in part, platform and growth investments.

Annualized premiums in force were $5.9 billion at September 30, 2022 and 2021, respectively.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Ratios to total adjusted revenues:

11 unchanged sentences

Amortization of deferred policy acquisition costs 10.5 8.8 10.6 8.8

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.

For the three-month period ended September 30, 2022, the benefit ratio to total premiums increased slightly compared with the same period in 2021.

For the nine-month period ended September 30, 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- and nine-month periods ended September 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 nine-month periods ended September 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 June 30.

Three Months Six Months

new annualized premium sales for the periods ended September 30.

Three Months Nine Months

(In millions) 2022 2021 2022 2021

1 unchanged sentence

Increase (decrease) over prior period 11.8 % 35.0 % 15.2 % 15.5 %

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

product category, increased 4.6%;

New annualized premium sales for accident insurance decreased .9%;

disability sales increased 23.0%;

1 unchanged sentence

hospital indemnity insurance sales increased 4.6%;

and dental/vision sales increased 36.1% in the second quarter of 2022, compared with the second quarter of 2021.

and dental/vision sales increased 42.7% in the third quarter of 2022, compared with the third quarter of 2021.

The increase in sales for Aflac U.S.

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

in the third quarter of 2022 reflects continued improvement from 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 June 30.

Three Months Six Months

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

Three Months Nine Months

2022 2021 2022 2021

8 unchanged sentences

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

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

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

sales force included an average of approximately 6,000 U.S.

18 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(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 June 30.

Three Months Six Months

investment yields for the periods ended September 30.

Three Months Nine Months

2022 2021 2022 2021

12 unchanged sentences

The increase in the Aflac U.S.

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

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

interest rates.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(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 19 13 44 45

9 unchanged sentences

Pretax adjusted earnings $ (59) $ (41) $ (179) $ (144)

(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.

(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $19 and $5 for the three-month periods and $61 and $35 for the nine-month periods ended September 30, 2022, and 2021, respectively, is included as a reduction to net investment income.

Tax credits on these investments of $19 and $10 for the three-month periods and $63 and $35 for the nine-month periods ended September 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- 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.

In the three-month period ended September 30, 2022, total adjusted revenues increased slightly, compared to the same period in 2021, primarily due to higher adjusted net investment income from higher interest rates and an increase in amortized hedge income, partially offset by the impact of federal tax credit investments and a reduction in net earned premiums as a result of significant yen weakening.

In the nine-month period ended September 30, 2022, total adjusted revenues decreased compared to the same period in 2021, reflecting a reduction in net earned premiums, lower adjusted net investment income from lower amortized hedge income and the impact of federal tax credit investments.

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

Pretax adjusted earnings decreased in the three- and nine-month periods ended September 30, 2022 when compared to the same periods in 2021.

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

June 30, 2022

September 30, 2022

(In millions) Aflac Japan Aflac U.S.

55 unchanged sentences

Composition of Fixed Maturity Securities by Credit Rating

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Value Amortized

5 unchanged sentences

Total 100.0 % 100.0 % 100.0 % 100.0 %

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.

As of September 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 September 30, 2022.

(In millions) Credit

1 unchanged sentence

Value Unrealized Loss

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

JP Morgan Chase and Co.

A $ 197 $ 160 $ (37)

Prologis LP A 167 143 (24)

Banco de Chile A 146 123 (23)

Investcorp Capital Limited BB 305 273 (32)

Autostrade Per Litalia Spa BB 137 106 (31)

KLM Royal Dutch Airlines B 122 93 (29)

Banco de Chile A 138 112 (26)

Oracle Corp BBB 173 148 (25)

BASF A 73 55 (18)

Danske Bank A/S BBB 121 104 (17)

AXA A 247 230 (17)

Citigroup Inc BBB 172 158 (14)

Prologis LP A 159 136 (23)

AXA BBB 235 215 (20)

Morgan Stanley A 124 104 (20)

BBB 104 85 (19)

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

June 30, 2022

September 30, 2022

(In millions) Par

28 unchanged sentences

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

June 30, 2022

September 30, 2022

(In millions) Amortized Cost (1)

30 unchanged sentences

Investment Securities by Type of Issuance

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(In millions) Amortized

15 unchanged sentences

Reverse-Dual Currency Securities (1)

(Amortized cost, in millions) June 30,

(Amortized cost, in millions) September 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 periods ended June 30.

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

Three Months Nine Months

2022 2021 2022 2021

34 unchanged sentences

dollar-denominated investments held by Aflac Japan.

September 30,

2022 December 31,

2 unchanged sentences

Available-for-sale securities:

Fixed maturity securities (excluding bank loans) $ 14,769 $ 16,977 $ 17,615 $ 20,478

Fixed maturity securities $ 13,845 $ 15,780 $ 17,615 $ 20,478

Equity securities 40 40 24 24

15 unchanged sentences

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

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.

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

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

dollar-denominated portfolio was $10.7 billion (excluding certain U.S.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(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 $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's consolidated yen-denominated net asset position was partially hedged at $10.3 billion as of September 30, 2022, with hedging instruments comprised of $3.6 billion of yen-denominated debt and $6.7 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 six-month periods ended June 30, 2022 and 2021, respectively.

The Company's net investment hedge was effective during the nine-month periods ended September 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) June 30,

(In millions) September 30,

2022 December 31, 2021 % Change

2 unchanged sentences

Total $ 8,155 $ 9,525 (14.4) %

(1) Aflac Japan’s deferred policy acquisition costs decreased .5% in yen during the six months ended June 30, 2022.

(1) Aflac Japan’s deferred policy acquisition costs decreased .4% in yen during the nine months ended September 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) June 30,

(In millions) September 30,

2022 December 31, 2021 % Change

5 unchanged sentences

Total $ 86,540 $ 105,072 (17.6) %

(1) Aflac Japan’s policy liabilities increased .2% in yen during the six months ended June 30, 2022.

(1) Aflac Japan’s policy liabilities increased .6% in yen during the nine months ended September 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.

11 unchanged sentences

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.

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

Aflac Japan recognized an expense of ¥.9 billion and ¥1.8 billion for the nine-month periods ended September 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 six-month periods ended June 30, 2022 and 2021 were immaterial.

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

LIQUIDITY AND CAPITAL RESOURCES

14 unchanged sentences

The Company remains committed to prudent liquidity and capital management.

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.

At September 30, 2022, the Company held $4.7 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 six-month periods ended June 30.

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

Liquidity Provided by Subsidiaries to Parent Company

2 unchanged sentences

Dividends declared or paid by subsidiaries 1,923 2,016

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

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

Additionally, as of September 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 September 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 June 30, 2022, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

As of September 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 six-month periods ended June 30.

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

(In millions) 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 six months of 2022, Aflac U.S.

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

borrowed and repaid $426 million under this program.

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

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

had outstanding borrowings of $592 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 $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.

In September 2022, the Parent Company issued four series of senior notes totaling ¥73.0 billion through a public debt offering under its U.S.

shelf registration statement.

The first series, which totaled ¥33.4 billion, bears interest at a fixed rate of 1.075% per annum, payable semi-annually, and will mature in September 2029.

The second series, which totaled ¥21.1 billion, bears interest at a fixed rate of 1.320% per annum, payable semi-annually, and will mature in December 2032.

The third series, which totaled ¥6.5 billion, bears interest at a fixed rate of 1.594% per annum, payable semi-annually, and will mature in September 2037.

The fourth series, which totaled ¥12.0 billion, bears interest at a fixed rate of 2.144% per annum, payable semi-annually, and will mature in September 2052.

These notes are redeemable at the Parent Company’s option 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.

In addition, the notes maturing in September 2029, December 2032 and September 2037 are redeemable at the Parent Company's option, in whole or in part from time to time, on or after June 14, 2029, June 14, 2032 and March 14, 2037, respectively, at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.

In August 2022, the Parent Company renewed a senior term loan facility with a commitment amount totaling ¥107.0 billion.

The first tranche of the facility, which totaled ¥11.7 billion, bears interest at a rate per annum equal to the Tokyo interbank market rate (TIBOR), or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in August 2027.

The applicable margin ranges between .225% and .625%, depending on the Parent Company's debt ratings as of the date of determination.

The second tranche, which totaled ¥25.3 billion, bears interest at a rate per annum equal to TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in August 2029.

The applicable margin ranges between .325% and .725%, depending on the Parent Company's debt ratings as of the date of determination.

The third tranche, which totaled ¥70.0 billion, bears interest at a rate per annum equal to TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in August 2032.

The applicable margin ranges between .475% and 1.025%, depending on the Parent Company's debt ratings as of the date of determination.

In September 2022, the Parent Company used a portion of the net proceeds from its September 2022 issuance of various series of senior notes and the August 2022 senior term loan facility to redeem $750 million of its 3.625% senior notes due November 2024.

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

Cash returned to shareholders through treasury stock purchases and dividends was $2.5 billion during the nine-month period ended September 30, 2022, compared with $2.3 billion during the nine-month period ended September 30, 2021.

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

Treasury Stock Purchased

12 unchanged sentences

Number of shares issued 1,109 1,424

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.

As of September 30, 2022, a remaining balance of 25.6 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

In August 2022, the IRA was signed into U.S.

Effective January 1, 2023, the law will impose a 1% excise tax on the Company’s repurchases of its common stock.

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

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

(In millions) 2022 2021

2 unchanged sentences

Total dividends to shareholders $ 768 $ 670

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.

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

The dividend is payable on December 1, 2022 to shareholders of record at the close of business on November 16, 2022.

Regulatory Restrictions

4 unchanged sentences

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.

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.

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.

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

2 unchanged sentences

The Company has already undertaken various measures to mitigate the sensitivity of Aflac Japan's SMR.

For example, the Company employs policy reserve matching (PRM) investment strategies, which is a Japan-specific accounting treatment that reduces SMR interest rate sensitivity since PRM-designated investments are carried at amortized cost consistent with corresponding liabilities.

For example, the Company employs policy reserve matching (PRM) investment strategies, which is a Japan-specific accounting

treatment that reduces SMR interest rate sensitivity since PRM-designated investments are carried at amortized cost consistent with corresponding liabilities.

In order for a PRM-designated asset to be held at amortized cost, there are certain criteria that must be maintained.

6 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 June 30, 2022, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

As of September 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 June 30, 2022, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

As of September 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.

7 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.

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

15 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 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.

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 September 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 six months ended June 30, 2022.

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

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

3 unchanged sentences

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.

The following table presents the expected impacts from the adoption of ASU 2018-12 to the Company's previously reported operating ratios.

Year ended December 31, 2021

Ratios to total premiums:

Benefits and claims, net 67.0 % 67.9 %

Ratios to total adjusted revenues:

Total adjusted expenses 21.6 20.5

Ratios to total premiums:

Benefits and claims, net 43.6 % 47.0 %

Ratios to total adjusted revenues:

Total adjusted expenses 39.5 38.4

(1) Includes the impact of the deferred profit liability reclassification discussed in Note 1 of the Notes to the Consolidated Financial Statements.

For the year ended December 31, 2021, as restated under the new ASU, benefit ratios are higher for Aflac Japan and Aflac U.S., while expense ratios are modestly lower due to amortizing deferred acquisition costs at a slower rate.

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

The pre-adoption and restated ratios presented above reflect the deferred profit liability reclassification discussed in Note 1 of the Notes to the Consolidated Financial Statements.

Prior to adoption of the ASU, pandemic-related low claim experience is recognized in earnings in the reporting period when low claims are experienced, whereas under the new ASU, this pandemic-related low claim experience is recognized in line with experience-related remeasurement and potentially through annual assumptions updates, i.e., partially during the reporting period with the remainder recognized over the remaining expected life of each cohort.

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

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis