What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-01 compared with 2022-11-02 · 839 added, 845 removed, 1724 unchanged (49% of the section changed)

2 unchanged sentences

Consolidated Statements of Earnings

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions, except for share and per-share amounts - Unaudited) 2023 2022

5 unchanged sentences

Benefits and expenses:

Benefits and claims, net 2,340 2,609 7,125 7,996

Benefits and claims, excluding reserve remeasurement 2,203 2,517

Reserve remeasurement (gains) losses ( 53 ) ( 34 )

Total benefits and claims, net 2,150 2,483

Acquisition and operating expenses:

2 unchanged sentences

Insurance and other expenses 775 833

783 869 2,412 2,582

Interest expense 48 56

12 unchanged sentences

Cash dividends per share $ .42 $ .40

(1) Includes expense of $ 48 in the nine-month period ended September 30, 2021 for the early extinguishment of debt.

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

See the accompanying Notes to the Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions - Unaudited) 2023 2022

9 unchanged sentences

Unrealized gains (losses) on derivatives during period 1 1

Effect of changes in discount rate assumptions during period ( 3,537 ) 5,347

Pension liability adjustment during period 9 3

4 unchanged sentences

Total comprehensive income (loss) $ 339 $ 1,007

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

See the accompanying Notes to the Consolidated Financial Statements.

1 unchanged sentence

Consolidated Balance Sheets

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

(In millions, except for share and per-share amounts - Unaudited) March 31,

Investments and cash:

46 unchanged sentences

Unrealized gains (losses) on derivatives ( 26 ) ( 27 )

Effect of changes in discount rate assumptions ( 4,894 ) ( 2,100 )

Pension liability adjustment ( 29 ) ( 36 )

2 unchanged sentences

Total liabilities and shareholders’ equity $ 134,966 $ 131,738

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

See the accompanying Notes to the Consolidated Financial Statements.

12 unchanged sentences

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

Pension liability adjustment during period,

net of income taxes 0 0 0 3 0 3

Dividends to shareholders (1)

($ .00 per share)

Exercise of stock options 0 6 0 0 0 6

Share-based compensation 0 13 0 0 0 13

Purchases of treasury stock 0 0 0 0 ( 523 ) ( 523 )

Treasury stock reissued 0 12 0 0 14 26

Balance at March 31, 2022 $ 135 $ 2,560 $ 42,413 $ 3,113 $ ( 18,694 ) $ 29,527

Net earnings 0 0 1,388 0 0 1,388

Unrealized foreign currency translation

gains (losses) during period, net of

income taxes 0 0 0 ( 807 ) 0 ( 807 )

Unrealized gains (losses) on fixed maturity

securities during period, net of income

taxes and reclassification adjustments 0 0 0 ( 2,857 ) 0 ( 2,857 )

Unrealized gains (losses) on derivatives

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

Pension liability adjustment during period,

net of income taxes 0 0 0 3 0 3

Dividends to shareholders (1)

($ .40 per share)

0 0 ( 254 ) 0 0 ( 254 )

Exercise of stock options 0 1 0 0 0 1

Share-based compensation 0 19 0 0 0 19

Purchases of treasury stock 0 0 0 0 ( 650 ) ( 650 )

Treasury stock reissued 0 9 0 0 8 17

Balance at June 30, 2022 $ 135 $ 2,589 $ 43,547 $ ( 548 ) $ ( 19,336 ) $ 26,387

(1) Dividends to shareholders are recorded in the period in which they are declared.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

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

Balance at June 30, 2022 $ 135 $ 2,589 $ 43,547 $ ( 548 ) $ ( 19,336 ) $ 26,387

Net earnings 0 0 1,596 0 0 1,596

Unrealized foreign currency translation

gains (losses) during period, net of

income taxes 0 0 0 ( 1,166 ) 0 ( 1,166 )

Unrealized gains (losses) on fixed maturity

securities during period, net of income

taxes and reclassification adjustments 0 0 0 ( 1,799 ) 0 ( 1,799 )

Unrealized gains (losses) on derivatives

Effect of changes in discount rate assumptions

during period, net of income taxes 0 0 0 ( 2,794 ) 0 ( 2,794 )

3 unchanged sentences

($ .00 per share)

0 0 ( 251 ) 0 0 ( 251 )

Exercise of stock options 0 3 0 0 0 3

2 unchanged sentences

Treasury stock reissued 0 7 0 0 13 20

Balance at September 30, 2022 $ 135 $ 2,615 $ 44,892 $ ( 3,511 ) $ ( 19,979 ) $ 24,152

(1) Dividends to shareholders are recorded in the period in which they are declared.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

Balance at March 31, 2023 $ 135 $ 2,665 $ 45,555 $ ( 7,278 ) $ ( 21,293 ) $ 19,784

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

9 unchanged sentences

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

Pension liability adjustment during period,

net of income taxes 0 0 0 4 0 4

Dividends to shareholders (1)

($ .00 per share)

Exercise of stock options 0 9 0 0 0 9

Share-based compensation 0 9 0 0 0 9

Purchases of treasury stock 0 0 0 0 ( 668 ) ( 668 )

Treasury stock reissued 0 10 0 0 18 28

Balance at March 31, 2021 $ 135 $ 2,438 $ 39,277 $ 6,807 $ ( 16,554 ) $ 32,103

Net earnings 0 0 1,105 0 0 1,105

Unrealized foreign currency translation

gains (losses) during period, net of

income taxes 0 0 0 13 0 13

Unrealized gains (losses) on fixed maturity

securities during period, net of income

taxes and reclassification adjustments 0 0 0 1,198 0 1,198

Unrealized gains (losses) on derivatives

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

Pension liability adjustment during period,

net of income taxes 0 0 0 1 0 1

Dividends to shareholders (1)

($ .33 per share)

0 0 ( 220 ) 0 0 ( 220 )

Exercise of stock options 0 2 0 0 0 2

Share-based compensation 0 20 0 0 0 20

Purchases of treasury stock 0 0 0 0 ( 500 ) ( 500 )

Treasury stock reissued 0 5 0 0 8 13

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

(1) Dividends to shareholders are recorded in the period in which they are declared.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

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

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

Net earnings 0 0 888 0 0 888

Unrealized foreign currency translation

gains (losses) during period, net of

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

Unrealized gains (losses) on fixed maturity

securities during period, net of income

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

Unrealized gains (losses) on derivatives

Effect of changes in discount rate assumptions

during period, net of income taxes 0 0 0 4,224 0 4,224

3 unchanged sentences

($ .00 per share)

0 0 ( 220 ) 0 0 ( 220 )

Exercise of stock options 0 6 0 0 0 6

2 unchanged sentences

Treasury stock reissued 0 12 0 0 14 26

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

Balance at March 31, 2022 $ 135 $ 2,560 $ 42,010 $ ( 8,451 ) $ ( 18,694 ) $ 17,560

(1) Dividends to shareholders are recorded in the period in which they are declared.

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

See the accompanying Notes to the Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions - Unaudited) 2023 2022

14 unchanged sentences

Equity securities 126 102

Held-to-maturity fixed maturity securities 2 2

Commercial mortgage and other loans 418 638

10 unchanged sentences

Purchases of treasury stock ( 700 ) ( 500 )

Proceeds from borrowings 1,277 1,153

Principal payments under debt obligations ( 966 ) ( 700 )

Dividends paid to shareholders ( 248 ) ( 250 )

17 unchanged sentences

Share-based compensation grants 5 5

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

See the accompanying Notes to the Consolidated Financial Statements.

1 unchanged sentence

Notes to the Consolidated Financial Statements

(Interim period data – Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 unchanged sentences

With the exception of dental and vision products administered by Aflac Benefits Solutions, Inc.

(ABS), formerly known as Argus Dental & Vision, Inc., and certain group life insurance products, Aflac U.S.

(ABS) and certain group life insurance products, Aflac U.S.

markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance.

Additionally, Aflac U.S.

markets its consumer markets products through Tier One Insurance Company (TOIC).

The Company's insurance operations in the U.S.

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

Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 72 % and 69 % of the Company's total revenues in the nine-month periods ended September 30, 2022 and 2021, respectively.

The percentage of the Company's total assets attributable to Aflac Japan was 79 % at September 30, 2022, compared with 82 % at December 31, 2021.

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

are included in Corporate and other.

Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 62 % and 70 % of the Company's total revenues in the three-month periods ended March 31, 2023 and 2022, respectively.

The percentage of the Company's total assets attributable to Aflac Japan was 81 % at March 31, 2023, compared with 80 % at December 31, 2022.

In 2022, the Company established Aflac Re Bermuda Ltd.

(Aflac Re), a Bermuda domiciled insurer that reinsures certain policies issued by ALIJ.

Aflac Re is subject to regulation in Bermuda, where the Bermuda Monetary Authority (BMA) has broad administrative powers relating to granting and revoking licenses to transact reinsurance business, approval of specific reinsurance transactions, capital requirements and solvency standards, limitations on dividends to shareholders, the nature of and limitations on investments, and the filing of financial statements in accordance with prescribed or permitted accounting practices.

Financial results from Aflac Re are included in Corporate and other.

Basis of Presentation

6 unchanged sentences

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

The most significant items on the Company's balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy claims, and income taxes.

These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders.

These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, interest rates, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders.

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

2 unchanged sentences

All material intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of September 30, 2022 and December 31, 2021, the consolidated statements of earnings and comprehensive income (loss) for the three- and nine-month periods ended September 30, 2022 and 2021, the consolidated statement of shareholders' equity for the three-month periods ended March 31, 2022 and 2021, June 30, 2022 and 2021, and September 30, 2022 and 2021, and the consolidated statement of cash flows for the nine-month periods ended September 30, 2022 and 2021.

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

As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report).

Market Conditions:

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

For example, economic conditions have acted as headwinds to sales in the first 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.

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.

Significant Accounting Policies

The Company revised the following accounting policies as a result of the adoption of amended accounting guidance effective January 1, 2023 and certain reclassifications.

Refer to Recently Adopted Accounting Pronouncements below for details of the adoption of ASU 2018-12 Financial Services - Insurance:

Targeted Improvements to the Accounting for Long-Duration Contracts.

In conjunction with the adoption of ASU 2018-12, the Company changed its practice of recording the change in the deferred profit liability on products with limited payment features from the benefits and claims, net line item to the net earned premiums line item in the consolidated statement of earnings.

This reclassification had no impact on net earnings.

The change in presentation has been made for all comparative periods presented.

All other categories of significant accounting policies remain unchanged from the 2022 Annual Report.

Insurance Revenue and Expense Recognition:

Substantially all of the supplemental health and life insurance policies the Company issues are classified as long-duration contracts.

The contract provisions generally cannot be changed or canceled during the contract period;

however, the Company may adjust premiums for supplemental health policies issued in the U.S.

within prescribed guidelines and with the approval of state insurance regulatory authorities.

Insurance premiums for most of the Company's health and life policies, including cancer, accident, hospital, critical illness, supplemental dental and vision, term life, whole life, long-term care and disability, are recognized as earned premiums over the premium-paying periods of the contracts when due from policyholders.

When earned premiums are reported, the related amounts of benefits and expenses are charged against such revenues.

This association is accomplished by means of annual increases or decreases to the liability for future policy benefits (LFPB) and the deferral and subsequent amortization of policy acquisition costs.

Premiums from the Company's products with limited-pay features, including cancer, medical and nursing care, term life, whole life, WAYS, and child endowment, are collected over a significantly shorter period than the contract term (i.e., the period during which benefits are provided).

Premiums for these products are recognized as earned premiums over the premium-paying periods when due from policyholders.

Any gross premium in excess of the net premium is deferred and recorded as a deferred profit liability, which is subsequently amortized in net earned premiums such that profits are recognized in a constant relationship with insurance in force.

Benefits are recorded as an expense when they are incurred.

An LFPB is recorded when premiums are recognized using the net premium method.

Policyholders also have an option to pay discounted advanced premiums for certain of the Company's products.

Advanced premiums are deferred and recognized when due from policyholders over the otherwise required contractual premium payment period.

Benefit expense is bifurcated between benefits and claims and reserve remeasurement (gains) losses.

The net premium ratio (NPR) is used to measure benefit expense and is calculated as the ratio of the present value of actual and future expected benefits and expenses to the present value of actual and future expected gross premiums.

A revised NPR is calculated as of the beginning of each reporting period using updated future cash flow expectations.

Reserve remeasurement (gains) losses represent the difference between two reserve measures both calculated as of the beginning of the current reporting period using the same locked-in discount rates.

One reserve measure uses the NPR as of the end of the prior reporting period, and the second uses the revised NPR.

Benefits and claims represent the difference in the liability balance calculated as of the beginning of the current reporting period and the end of the current reporting period both using the revised NPR and the locked-in discount rates.

The locked-in interest accretion rate utilized for accretion of interest expense on insurance reserves is the original discount rate used at contract issue date.

Advertising expense is reported as incurred in insurance and other expenses in the consolidated statement of earnings.

Deferred Policy Acquisition Costs :

Certain direct and incremental costs of acquiring insurance contracts are deferred and amortized on a grouped-contract basis over the expected term of the related contracts, using a constant-level basis.

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

For life and health products issued in the U.S., the constant-level basis used is face amount and number of policies in force, respectively.

Amortization is computed using the same contract groupings (also referred to as cohorts) and mortality and termination assumptions that are used in computing the LFPB, and these assumptions are reviewed and updated at least annually.

The effects of changes in assumptions are recognized prospectively over the remaining contract term as a revision of the future amortization pattern, while current period amortization is calculated based on the actual experience during the quarter.

Deferred costs include the excess of current-year commissions over ultimate renewal-year commissions and certain incremental direct policy issue, underwriting and sales expenses directly related to successful policy acquisition.

For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract.

These transactions are known as internal replacements.

The Company performs a two-stage analysis of the internal replacements to determine if the modification is substantive to the base policy.

The stages of evaluation are as follows:

1) determine if the modification is integrated with the base policy, and 2) if it is integrated, determine if the resulting contract is substantially changed.

For internal replacement transactions where the resulting contract is substantially unchanged, unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life of the cohort, and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred.

For an internal replacement transaction that results in a policy that is substantially changed, the policy is treated as lapsed for amortization purposes, and the costs of acquiring the new policy are capitalized and amortized in accordance with the Company's accounting policies for deferred acquisition costs.

Riders can be considered internal replacements that are either integrated or non-integrated resulting in either substantially changed or substantially unchanged treatment.

Riders are evaluated based on the specific facts and circumstances of the rider and are considered an expansion of the existing benefits with additional premium required.

Non-integrated riders to existing contracts do not change the Company's profit expectations for the related products and are treated as a new policy establishment for incremental coverage.

Policy Liabilities :

For long-duration insurance contracts, the Company calculates an integrated reserve that represents all payments under the contract including future expected claims and unpaid policy claims and related expenses.

The liability for future policy benefits is measured using the net level premium method.

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

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

The LFPB is determined as the present value of future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of future net premiums receivable under the Company’s insurance contracts, where future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.

Future policy benefits are calculated using assumptions and estimates including mortality, morbidity, termination (also referred to as lapses), expense, and discount rates.

The assumptions and estimates that the Company uses depend on its judgment regarding the likelihood of future events and are inherently uncertain.

Cash flow assumptions (mortality, morbidity, and termination) are established at policy inception and are evaluated each quarter to determine if an update is needed.

To facilitate a more detailed review of cash flow assumptions, experience studies are performed annually during the third quarter.

Changes in cash flow assumptions are the result of applying the updated best estimate assumptions as of the beginning of the reporting period and are recognized in reserve remeasurement (gains) losses in the consolidated statement of earnings.

Expense assumptions are established at policy inception and determined for each issue-year cohort as a percentage of paid claims.

These expense assumptions are locked-in and remain unchanged over the term of the insurance policy.

Actual experience is reflected in the calculation of future policy benefits each quarter, and changes in the liability due to actual experience are recognized in reserve remeasurement (gains) losses in the consolidated statement of earnings.

Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense in the consolidated statement of earnings.

Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheet are updated each reporting period, and the difference between the liability balances calculated using the locked-in discount rates and the updated discount rates is recognized in other comprehensive income (loss) (OCI).

The Company has designed its discount rate methodology for the U.S.

and Japan insurance business.

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

and Japan LFPBs, reflective of the characteristics of the insurance liabilities, such as currency and tenor.

Discount rates comprising each curve are determined by reference to upper-medium grade (low credit risk) fixed-income instrument yields that

reflect the duration characteristics of the corresponding insurance liabilities.

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

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

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

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

(i) for tenors where there is less observable market data and/or the observable market data is available for similar instruments, estimating tenor-specific single-A credit spreads and applying them to risk-free government rates; (ii) for tenors where there is very limited or no observable single-A or similar market data, interpolation and extrapolation techniques.

The locked-in discount rate used for the computation of interest accretion on LFPBs is determined separately for each issue-year cohort as a single discount rate, calculated as the weighted-average of monthly upper-medium grade (low credit risk) fixed-income instrument forward curves in the calendar year, determined using the methodology described above and weighted using issued annualized premiums for each issue month.

The single discount rate for each issue-year cohort is determined by solving for a rate that produces an equivalent net premium ratio to the forward curve and will remain unchanged after the calendar year of issue.

Unearned premiums consist primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products.

These advanced premiums are deferred upon collection and recognized as earned premiums over the contractual premium payment period.

The other policyholders’ funds liability consists primarily of the fixed annuity line of business in Aflac Japan which has fixed benefits and premiums.

For internal replacements that are determined to be substantially changed, policy liabilities related to the original policy that was replaced are immediately released, and policy liabilities are established for the new insurance contract.

The policy reserves are evaluated based on the new policy features, and changes are recognized at the date of contract change/modification.

For internal replacements that are substantially unchanged, no changes to the reserves are recognized.

For modifications that are not integrated with the base policy, new coverage is recognized as a separately issued contract within the current cohort.

Reclassifications :

2 unchanged sentences

New Accounting Pronouncements

Accounting Pronouncements Pending Adoption

Recently Adopted Accounting Pronouncements

ASU 2018-12 Financial Services - Insurance:

4 unchanged sentences

Effective Date and Early Application

In August 2018, the FASB issued amendments that will significantly change how insurers account for long-duration contracts.

The amendments will change existing recognition, measurement, presentation, and disclosure requirements.

Issues addressed in the new guidance include:

1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits (LFPB) at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures.

In November 2019, the FASB issued an amendment extending the effective date for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be small reporting companies as defined by the SEC, by one year.

In November 2020, the FASB issued an amendment providing an additional year deferral for all insurance entities due to the impact of COVID-19.

The amendments are now effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early application of the amendments is permitted.

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

The requirement to update assumptions for LFPB will have a significant impact on the Company's results of operations, systems, processes and controls and the requirement to update discount rates will have a significant impact on its equity.

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

The Company will not early adopt the updated standard and has selected the modified retrospective transition method, which requires the amended guidance be applied as of the beginning of the earliest period presented beginning on the January 1, 2021 transition date (Transition Date).

In August 2018, the FASB issued amendments that significantly changed how insurers account for long-duration contracts.

The Company adopted the standard on January 1, 2023 using a modified retrospective transition method which resulted in applying the amended guidance as of the beginning of the earliest period presented on the January 1, 2021 transition date (Transition Date).

The modified retrospective transition method generally results in applying the guidance to contracts on the basis of existing carrying values as of the Transition Date.

On the Transition Date the Company calculates the ratio of expected benefits less existing carrying values to gross premiums (net premium ratio) using updated assumptions and the discount rate immediately before the Transition Date.

For any cohorts that have a net premium ratio greater than 100% on the Transition Date, the net premium ratio is capped at 100%.

The Company uses the net premium ratio calculated on the Transition Date (and capped at 100% if required) to calculate the LFPB using two different discount rates:

On the Transition Date, the Company calculated the ratio of the present value of future expected benefits and expenses less existing carrying values to the present value of future expected gross premiums (Transition Date NPR) using updated assumptions and the discount rate immediately before the Transition Date.

The Company capped the Transition Date NPR at 100 % for any cohorts with a Transition Date NPR greater than 100 %.

The Company calculated the LFPB using the Transition Date NPR (capped at 100 % if required) and two different discount rates:

(i) the discount rate used immediately before the Transition Date, and (ii) the discount rate determined by reference to the Transition Date market level yields for upper-medium grade (low credit risk) fixed income instruments (as of December 31, 2020).

For cohorts with their net premium ratio capped at 100% on the Transition Date, any difference between the LFPB calculated using the discount rate immediately before the Transition Date and the existing carrying value as of the Transition Date is recorded as an adjustment (decrease) to opening retained earnings.

For all cohorts on the Transition Date, the difference in the LFPB calculated using the two different discount rates (i.e., the discount rate used immediately before the Transition Date and the updated discount rate as of the Transition Date) is recorded in accumulated other comprehensive income (AOCI) net of tax at transition.

When the Company adopts the updated standard beginning January 1, 2023, opening equity will be adjusted for the Transition Date impacts to AOCI and retained earnings and prior periods presented (years 2021 and 2022) will be restated following the updated standard.

Based on the modified retrospective transition method, the Transition Date impact from adoption will result in a decrease in AOCI of approximately $ 18.6 billion and a decrease in retained earnings of approximately $ 0.3 billion.

The Company has designed its discount rate methodology for both the U.S.

and Japan insurance business.

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

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

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

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

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

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

Discount rates are updated each reporting period.

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

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

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

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

• All payments under an insurance contract including future expected claims and already incurred claims (i.e., claim liabilities) and related expenses will be measured together as an integrated reserve.

This will result in the following presentation changes in the consolidated balance sheet:

(i) unpaid policy claims on long-duration insurance contracts and accrued claim adjustment expenses presented separately pre-adoption will be presented as part of LFPB;

and (ii) liabilities for fixed annuity benefits will be excluded from the integrated reserve, as they are outside the scope of the amended standard, and will be presented in other policyholders' funds.

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

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

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

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

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

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

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

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

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

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

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

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

Under the amended guidance, certain insurance commissions and expenses must be excluded from the expense assumption, which will result in an increase in the deferred profit liability on limited-payment products compared to current guidance.

In conjunction with the adoption of the updated standard effective January 1, 2023, the Company will change its practice of recording the change in the deferred profit liability on products with limited-payment features from the benefits and claims, net line item to the net earned premiums line item in the consolidated statement of earnings.

This reclassification will have no impact on net earnings.

The change in presentation will be made for all comparative periods presented.

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

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

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

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

The Company currently has no products with market risk benefits.

Impacts on Previously Reported Results

Impacts from the adoption of ASU 2018-12 to the Company's previously reported results are expected to be as follows:

Consolidated Statement of Earnings

Year Ended December 31, 2021

(In millions) As

Reported Adoption

(Unaudited) As

Net earned premiums, principally supplemental health insurance (1)

$ 17,647 $ ( 552 ) $ 17,095

Net investment income 3,818 0 3,818

Net investment gains (losses) 468 0 468

Other income (loss) 173 0 173

Total revenues 22,106 ( 552 ) 21,554

Benefits and expenses:

Benefits and claims, excluding reserve remeasurement (1)(2)

10,576 47 10,623

Reserve remeasurement (gains) losses (3)

0 ( 147 ) ( 147 )

Total benefits and claims, net 10,576 ( 100 ) 10,476

Acquisition and operating expenses:

Amortization of deferred policy acquisition costs (4)

1,170 ( 335 ) 835

Insurance commissions 1,256 0 1,256

Insurance and other expenses (5)

3,544 ( 3 ) 3,541

Interest expense 238 0 238

Total acquisition and operating expenses 6,208 ( 338 ) 5,870

Total benefits and expenses 16,784 ( 438 ) 16,346

Earnings before income taxes 5,322 ( 114 ) 5,208

For cohorts with their Transition Date NPR capped at 100 %, the Company recorded as an adjustment (decrease) to opening retained earnings any difference between the LFPB calculated using the discount rate immediately before the Transition Date and the existing carrying value as of the Transition Date.

For all cohorts on the Transition Date, the Company recorded in accumulated other comprehensive

income (AOCI) net of tax, the difference in the LFPB calculated using the two different discount rates (i.e., the discount rate used immediately before the Transition Date and the updated discount rate as of the Transition Date).

Upon adoption, the Company adjusted opening equity for the Transition Date impacts to AOCI and retained earnings and adjusted prior periods presented (years 2021 and 2022) following the updated standard.

Based upon the modified retrospective transition method, the Transition Date impact from adoption resulted in a decrease in AOCI of approximately $ 18.6 billion and a decrease in retained earnings (RE) of approximately $ 0.3 billion.

See Note 6 and Note 7 of the Notes to the Consolidated Financial Statements for expanded disclosures for DAC and future policy benefits, respectively, required as a result of the amended guidance.

Transition Impact to Shareholder's Equity

The following table presents the cumulative transition impact as of January 1, 2021 to the Company’s Shareholder’s Equity as a result of the adoption of ASU 2018-12, using the modified retrospective transition method.

(In millions - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders'

Balance at December 31, 2020 $ 135 $ 2,410 $ 37,984 $ 8,934 $ ( 15,904 ) $ 33,559

Cumulative effect of change in accounting

principle, ASU 2018-12, net of income taxes 0 0 ( 324 ) ( 18,570 ) 0 ( 18,894 )

Balance at January 1, 2021 $ 135 $ 2,410 $ 37,660 $ ( 9,636 ) $ ( 15,904 ) $ 14,665

The following table presents the transition impacts as of January 1, 2021 to the Company's AOCI and RE as a result of the adoption of ASU 2018-12 by reporting segment and disaggregated by product type, using the modified retrospective transition method.

(In millions - Unaudited) Impact to Retained

Earnings Impact to AOCI

Transition impacts:

Cancer $ 0 $ 14,529

Medical and other health 1 2,382

Life insurance 0 3,314

Accident 0 92

Disability 0 149

Critical care 4 2,258

Hospital indemnity 0 223

Dental/vision 0 65

Life insurance 5 149

Reinsurance 0 ( 305 )

Transition impact before income taxes 410 23,507

income taxes 86 4,937

997 ( 20 ) 977

Net earnings $ 4,325 $ ( 94 ) $ 4,231

(1) Adjustment reflects a $ 489 increase in the deferred profit liability on limited-payment products under the updated standard combined with the reclassification of a $ 63 increase in deferred profit liability previously reported in benefits and claims and reclassified to net earned premiums in conjunction with adoption of the updated standard.

(2) Adjustment reflects 2021 activity for the effect of calculating benefits using revised net premium ratios and best estimate future cash flow projections, excluding reserve remeasurement impacts.

(3) Adjustment reflects the reserve remeasurement on the liability for future policy benefits due to applying revised net premium ratios based on updated historical actuals and revised assumptions to past periods each quarter under the updated standard.

(4) Adjustment reflects a decrease in DAC amortization due to DAC assets being amortized over the expected life of a contract and no interest accretion recorded under the updated standard.

(5) Adjustment reflects 2021 activity for the change in accrued claim adjustment expenses that are included in benefits and claims as a component of the integrated reserve under the updated standard.

(6) Adjustment reflects a decrease in income tax expense associated with the decrease in pretax earnings.

Consolidated Balance Sheet

Total transition impact, net of income taxes $ 324 $ 18,570

(1) Impact to retained earnings is driven primarily by capping the Transition Date NPR on Care products.

Transition Impact on the Liability for Future Policy Benefits

The Company adopted ASU 2018-12 using the modified retrospective transition method.

The tables below present the disaggregated transition impacts to the Company’s LFPB as a result of adoption, split between the changes in the present

value of expected net premiums and the present value of expected future policy benefits as of the Transition Date and the LFPB rollforward for the year ended December 31, 2021.

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

See Note 7 of the Notes to the Consolidated Financial Statements for additional information.

Under the modified retrospective transition method, the NPR for future policy benefits existing as of the Transition Date considers the carryover basis of those liabilities, which equals the future policy benefits and unpaid policy claims balance as of December 31, 2020.

If the revised Transition Date NPR for a cohort is greater than 100 %, the Company capped the Transition Date NPR at 100 % and increased the LFPB with an offsetting decrease to opening retained earnings.

The LFPB recorded in the consolidated balance sheet includes the deferred profit liability for limited-payment contracts.

This deferred profit liability is not included in the Transition Date and LFPB rollforwards.

For products with limited-payment features, to the extent the transition date adjustment related to updating cash flow assumptions is favorable, the Company increased the deferred profit liability.

The following table presents the transition impacts to the present value of expected net premiums by reporting segment and disaggregated by product type due to the cumulative effect of the change in accounting principle as a result of the adoption of ASU 2018-12 using the modified retrospective transition method.

Transition Impact at January 1, 2021

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected premiums:

Balance at December 31, 2020 $ 25,601 $ 21,270 $ 12,440 $ 2,080 $ 3,350 $ 1,921 $ 5,898 $ 1,376 $ 281 $ 710 $ 154

Impact to retained earnings from capping Transition Date NPR 0 ( 1 ) 0 ( 398 ) 0 0 ( 4 ) 0 0 ( 5 ) ( 2 )

Impact of deferred profit liability 15 7 36 26 0 0 0 0 0 0 0

Beginning balance at original discount rate 25,616 21,276 12,476 1,708 3,350 1,921 5,894 1,376 281 705 152

Effect of change in discount rate assumptions 3,982 2,598 908 148 479 197 1,048 154 41 78 27

Balance at January 1, 2021 $ 29,598 $ 23,874 $ 13,384 $ 1,856 $ 3,829 $ 2,118 $ 6,942 $ 1,530 $ 322 $ 783 $ 179

The following table presents the changes in the present value of expected net premiums by reporting segment and disaggregated by product type for the year ended December 31, 2021.

December 31, 2021

(In millions) As

Reported Adoption

(Unaudited) As

Investments and cash:

Fixed maturity securities available for sale, at fair value $ 94,206 $ 0 $ 94,206

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

4,490 0 4,490

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

22,000 0 22,000

Equity securities, at fair value 1,603 0 1,603

Commercial mortgage and other loans, net of allowance for credit losses 11,786 0 11,786

Other investments 3,842 0 3,842

Cash and cash equivalents 5,051 0 5,051

Total investments and cash 142,978 0 142,978

Receivables (1)

Accrued investment income 737 0 737

Deferred policy acquisition costs (2)

9,525 323 9,848

Property and equipment 538 0 538

3,071 275 3,346

Total assets $ 157,542 $ 608 $ 158,150

Liabilities and shareholders’ equity:

Policy liabilities:

Future policy benefits (1),(4),(5),(6)

$ 90,588 $ 25,376 $ 115,964

Unpaid policy claims (4),(7)

4,836 ( 4,685 ) 151

Unearned premiums 2,576 0 2,576

Other policyholders’ funds (7)

7,072 568 7,640

Total policy liabilities 105,072 21,259 126,331

Income taxes (8)

4,339 ( 4,309 ) 30

Payables for return of cash collateral on loaned securities 2,162 0 2,162

Notes payable and lease obligations 7,956 0 7,956

4,760 ( 120 ) 4,640

Total liabilities 124,289 16,830 141,119

Commitments and contingent liabilities

Shareholders’ equity:

Common stock 135 0 135

Additional paid-in capital 2,529 0 2,529

Retained earnings (9)

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected premiums:

Balance at January 1, 2021 $ 29,598 $ 23,874 $ 13,384 $ 1,856 $ 3,829 $ 2,118 $ 6,942 $ 1,530 $ 322 $ 783 $ 179

Beginning balance at original discount rate (1)

25,616 21,276 12,476 1,708 3,350 1,921 5,894 1,376 281 705 152

Accumulated other comprehensive income (loss):

Unrealized foreign currency translation gains (losses) (10)

Effect of changes in cash flow assumptions 32 88 40 1 ( 163 ) ( 129 ) ( 302 ) 0 ( 26 ) 31 0

Effect of actual variances from expected

experience ( 134 ) ( 449 ) ( 135 ) ( 11 ) ( 109 ) ( 38 ) ( 290 ) ( 32 ) ( 14 ) 34 ( 3 )

Adjusted beginning of period balance 25,514 20,915 12,381 1,698 3,078 1,754 5,302 1,344 241 770 149

Issuances 1,116 1,132 284 55 365 345 552 263 39 112 0

Interest accrual 586 439 202 27 116 61 210 45 10 25 6

Net premium earned (2)

( 2,206 ) ( 1,692 ) ( 1,609 ) ( 151 ) ( 552 ) ( 393 ) ( 665 ) ( 268 ) ( 47 ) ( 124 ) ( 19 )

Unrealized gains (losses) on fixed maturity securities 9,602 0 9,602

Unrealized gains (losses) on derivatives ( 30 ) 0 ( 30 )

Foreign currency translation ( 2,539 ) ( 2,111 ) ( 1,194 ) ( 167 ) 0 0 0 0 0 0 0

Other ( 1 ) ( 2 ) 0 ( 1 ) ( 8 ) ( 7 ) ( 8 ) ( 4 ) ( 2 ) ( 3 ) ( 1 )

Ending balance at original discount rate 22,470 18,681 10,064 1,461 2,999 1,760 5,391 1,380 241 780 135

Effect of changes in discount rate assumptions 3,423 2,493 783 125 284 102 632 87 23 54 18

0 ( 15,832 ) ( 15,832 )

Pension liability adjustment ( 166 ) 0 ( 166 )

Treasury stock ( 18,185 ) 0 ( 18,185 )

Total shareholders’ equity 33,253 ( 16,222 ) 17,031

Total liabilities and shareholders’ equity $ 157,542 $ 608 $ 158,150

(1) Adjustment for the reclassification of ceded reserves from future policy benefits to receivables in conjunction with adoption of the updated standard.

(2) Adjustment reflects an increase in DAC assets as a result of DAC being amortized over the expected life of a contract and no interest accretion recorded under the updated standard.

(3) Adjustment reflects the discounting of reinsurance recoverables for retrocession activities under the updated standard.

(4) Adjustment for the reclassification of unpaid policy claims for long-duration contracts to future policy benefits as a component of the integrated reserve.

(5) Adjustment for the reclassification of accrued claim adjustment expenses from other liabilities to future policy benefits as a component of the integrated reserve.

(6) Adjustment reflects the impacts of adoption and 2021 activity under the updated standard, including a $ 490 increase in the deferred profit liability on limited-payment products under the updated standard as discussed above.

(7) Adjustment for the reclassification of the claims liability for certain fixed annuity benefits from unpaid policy claims to other policyholders' funds.

(8) Adjustment reflects the tax effects from adoption and 2021 activity under the updated standard.

(9) Adjustment reflects the impacts from adoption of ($ 324 ) as a result of capping the net premium ratio at 100% for cohorts that are in a loss position at transition, and the decrease in current year net earnings of $( 94 ) under the updated standard.

(10) Adjustment reflects foreign currency translation related to the updated standard, as applicable.

(11) Adjustment reflects the impacts from adoption of ($ 18,570 ) and 2021 activity of $ 2,738 due to changes in the discount rate assumptions under the updated standard.

Balance at December 31, 2021 $ 25,893 $ 21,174 $ 10,847 $ 1,586 $ 3,283 $ 1,862 $ 6,023 $ 1,467 $ 264 $ 834 $ 153

(1) Includes the adjustment for capping the Transition Date NPR.

(2) Net premiums earned represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

The following table presents the transition impacts to the present value of expected future policy benefits by reporting segment and disaggregated by product type due to the cumulative effect of the change in accounting principle as a result of the adoption of ASU 2018-12 using the modified retrospective transition method.

Transition Impact at January 1, 2021

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected future policy

Balance at December 31, 2020 $ 64,056 $ 34,638 $ 43,729 $ 7,620 $ 3,818 $ 2,919 $ 13,427 $ 2,258 $ 599 $ 1,562 $ 661

Effect of change in discount rate assumptions 18,511 4,980 4,222 581 571 346 3,306 377 106 227 245

Balance at January 1, 2021 $ 82,567 $ 39,618 $ 47,951 $ 8,201 $ 4,389 $ 3,265 $ 16,733 $ 2,635 $ 705 $ 1,789 $ 906

The following table presents the changes in the present value of expected future policy benefits by reporting segment and disaggregated by product type for the year ended December 31, 2021.

December 31, 2021

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected future policy

Balance at January 1, 2021 $ 82,567 $ 39,618 $ 47,951 $ 8,201 $ 4,389 $ 3,265 $ 16,733 $ 2,635 $ 705 $ 1,789 $ 906

Beginning balance at original discount rate 64,056 34,638 43,729 7,620 3,818 2,919 13,427 2,258 599 1,562 661

Effect of changes in cash flow assumptions 24 85 31 ( 11 ) ( 178 ) ( 143 ) ( 326 ) ( 3 ) ( 29 ) 31 0

Effect of actual variances from expected

experience ( 149 ) ( 458 ) ( 139 ) ( 15 ) ( 115 ) ( 41 ) ( 304 ) ( 36 ) ( 15 ) 34 ( 3 )

Adjusted beginning of period balance 63,931 34,265 43,621 7,594 3,525 2,735 12,797 2,219 555 1,627 658

Issuances 1,133 1,155 287 62 372 355 563 271 40 115 0

Interest accrual 2,014 769 833 129 137 100 553 85 23 58 33

Benefit payments ( 3,894 ) ( 1,313 ) ( 1,373 ) ( 238 ) ( 439 ) ( 520 ) ( 834 ) ( 275 ) ( 69 ) ( 107 ) ( 46 )

Foreign currency translation ( 6,377 ) ( 3,478 ) ( 4,366 ) ( 760 ) 0 0 0 0 0 0 0

Other 0 0 0 0 ( 1 ) 0 0 0 0 1 0

Ending balance at original discount rate 56,807 31,398 39,002 6,787 3,594 2,670 13,079 2,300 549 1,694 645

Effect of changes in discount rate assumptions 15,940 4,623 3,718 535 355 201 2,309 252 67 149 192

Balance at December 31, 2021 72,747 36,021 42,720 7,322 3,949 2,871 15,388 2,552 616 1,843 837

Net liability for future policy benefits 46,854 14,847 31,873 5,736 666 1,009 9,365 1,085 352 1,009 684

reinsurance recoverable 0 2,150 0 0 0 0 0 0 0 10 0

Net liability for future policy benefits after

reinsurance recoverable $ 46,854 $ 12,697 $ 31,873 $ 5,736 $ 666 $ 1,009 $ 9,365 $ 1,085 $ 352 $ 999 $ 684

The following table presents a reconciliation of the rollforwards by reporting segment and disaggregated by product type for the year ended December 31, 2021 to the liability for future policy benefits as of December 31, 2021 under the amended guidance.

The deferred profit liability for limited-payment contracts and reinsurance is presented together with the LFPB in the Consolidated Balance Sheets and has been included as a reconciling item in the table below.

(In millions) December 31,

Balances included in future policy benefits rollforward:

Cancer $ 46,854

Medical and other health 14,847

Life insurance 31,873

Disability 1,009

Critical care 9,365

Hospital indemnity 1,085

Dental/vision 352

Life insurance 1,009

Corporate and other 30

Deferred profit liability - limited-payment contracts 1,595

Deferred profit liability - reinsurance 859

Total $ 115,964

The adoption of ASU 2018-12 did not have an impact on the Company's balance for deferred policy acquisition costs upon adoption.

Accounting Pronouncements Pending Adoption

ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method

In March 2023, the FASB issued amendments to permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit).

The amendments are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted and if an entity adopts the amendments in an interim period, it shall adopt them as of the beginning of the fiscal year that includes that interim period.

The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.

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

3 unchanged sentences

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

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

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

are included in Corporate and other.

10 unchanged sentences

Information regarding operations by reportable segment and Corporate and other, follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

1 unchanged sentence

Adjusted net investment income (1),(2)

663 763 2,066 2,260

Other income 9 9

2 unchanged sentences

Adjusted net investment income (3)

185 191 563 557

Other income 35 42

Total adjusted revenue Aflac U.S.

1,598 1,616 4,865 4,870

Corporate and other (4),(5)

73 72 189 205

Total adjusted revenues 4,579 5,027

Net investment gains (losses) (1),(2),(3),(4)

236 ( 158 ) 962 258

Total revenues $ 4,800 $ 5,173

(1) Amortized hedge costs of $ 28 and $ 20 for the three-month periods and $ 84 and $ 55 for the nine-month periods ended September 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $( 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 when analyzing operations.

(3) 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, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(4) Amortized hedge income of $ 19 and $ 13 for the three-month periods and $ 44 and $ 45 for the nine-month periods ended September 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 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.

(1) Amortized hedge costs of $ 58 and $ 26 for the three-month periods ended March 31, 2023, and 2022, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $( 62 ) and $( 10 ) for the three-month periods ended March 31, 2023, and 2022, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(3) Net interest cash flows from derivatives associated with certain investment strategies of $( 7 ) and $ 1 for the three-month periods ended March 31, 2023, and 2022, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(4) Amortized hedge income of $ 29 and $ 11 for the three-month periods ended March 31, 2023, and 2022, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 51 and $ 12 for the three-month periods ended March 31, 2023, and 2022, respectively, is included as a reduction to net investment income.

Tax credits on these investments of $ 52 and $ 16 for the three-month periods ended March 31, 2023, and 2022, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

Three Months Ended March 31,

(In millions) 2023 2022

1 unchanged sentence

Aflac Japan (1),(2)

$ 630 $ 976 $ 2,351 $ 2,867

309 358 984 1,217

Corporate and other (4),(5),(6)

( 59 ) ( 41 ) ( 179 ) ( 144 )

Pretax adjusted earnings (7)

880 1,293 3,156 3,940

Net investment gains (losses) (1),(2),(3),(4),(5)

222 ( 172 ) 923 216

Other income (loss) 0 ( 1 )

3 unchanged sentences

adjusted earnings ( 41 ) ( 35 )

(4) Amortized hedge income of $ 19 and $ 13 for the three-month periods and $ 44 and $ 45 for the nine-month periods ended September 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(5) A gain of $ 13 and $ 14 for the three-month periods and $ 38 and $ 41 for the nine-month periods ended September 30, 2022, and 2021, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(6) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 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.

(4) Amortized hedge income of $ 29 and $ 11 for the three-month periods ended March 31, 2023, and 2022, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(5) A gain of $ 12 and $ 13 for the three-month periods ended March 31, 2023, and 2022, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(6) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 51 and $ 12 for the three-month periods ended March 31, 2023, and 2022, respectively, is included as a reduction to net investment income.

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

(7) Includes $ 45 and $ 40 for the three-month periods and $ 127 and $ 130 for the nine-month periods ended September 30, 2022, and 2021, respectively, of interest expense on debt.

(7) Includes $ 34 and $ 41 for the three-month periods ended March 31, 2023, and 2022, respectively, of interest expense on debt.

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

Assets were as follows:

(In millions) September 30,

(In millions) March 31,

2023 December 31,

3 unchanged sentences

Total assets $ 134,966 $ 131,738

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

Investment Holdings

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

September 30, 2022

March 31, 2023

(In millions)

47 unchanged sentences

Total securities available for sale $ 75,469 $ 0 $ 4,800 $ 4,528 $ 75,741

September 30, 2022

March 31, 2023

(In millions)

25 unchanged sentences

Total securities held to maturity $ 19,063 $ 7 $ 19,056 $ 2,154 $ 0 $ 21,210

(In millions) September 30,

(In millions) March 31,

2023 December 31, 2022

7 unchanged sentences

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

During the first nine months of 2022 and 2021, respectively, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the first quarter of 2023 and 2022, respectively, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at September 30, 2022, were as follows:

The contractual and economic maturities of the Company's investments in fixed maturity securities at March 31, 2023, were as follows:

(In millions) Amortized

24 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Credit

6 unchanged sentences

Information regarding pretax net gains and losses from investments is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

9 unchanged sentences

Equity securities ( 3 ) ( 156 )

( 119 ) ( 313 ) ( 17 )

Credit losses:

Fixed maturity securities available for sale 0 27 0 38

Fixed maturity securities held to maturity 1 0

Commercial mortgage and other loans ( 31 ) 16

Impairment losses ( 4 ) 0 ( 21 ) ( 20 )

Loan commitments 3 7

6 unchanged sentences

Total net investment gains (losses) $ 123 $ 122

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the three-month period ended September 30, 2022, that relate to equity securities still held at the September 30, 2022 reporting date, were $ 21 million.

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the nine-month period ended September 30, 2022, that relate to equity securities still held at the September 30, 2022 reporting date, were $ 313 million.

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the three-month period ended March 31, 2023, that relate to equity securities still held at the March 31, 2023 reporting date, were $ 5 million.

Unrealized Investment Gains and Losses

1 unchanged sentence

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

(In millions) September 30,

(In millions) March 31,

2023 December 31,

3 unchanged sentences

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

September 30, 2022

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended March 31, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

March 31, 2023

Total Less than 12 months 12 months or longer

51 unchanged sentences

dollar-denominated 30 12 0 0 30 12

Yen-denominated 71 5 34 4 37 1

Banks/financial institutions:

7 unchanged sentences

The unrealized losses on the Company's fixed maturity securities investments have been primarily related to general market changes in interest rates, foreign exchange rates, and/or the levels of credit spreads rather than specific concerns with the issuer's ability to pay interest and repay principal.

In the first quarter of 2023, interest rates for longer durations have declined which is the primary driver of the decrease in unrealized losses.

However, compared to the prior year, interest rates have risen significantly which is the primary driver contributing to the increase in unrealized losses 12 months or longer.

For any of its fixed maturity securities with significant declines in fair value, the Company performs detailed analyses to identify whether the drivers of the declines are due to general market drivers, such as the recent rise in interest rates, or due to credit-related factors.

4 unchanged sentences

The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly.

The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer's capital structure, covenant protections, or other relevant features.

The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific

characteristics of the security it owns including seniority in the issuer's capital structure, covenant protections, or other relevant features.

From these reviews, the Company evaluates the issuers' continued ability to service the Company's investment through payment of interest and principal.

2 unchanged sentences

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

Based on an evaluation of its securities currently in an unrealized loss position, the Company has determined that those securities had not incurred a credit loss and therefore, should not have a credit loss allowance as of March 31, 2023 .

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

3 unchanged sentences

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

(In millions) September 30, 2022 December 31, 2021

(In millions) March 31, 2023 December 31, 2022

Amortized Cost % of Total Amortized Cost % of Total

20 unchanged sentences

(with the largest concentrations in California ( 20 %), Texas ( 12 %) and Florida ( 10 %)).

Middle market loans are issued only to companies domiciled within the U.S.

MMLs are issued only to companies domiciled within the U.S.

Transitional Real Estate Loans

TREs are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property.

These loans provide funding for properties undergoing a change in their physical characteristics and/or

economic profile and do not typically require any principal repayment prior to the maturity date.

This loan portfolio is generally considered to be investment grade.

As of September 30, 2022, the Company had $ 982 million in outstanding commitments to fund TREs.

These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date.

As of March 31, 2023, the Company had $ 709 million in outstanding commitments to fund TREs.

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

5 unchanged sentences

These loans are generally considered to be below investment grade.

The carrying value for MMLs included $ 14 million and $ 11 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of September 30, 2022, and December 31, 2021, respectively.

As of September 30, 2022, the Company had commitments of approximately $ 442 million to fund future MMLs.

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

The carrying value for MMLs included $ 21 million and $ 28 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of March 31, 2023, and December 31, 2022, respectively.

As of March 31, 2023, the Company had commitments of approximately $ 748 million to fund future MMLs.

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

Credit Quality Indicators

For TREs, the Company’s key credit quality indicator is loan-to-value (LTV).

Given that TRE loans involve properties undergoing renovation or construction, LTV provides the most insight into the credit risk of the loan.

Given that TREs involve properties undergoing a repositioning of their commercial profile, LTV provides the most insight into the credit risk of the loan.

The Company monitors the performance of the loans periodically, but not less frequently than quarterly.

The monitoring process also focuses on higher risk loans, which include those that are delinquent or for which foreclosure or deed-in-lieu of foreclosure is anticipated.

For CMLs, the Company’s key credit quality indicators include LTV and debt service coverage ratios (DSCR).

6 unchanged sentences

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

As of September 30, 2022, the Company's reinsurance counterparties were rated A+.

As of March 31, 2023, the Company's reinsurance counterparties were rated A+.

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

The following tables present as of September 30, 2022 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator .

The following tables present as of March 31, 2023 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.

Transitional Real Estate Loans

25 unchanged sentences

Total $ 28 $ 652 $ 1,268 $ 790 $ 783 $ 693 $ 870 $ 5,084

Loan Modifications

The Company granted certain loan modifications in its MML and TRE portfolios during the three-month period ended March 31, 2023.

As of March 31, 2023, these loan modifications did not have a material impact on the Company’s results of operations.

Allowance for Credit Losses

1 unchanged sentence

For held-to-maturity fixed maturity securities, MMLs, and MML commitments, the Company groups assets by credit ratings, industry, and country.

The Company groups CMLs and TREs and respective loan commitments by property type, property location and the property’s LTV and debt service coverage ratios.

The Company groups CMLs and TREs and respective loan commitments by property type, property location and the property’s LTV and DSCR.

The credit allowance for the reinsurance recoverable balance is estimated using a probability-of-default (PD) / loss-given-default (LGD) method.

The credit allowance for held-to-maturity fixed maturity securities and loan receivables is estimated using a PD / LGD method, discounted for the time value of money.

For held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities and loan receivables, the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses.

For held-to-maturity fixed maturity securities, available-for-sale fixed

maturity securities and loan receivables, the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses.

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

The Company applies reasonable and

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

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

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

1 unchanged sentence

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

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $ 16.6 billion amortized cost as of September 30, 2022 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $ 18.0 billion amortized cost as of March 31, 2023 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

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

7 unchanged sentences

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

The Company granted certain loan modifications in its MML and TRE portfolios during the nine-month period ended September 30, 2022.

As of September 30, 2022, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no troubled debt restructurings (TDRs) during the nine-month periods ended September 30, 2022 and 2021, respectively.

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

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

The Company applies the cash basis method to record any payments received on non-accrual assets.

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

As of September 30, 2022 and December 31, 2021, the Company had an immaterial amount of loans and fixed maturity securities on nonaccrual status.

As of March 31, 2023 and December 31, 2022, the Company had an immaterial amount of loans and fixed maturity securities on nonaccrual status.

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

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

Three Months Ended September 30, 2022:

Balance at June 30, 2022 $ ( 53 ) $ ( 8 ) $ ( 109 ) $ ( 7 ) $ 0 $ ( 8 )

(Addition to) release of allowance for credit

losses ( 2 ) ( 2 ) ( 6 ) 0 0 0

Write-offs, net of recoveries 0 0 ( 2 ) 0 0 0

Change in foreign exchange 0 0 0 1 0 0

Balance at September 30, 2022

$ ( 55 ) $ ( 10 ) $ ( 117 ) $ ( 6 ) $ 0 $ ( 8 )

Three Months Ended September 30, 2021:

Balance at June 30, 2021

$ ( 41 ) $ ( 22 ) $ ( 76 ) $ ( 8 ) $ ( 26 ) $ ( 13 )

(Addition to) release of allowance for credit

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

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

Balance at September 30, 2021

$ ( 59 ) $ ( 17 ) $ ( 89 ) $ ( 9 ) $ 0 $ ( 13 )

Nine Months Ended September 30, 2022:

Three Months Ended March 31, 2023:

Balance at December 31, 2022

4 unchanged sentences

Change in foreign exchange 0 0 0 0 0 0

Balance at September 30, 2022

Balance at March 31, 2023

$ ( 65 ) $ ( 9 ) $ ( 149 ) $ ( 6 ) $ 0 $ ( 11 )

Nine Months Ended September 30, 2021:

Three Months Ended March 31, 2022:

Balance at December 31, 2021 $ ( 68 ) $ ( 10 ) $ ( 96 ) $ ( 8 ) $ 0 $ ( 13 )

1 unchanged sentence

losses 16 2 ( 2 ) 0 0 2

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

Balance at September 30, 2021

Change in foreign exchange 0 0 0 0 0 2

Balance at March 31, 2022

$ ( 52 ) $ ( 8 ) $ ( 98 ) $ ( 8 ) $ 0 $ ( 9 )

During the first quarter of 2023, the Company identified certain TREs collateralized with commercial real estate properties with an amortized cost of $ 521 million in anticipation of potential foreclosure or deed-in lieu foreclosure transactions.

The Company established a credit allowance of $ 10 million for those amortized loans of $ 345 million for which the fair value of the collateral was below the amortized cost of the loans.

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

The estimate of credit losses for loan commitments as of September 30, 2022 was $ 26 million.

The estimate of credit losses for loan commitments as of March 31, 2023 was $ 21 million.

Other Investments

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

(In millions) September 30,

(In millions) March 31,

2023 December 31, 2022

9 unchanged sentences

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

As of September 30, 2022, the Company had $ 2.1 billion in outstanding commitments to fund alternative investments in limited partnerships.

As of March 31, 2023, the Company had $ 2.0 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

10 unchanged sentences

Investments in Consolidated Variable Interest Entities

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Amortized

27 unchanged sentences

Investments in Variable Interest Entities Not Consolidated

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Amortized

26 unchanged sentences

Remaining Contractual Maturity of the Agreements

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Overnight

7 unchanged sentences

Public utilities 4 0 4 12 0 12

Sovereign and supranational 0 0 0 2 0 2

Banks/financial institutions 60 0 60 89 0 89

Other corporate 484 0 484 621 0 621

Equity securities 1 0 1 0 0 0

Total borrowings $ 548 $ 2,912 $ 3,460 $ 722 $ 1,087 $ 1,809

4 unchanged sentences

therefore, they are classified as Overnight and Continuous.

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $ 7.0 billion and $ 6.8 billion at September 30, 2022 and December 31, 2021, respectively, which may not be sold or re-pledged, unless the counterparty is in default.

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $ 5.9 billion and $ 6.8 billion at March 31, 2023 and December 31, 2022, respectively, which may not be sold or re-pledged, unless the counterparty is in default.

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

The Company did no t have any repurchase agreements or repurchase-to-maturity transactions outstanding as of September 30, 2022, and December 31, 2021, respectively.

The Company did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of March 31, 2023, and December 31, 2022, respectively.

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

29 unchanged sentences

a costless or zero-cost collar).

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

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

25 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Asset

10 unchanged sentences

Fair value hedges:

Foreign currency forwards 0 0 0 62 0 5

Foreign currency options 7,743 20 0 7,940 45 0

10 unchanged sentences

Interest rate swaps 17,730 26 483 17,730 7 583

Forward bond purchase commitment - VIE 14 0 1 0 0 0

Total non-qualifying strategies 32,514 167 1,012 33,620 182 1,610

28 unchanged sentences

Net Investment Gains (Losses) Recognized for Fair Value Hedge

Three Months Ended September 30, 2022:

Foreign currency options Fixed maturity securities $ ( 15 ) $ ( 15 ) $ 0 $ 0 $ 0

Total gains (losses) $ ( 15 ) $ ( 15 ) $ 0 $ 0 $ 0

Nine Months Ended September 30, 2022:

Foreign currency options Fixed maturity securities $ ( 41 ) $ ( 41 ) $ 0 $ 0 $ 0

Total gains (losses) $ ( 41 ) $ ( 41 ) $ 0 $ 0 $ 0

Three Months Ended September 30, 2021:

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

Three Months Ended March 31, 2023:

Foreign currency options Fixed maturity securities $ ( 39 ) $ ( 39 ) $ 0 $ 0 $ 0

Total gains (losses) $ ( 39 ) $ ( 39 ) $ 0 $ 0 $ 0

Nine Months Ended September 30, 2021:

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

Three Months Ended March 31, 2022:

Foreign currency options Fixed maturity securities ( 15 ) ( 15 ) 0 0 0

5 unchanged sentences

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

For the three-month and nine-month periods ended September 30, 2022 and 2021, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

For the three-month periods ended March 31, 2023 and 2022, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

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

1 unchanged sentence

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

September 30,

2022 December 31, 2021 September 30,

2023 December 31, 2022 March 31,

2023 December 31, 2022

4 unchanged sentences

To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 9) have been designated as non-derivative hedges and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and nine-month periods ended September 30, 2022 and 2021, respectively.

The Company's net investment hedge was effective during the three-month periods ended March 31, 2023 and 2022, respectively.

Non-qualifying Strategies

2 unchanged sentences

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

As of September 30, 2022, the Parent Company had $ 1.9 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S.

As of March 31, 2023, the Parent Company had $ 1.9 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S.

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

9 unchanged sentences

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

Three Months Ended September 30,

(In millions) Net Investment Income (1)

Net Investment

Gains (Losses) Other

Comprehensive

Income (Loss) (2)

Net Investment Income (1)

Net Investment

Gains (Losses) Other

Comprehensive

Income (Loss) (2)

Qualifying hedges:

Cash flow hedges:

Foreign currency swaps - VIE $ 0 $ ( 1 ) $ 1 $ 0 $ ( 1 ) $ 1

Total cash flow hedges 0 ( 1 ) (3)

1 0 ( 1 ) (3)

Fair value hedges:

Foreign currency options (3)

Interest rate swaptions (3)

0 0 0 ( 1 ) ( 1 ) 1

Total fair value hedges 0 ( 15 ) 0 ( 1 ) ( 6 ) 1

Net investment hedge:

Non-derivative hedging

instruments 0 181 0 41

Foreign currency forwards 28 236 ( 42 ) 55

Foreign currency options ( 1 ) 0 ( 1 ) 0

Total net investment hedge 27 417 ( 43 ) 96

Non-qualifying strategies:

Foreign currency swaps 27 6

Foreign currency swaps - VIE ( 19 ) ( 36 )

Foreign currency forwards ( 252 ) ( 84 )

Interest rate swaps ( 257 ) ( 9 )

Forward bond purchase

commitment - VIE ( 1 ) ( 1 )

Total non- qualifying strategies ( 502 ) ( 124 )

Total $ 0 $ ( 491 ) $ 418 $ ( 1 ) $ ( 174 ) $ 98

(1) Interest expense/income on cash flow hedges are recorded in net investment income.

For interest rate swaptions classified as fair value hedges, the change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into net investment income over its legal term.

If the swaption is early terminated but the hedge item is still outstanding, the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items.

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

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

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended September 30, 2022, and $ 1 of losses during the three-month period ended September 30, 2021.

In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended September 30, 2022, and $ 1 of losses during the three-month period ended September 30, 2021, related to fair value hedges excluded component.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions) Net Investment Income (1)

16 unchanged sentences

( 39 ) ( 15 )

Interest rate swaptions (3)

0 0 0 ( 1 ) ( 1 ) 1

Total fair value hedges 0 ( 39 ) 0 0 ( 15 ) 0

20 unchanged sentences

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 3 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month period ended September 30, 2022, and $ 3 of losses during the nine-month period ended September 30, 2021.

In addition, $ 1 of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the nine-month period ended September 30, 2022, and $ 1 of losses during the nine-month period ended September 30, 2021, related to fair value hedges excluded component.

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended March 31, 2023, and $ 1 of losses during the three-month period ended March 31, 2022.

In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended March 31, 2023, and an immaterial amount during the three-month period ended March 31, 2022, related to fair value hedges excluded component.

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

As of September 30, 2022, $ 5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.

As of March 31, 2023, $ 5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.

Credit Risk Assumed through Derivatives

4 unchanged sentences

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

As of September 30, 2022, all of the Company's derivative agreement counterparties were investment grade.

As of March 31, 2023, all of the Company's derivative agreement counterparties were investment grade.

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

7 unchanged sentences

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

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $ 1.5 billion and $ 904 million as of September 30, 2022, and December 31, 2021, respectively.

If the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2022, the Company estimates that it would be required to post a maximum of $ 77 million of additional collateral to these derivative counterparties.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $ 767 million and $ 1.3 billion as of March 31, 2023, and December 31, 2022, respectively.

If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2023, the Company estimates that it would be required to post a maximum of $ 222 million of additional collateral to these derivative counterparties.

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

9 unchanged sentences

Offsetting of Financial Assets and Derivative Assets

September 30, 2022

March 31, 2023

Gross Amounts Not Offset

7 unchanged sentences

OTC - bilateral $ 460 $ 0 $ 460 $ ( 71 ) $ ( 61 ) $ ( 326 ) $ 2

OTC - cleared 26 0 26 ( 26 ) 0 0 0

Total derivative

24 unchanged sentences

OTC - bilateral $ 548 $ 0 $ 548 $ ( 167 ) $ ( 60 ) $ ( 320 ) $ 1

OTC - cleared 7 0 7 ( 7 ) 0 0 0

Total derivative

15 unchanged sentences

Offsetting of Financial Liabilities and Derivative Liabilities

September 30, 2022

March 31, 2023

Gross Amounts Not Offset

60 unchanged sentences

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

September 30, 2022

March 31, 2023

(In millions) Quoted Prices in

21 unchanged sentences

Foreign currency options 0 46 0 46

Interest rate swaps 0 26 0 26

Total other assets 0 549 0 549

4 unchanged sentences

Interest rate swaps 0 483 0 483

Forward bond purchase commitment 0 1 0 1

Total liabilities $ 0 $ 1,058 $ 0 $ 1,058

23 unchanged sentences

Foreign currency options 0 82 0 82

Interest rate swaps 0 7 0 7

Total other assets 0 617 0 617

6 unchanged sentences

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

September 30, 2022

March 31, 2023

(In millions) Carrying

49 unchanged sentences

(1) Excludes policy loans of $ 214 and equity method investments of $ 2,290 , at carrying value

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

Fair Value of Financial Instruments

Fixed maturity and equity securities

The Company determines the fair values of fixed maturity securities and public and privately-issued equity securities using the following approaches or techniques:

The Company determines the fair values of fixed maturity securities and public equity securities using the following approaches or techniques:

price quotes and valuations from third party pricing vendors (including quoted market prices readily available from public exchange markets), in-house valuations and non-binding price quotes the Company obtains from outside brokers.

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities and derivatives associated with VIEs.

Starting in June 2021 and July 2022, respectively, these models and associated processes and controls were transitioned to and executed by Company personnel.

These models are discounted cash flow (DCF) valuation models but also use information from related markets, specifically the credit default swap (CDS) market, to estimate expected cash flows.

These models take into consideration any unique characteristics of the securities or derivatives and make various adjustments to arrive at an appropriate issuer-specific loss adjusted credit curve.

This credit curve is then used with the relevant recovery rates to estimate expected cash flows and modeling of additional features, including illiquidity adjustments, if necessary, to price the security or derivative by discounting those loss adjusted cash flows.

In cases where a credit curve cannot be developed from the specific security features, the valuation methodology takes into consideration other market observable inputs, including:

1) the most appropriate comparable security(ies) of the issuer

2) issuer-specific CDS spreads

3) bonds or CDS spreads of comparable issuers with similar characteristics such as rating, geography, or sector

The fair values of the Company’s public fixed maturity securities are generally based on prices provided by third-party pricing vendors.

The Company utilizes internally generated valuations or broker quotes for privately-issued fixed maturity securities or fixed maturity securities where there is no price available from a third-party pricing vendor.

For internally generated valuations, the Company utilizes valuation models developed by a third-party pricing vendor.

The models and associated processes and controls are executed by Company personnel.

These models are discounted cash flow (DCF) valuation models but also use information from related markets, specifically public bond markets and the credit default swap (CDS) market, to estimate expected cash flows.

The models take into consideration any unique characteristics of the securities and make various adjustments to arrive at an appropriate issuer-specific loss adjusted credit curve using the most appropriate comparable security(ies) of the issuer and issuer-specific CDS spreads.

In cases where a credit curve cannot be developed from market information for the specific issuer, the valuation methodology takes into consideration other market observable inputs, including:

1) the most appropriate comparable security(ies) of a guarantor and/or parent

2) CDS spreads of a guarantor and/or parent

3) bonds of comparable issuers with similar characteristics such as rating, geography, or sector

4) CDS spreads of an appropriate index or of comparable issuers with similar characteristics such as rating, geography, or sector

5) bond indices that are comparative in rating, industry, maturity, and region.

Prices for public equity securities are readily available and are acquired from independent market data providers or established security dealer associations.

The pricing data and market quotes the Company obtains from outside sources, including third party pricing services, are reviewed internally for reasonableness.

If a fair value appears unreasonable, the Company will re-examine the inputs and assess the reasonableness of the pricing data with the vendor.

If a fair value appears unreasonable, the Company will re-examine the inputs and assess the reasonableness of the pricing data with the provider.

Additionally, the Company may compare the inputs to relevant market indices and other performance measurements.

Based on management's analysis, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market

The Company has performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent reasonable estimates of fair value.

Based on management's analysis, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data.

The Company has performed verification of the inputs and calculations in any valuation models, including independent validations and back testing, to confirm that the valuations represent reasonable estimates of fair value.

For the periods presented, the Company has not adjusted the quotes or prices it obtains from the pricing services and brokers it uses.

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

September 30, 2022

March 31, 2023

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

11 unchanged sentences

Internal 0 308 0 308

Broker/other 0 0 0 0

Total municipalities 0 2,416 0 2,416

29 unchanged sentences

Total equity securities $ 806 $ 60 $ 221 $ 1,087

September 30, 2022

March 31, 2023

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

39 unchanged sentences

Third party pricing vendor 0 1,798 0 1,798

Internal 0 3 0 3

Broker/other 0 2 343 345

81 unchanged sentences

These derivatives are priced using observable inputs, accordingly, they are classified as Level 2.

For its interest rate swaptions, the Company estimates their fair values using observable market data, including interest rate curves and volatility.

Their fair values are also classified as Level 2.

For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts.

Nevertheless, the Company has full transparency into the contracts to properly value the swaps for reporting purposes.

Prior to October 1, 2021, these derivatives were classified as Level 3 because certain significant inputs were determined to be unobservable, primarily due to the long duration of the swaps which required extrapolation beyond the observable limits of the curve(s).

However, due to the natural aging of the swap portfolio and the continued evolution of capital market inputs, especially the availability of long-term interest rates with tenors beyond 30 years, the Company has concluded that all significant inputs are now observable.

As a result, effective October 1, 2021, the Company transferred the derivatives associated with its consolidated VIEs to Level 2 of the fair value hierarchy.

For these derivatives, the Company utilizes valuation models developed by independent valuation analytics providers.

The models are market standard DCF models and all associated processes and controls are executed by Company personnel.

These models take into consideration any unique characteristics of the derivatives in determining the appropriate valuation methodology to estimate expected cash flows.

The fair values of these swaps are based on observable market inputs and are classified as Level 2 within the fair value hierarchy.

For forward bond purchase commitments with VIEs, the fair value of the derivative is based on the difference in the fixed purchase price and the current market value of the related bond prior to the settlement date.

Since the bond is typically a public bond with readily available pricing, the derivatives associated with the forward purchase commitment are classified as Level 2 of the fair value hierarchy.

Since the bond is typically a public bond with readily available pricing, the derivatives associated with the forward purchase commitment are classified as Level 2 within the fair value hierarchy.

Commercial mortgage and other loans

4 unchanged sentences

The spreads are a significant component of the pricing inputs and are generally considered unobservable.

Therefore, these investments have been assigned a Level 3 within the fair value hierarchy.

Therefore, these investments are classified as Level 3 within the fair value hierarchy.

Other investments

15 unchanged sentences

This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.

Effective October 1, 2021, the foreign exchange swaps discussed above were transferred from Level 3 to Level 2 because the significant inputs used for their valuation that were previously unobservable are now observable.

The following tables present the changes in fair value of the Company's investments and derivatives carried at fair value classified as Level 3.

Derivative assets and liabilities are presented as a net value.

Three Months Ended

September 30, 2022

Fixed Maturity Securities Equity

Securities Derivatives

(In millions) Mortgage-

Securities Public

Utilities Sovereign and Supranational Banks/

Institutions Other

Corporate Foreign

Balance, beginning of period $ 311 $ 537 $ 36 $ 91 $ 632 $ 190 $ 0 $ 1,797

Net investment gains (losses) included in

earnings 0 1 0 1 0 ( 3 ) 0 ( 1 )

Unrealized gains (losses) included in other

comprehensive income (loss) ( 12 ) ( 30 ) ( 2 ) ( 12 ) ( 41 ) 0 0 ( 97 )

Purchases, issuances, sales and

Purchases 56 7 0 88 145 10 0 306

Issuances 0 0 0 0 0 0 0 0

Sales 0 0 0 0 0 0 0 0

Settlements ( 21 ) ( 8 ) 0 ( 20 ) ( 183 ) 0 0 ( 232 )

Transfers into Level 3 0 0 0 0 68 0 0 68

Transfers out of Level 3 ( 24 ) 0 0 0 0 0 0 ( 24 )

Balance, end of period $ 310 $ 507 $ 34 $ 148 $ 621 $ 197 $ 0 $ 1,817

Changes in unrealized gains (losses)

relating to Level 3 assets and liabilities

still held at the end of the period

included in earnings $ 0 $ 1 $ 0 $ 0 $ 0 $ ( 2 ) $ 0 $ ( 1 )

The following tables present the changes in fair value of the Company's investments carried at fair value classified as Level 3.

Three Months Ended

September 30, 2021

Fixed Maturity Securities Equity

Securities Derivatives

(In millions) Mortgage-

Securities Public

Utilities Sovereign and Supranational Banks/

Institutions Other

Corporate Foreign

Balance, beginning of period $ 258 $ 480 $ 45 $ 38 $ 316 $ 158 $ ( 200 ) $ 1,095

Net investment gains (losses) included

in earnings 0 0 0 0 2 ( 1 ) ( 57 ) ( 56 )

Unrealized gains (losses) included in

other comprehensive income (loss) ( 4 ) ( 3 ) 0 0 ( 7 ) 0 0 ( 14 )

Purchases, issuances, sales and

Purchases 35 54 0 8 0 12 0 109

Issuances 0 0 0 0 0 0 0 0

Sales 0 0 0 0 0 ( 8 ) 0 ( 8 )

Settlements 0 ( 8 ) 0 0 0 0 0 ( 8 )

Transfers into Level 3 0 0 0 0 0 0 0 0

Transfers out of Level 3 ( 39 ) 0 0 0 ( 5 ) 0 0 ( 44 )

Balance, end of period $ 250 $ 523 $ 45 $ 46 $ 306 $ 161 $ ( 257 ) $ 1,074

Changes in unrealized gains (losses)

relating to Level 3 assets and liabilities

still held at the end of the period

included in earnings $ ( 4 ) $ ( 3 ) $ 0 $ 0 $ ( 7 ) $ ( 1 ) $ ( 57 ) $ ( 72 )

Nine Months Ended

September 30, 2022

March 31, 2023

Fixed Maturity Securities Equity

Securities Derivatives

(In millions) Mortgage-

3 unchanged sentences

Institutions Other

Corporate Foreign

Corporate Total

Balance, beginning of period $ 343 $ 497 $ 37 $ 159 $ 742 $ 209 $ 1,987

16 unchanged sentences

of the period included in earnings $ 0 $ 0 $ 0 $ 0 $ 0 $ 3 $ 3

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

Fixed Maturity Securities Equity

Securities Derivatives

(In millions) Mortgage-

3 unchanged sentences

Institutions Other

Corporate Foreign

Corporate Total

Balance, beginning of period $ 291 $ 493 $ 43 $ 45 $ 426 $ 173 $ 1,471

19 unchanged sentences

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

September 30, 2022

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

(Weighted Average)

March 31, 2023

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

Securities available for sale, carried at fair value:

Fixed maturity securities:

Mortgage- and asset-backed securities $ 310 Consensus pricing Offered quotes N/A (a)

Public utilities 507 Discounted cash flow Credit spreads N/A (a)

Sovereign and supranational 34 Discounted cash flow Historical volatility N/A (a)

Banks/financial institutions 148 Consensus pricing Offered quotes N/A (a)

Other corporate 621 Discounted cash flow Credit spreads N/A (a)

Equity securities 197 Net asset value Offered quotes N/A (a)

Mortgage- and asset-backed securities $ 418 Consensus pricing Offered quotes 82.69 - 107.62 (a)

Public utilities 350 Discounted cash flow Credit spreads 170 bps - 268 bps (b)

Sovereign and supranational 37 Consensus pricing Offered quotes N/A (c)

Banks/financial institutions 161 Discounted cash flow Credit spreads 67 bps - 188 bps (b)

Other corporate 753 Discounted cash flow Credit spreads 66 bps - 295 bps (b)

Equity securities 221 Adjusted cost Private financials N/A (d)

Total assets $ 1,940

(a) N/A represents securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques or unobservable inputs.

(a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques.

(b) Actual or equivalent credit spreads in basis points.

range not applicable.

(d) Prices do not utilize credit spreads;

therefore, range is not applicable.

December 31, 2022

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

(Weighted Average)

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

Securities available for sale, carried at fair value:

Fixed maturity securities:

Mortgage- and asset-backed securities $ 291 Consensus pricing Offered quotes N/A (a)

Public utilities 493 Discounted cash flow Credit spreads N/A (a)

Sovereign and supranational 43 Discounted cash flow Historical volatility N/A (a)

Banks/financial institutions 45 Consensus pricing Offered quotes N/A (a)

Other corporate 426 Discounted cash flow Credit spreads N/A (a)

Equity securities 173 Net asset value Offered quotes N/A (a)

Mortgage- and asset-backed securities $ 343 Consensus pricing Offered quotes 97.38 - 106.71 (a)

Public utilities 497 Discounted cash flow Credit spreads 128 bps - 286 bps (b)

Sovereign and supranational 37 Consensus pricing Offered quotes N/A (c)

Banks/financial institutions 159 Discounted cash flow Credit spreads 67 bps - 188 bps (b)

Other corporate 742 Discounted cash flow Credit spreads 66 bps - 647 bps (b)

Equity securities 209 Adjusted cost Private financials N/A (d)

Total assets $ 1,987

(a) N/A represents securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques or unobservable inputs.

The following is a discussion of the significant unobservable inputs or valuation techniques used in determining the fair value of securities and derivatives classified as Level 3.

Net Asset Value

The Company holds certain unlisted equity securities whose fair value is derived based on the financial statements published by the investee.

These securities do not trade on an active market and the valuations derived are dependent on the availability of timely financial reporting of the investee.

Net asset value is an unobservable input in the determination of fair value of equity securities.

(a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques.

(b) Actual or equivalent credit spreads in basis points.

range not applicable.

(d) Prices do not utilize credit spreads;

therefore, range is not applicable

The following is a discussion of the significant unobservable inputs or valuation techniques used in determining the fair value of securities classified as Level 3.

Credit Spreads

The Company holds certain assets that are of a unique, specialized, and/or securitized nature that do not trade on a regular basis in an active market, which makes their fair values difficult to estimate.

Most of these assets are managed by external asset managers and the Company utilizes these managers for their expertise when evaluating various inputs used to determine the fair values for these assets, including identifying the appropriate credit or risk spread over risk-free interest rates that incorporates the unique nature or structure of the asset in the valuations.

For those assets of a similar nature but not managed by external asset managers, the Company internally estimates the spreads and risk adjustments over risk-free interest rates that reflect the unique nature or structure of the asset as well as the current pricing environment and market conditions for comparable or related investments.

Credit or risk spreads are an important input needed to complete the discounted cash flow analyses used to estimate an investment’s fair value.

Credit or risk spreads underlying these fair values are a significant, unobservable input whose derivation is based on the Company’s evaluation of a combination of the external manager’s expertise and knowledge, the current pricing environment, and market conditions for the specific asset.

Offered Quotes

In circumstances where the Company's valuation model price is overridden because it implies a value that is not consistent with current market conditions, the Company will solicit bids from a limited number of brokers.

The Company also receives unadjusted prices from brokers for its mortgage and asset-backed securities.

The Company also receives unadjusted prices from brokers for certain of its mortgage and asset-backed securities.

These quotes are non-binding but are reflective of valuation best estimates at that particular point in time.

Offered quotes are an unobservable input in the determination of fair value of mortgage- and asset-backed securities, certain banks/financial institutions, certain other corporate, and equity securities investments.

Interest Rates and CDS Spreads

The significant drivers of the valuation of the foreign exchange swaps are interest rates and CDS spreads.

Some of the Company's swaps have long maturities that increase the sensitivity of the swaps to interest rate fluctuations.

For the Company's foreign exchange or cross currency swaps that are in a net asset position, an increase in yen interest rates (all other factors held constant) will decrease the present value of the yen final settlement receivable (receive leg), thus decreasing the value of the swap as long as the derivative remains in a net asset position.

Foreign exchange swaps also have a lump-sum final settlement of foreign exchange principal amounts at the termination of the swap.

Assuming all other factors are held constant, an increase in yen interest rates will decrease the receive leg and decrease the net value of the swap.

Likewise, holding all other factors constant, an increase in U.S.

dollar interest rates will increase the swap's net value due to the decrease in the present value of the dollar final settlement payable (pay leg).

The extinguisher feature in most of the Company's VIE swaps results in a cessation of cash flows and no further payments between the parties to the swap in the event of a default on the referenced or underlying collateral.

To price this feature, the Company applies the survival probability of the referenced entity to the projected cash flows.

The survival probability uses the CDS spreads and recovery rates to adjust the present value of the cash flows.

For extinguisher swaps with positive values, an increase in CDS spreads decreases the likelihood of receiving the final exchange payments and reduces the value of the swap.

Effective October 1, 2021, the foreign exchange swaps mentioned above were transferred from Level 3 to Level 2 because the significant inputs used for their valuation that were previously unobservable are now observable.

Private Financials

The Company invests in the debt and equity securities of private companies operating in the cancer, healthtech, insurtech, finance, internet of things, big data and analytics sectors.

Due to their private and often small, startup nature, these companies rely on capital provided by institutional and private equity investors for their ongoing operations.

They do not have public securities that trade on a regular basis in an active market, which makes their fair values difficult to estimate.

The Company values these investments on a cost basis with appropriate adjustments made based on monitoring private financial information provided by these companies.

Adjustments to valuations are generally made as new funding tranches are executed or if the financial information provided significantly changes indicating the need for impairment.

This private financial information is unobservable and is a significant determinant in the fair value of these corporate venture investments.

For additional information on the Company's investments and financial instruments, see the accompanying Notes 1, 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report.

DEFERRED POLICY ACQUISITION COSTS

The following tables present a rollforward of deferred policy acquisition costs by reporting segment and disaggregated by product type.

March 31, 2023

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Total

Deferred policy acquisition costs:

Balance at December 31, 2022

$ 3,035 $ 2,161 $ 525 $ 55 $ 904 $ 613 $ 1,304 $ 418 $ 88 $ 135 $ 1 $ 9,239

Capitalization 76 33 9 4 39 31 41 21 2 14 0 270

Amortization expense ( 48 ) ( 28 ) ( 9 ) 0 ( 34 ) ( 28 ) ( 34 ) ( 16 ) ( 3 ) ( 6 ) 1 ( 205 )

Foreign currency translation and

other ( 19 ) ( 13 ) ( 3 ) ( 1 ) 0 0 0 0 0 0 ( 1 ) ( 37 )

Balance at March 31, 2023

$ 3,044 $ 2,153 $ 522 $ 58 $ 909 $ 616 $ 1,311 $ 423 $ 87 $ 143 $ 1 $ 9,267

December 31, 2022

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Total

Deferred policy acquisition costs:

Balance at December 31, 2021

$ 3,464 $ 2,372 $ 595 $ 51 $ 887 $ 604 $ 1,270 $ 399 $ 90 $ 115 $ 1 $ 9,848

Capitalization 291 161 33 12 147 117 160 80 11 40 0 1,052

Amortization expense ( 188 ) ( 112 ) ( 35 ) ( 3 ) ( 130 ) ( 108 ) ( 126 ) ( 61 ) ( 13 ) ( 20 ) 4 ( 792 )

Foreign currency translation and

other ( 532 ) ( 260 ) ( 68 ) ( 5 ) 0 0 0 0 0 0 ( 4 ) ( 869 )

Balance at December 31, 2022

$ 3,035 $ 2,161 $ 525 $ 55 $ 904 $ 613 $ 1,304 $ 418 $ 88 $ 135 $ 1 $ 9,239

The Company uses the following constant level bases to amortize deferred policy acquisition costs:

Policy Type Constant-level Basis

Life Products (U.S.) Face Value

Health Products (U.S.) Policy Count

Health & Life Products (Japan) Units in Force

Face value is the stated dollar amount that the policy’s beneficiaries receive upon the death of the insured.

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

Future DAC amortization is impacted by persistency.

There were no changes to the inputs, judgements, assumptions and methods used to determine amortization amounts during the three-month periods ended March 31, 2023 and 2022.

See Note 1 of the Notes to the Consolidated Financial Statements for more information on deferred policy acquisition costs.

POLICY LIABILITIES

Changes in the liability for unpaid policy claims were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

Future Policy Benefits

The liability for future policy benefits is determined as the present value of future benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of future net premiums receivable under the Company's insurance contracts, where future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.

The following tables present the changes in the present value of expected net premiums and the present value of expected future policy benefits by reporting segment and disaggregated by product type .

March 31, 2023

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected premiums:

Balance at December 31, 2022

$ 19,298 $ 16,714 $ 7,485 $ 1,256 $ 2,534 $ 1,635 $ 4,486 $ 1,220 $ 211 $ 724 $ 110

Beginning balance at original discount rate 18,221 16,195 7,284 1,242 2,760 1,775 5,050 1,365 231 799 118

Effect of changes in cash flow assumptions 0 0 0 0 0 0 0 0 0 0 0

Effect of actual variances from expected

experience ( 120 ) ( 25 ) ( 14 ) ( 2 ) ( 48 ) ( 20 ) ( 104 ) ( 39 ) ( 7 ) ( 4 ) ( 1 )

Adjusted beginning of period balance 18,101 16,170 7,270 1,240 2,712 1,755 4,946 1,326 224 795 117

Issuances 229 104 111 8 117 120 192 103 10 49 14

Interest accrual 111 92 33 5 25 15 46 11 2 7 1

Net premiums earned (1)

( 420 ) ( 344 ) ( 286 ) ( 31 ) ( 118 ) ( 95 ) ( 147 ) ( 62 ) ( 10 ) ( 33 ) ( 4 )

Foreign currency translation ( 109 ) ( 100 ) ( 44 ) ( 8 ) 0 0 0 0 0 0 0

Other 0 0 0 0 0 0 0 0 2 4 9

Ending balance at original discount rate 17,912 15,922 7,084 1,214 2,736 1,795 5,037 1,378 228 822 137

Effect of changes in discount rate assumptions 1,542 1,045 319 42 ( 173 ) ( 112 ) ( 444 ) ( 117 ) ( 15 ) ( 60 ) ( 6 )

Balance at March 31, 2023

$ 19,454 $ 16,967 $ 7,403 $ 1,256 $ 2,563 $ 1,683 $ 4,593 $ 1,261 $ 213 $ 762 $ 131

Present value of expected future policy benefits:

Balance at December 31, 2022

$ 54,766 $ 27,419 $ 31,954 $ 5,582 $ 3,098 $ 2,445 $ 11,489 $ 2,074 $ 488 $ 1,526 $ 622

Beginning balance at original discount rate 47,677 27,566 32,800 5,940 3,391 2,636 12,846 2,300 532 1,778 624

Effect of changes in cash flow assumptions 0 0 0 0 0 0 0 0 0 0 0

Effect of actual variances from expected

experience ( 136 ) ( 24 ) ( 14 ) 0 ( 55 ) ( 24 ) ( 120 ) ( 48 ) ( 9 ) ( 6 ) ( 2 )

Adjusted beginning of period balance 47,541 27,542 32,786 5,940 3,336 2,612 12,726 2,252 523 1,772 622

Issuances 232 108 112 9 124 127 201 111 12 53 13

Interest accrual 396 163 166 27 31 23 133 21 5 16 8

Benefit payments ( 825 ) ( 367 ) ( 493 ) ( 61 ) ( 115 ) ( 118 ) ( 224 ) ( 69 ) ( 15 ) ( 29 ) ( 11 )

Foreign currency translation ( 295 ) ( 171 ) ( 201 ) ( 35 ) 0 0 0 0 0 0 0

Other 0 0 0 0 0 0 0 0 2 4 9

Ending balance at original discount rate 47,049 27,275 32,370 5,880 3,376 2,644 12,836 2,315 527 1,816 641

Effect of changes in discount rate assumptions 8,750 1,164 344 ( 110 ) ( 227 ) ( 149 ) ( 1,019 ) ( 176 ) ( 33 ) ( 210 ) 15

Balance at March 31, 2023

55,799 28,439 32,714 5,770 3,149 2,495 11,817 2,139 494 1,606 656

Net liability for future policy benefits 36,345 11,472 25,311 4,514 586 812 7,224 878 281 844 525

reinsurance recoverable 0 1,643 0 0 0 0 0 0 0 10 0

Net liability for future policy benefits after

reinsurance recoverable $ 36,345 $ 9,829 $ 25,311 $ 4,514 $ 586 $ 812 $ 7,224 $ 878 $ 281 $ 834 $ 525

(1) Net premiums earned represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

December 31, 2022

Aflac Japan Aflac U.S.

(In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Present value of expected premiums:

Balance at December 31, 2021

$ 25,893 $ 21,174 $ 10,847 $ 1,586 $ 3,283 $ 1,862 $ 6,023 $ 1,467 $ 264 $ 834 $ 153

Beginning balance at original discount rate 22,470 18,681 10,064 1,461 2,999 1,760 5,391 1,380 241 780 135

Effect of changes in cash flow assumptions ( 639 ) 317 ( 494 ) 25 ( 52 ) 5 ( 38 ) 42 10 ( 1 ) ( 12 )

Effect of actual variances from expected

experience ( 284 ) 61 ( 81 ) ( 10 ) ( 152 ) ( 43 ) ( 421 ) ( 111 ) ( 20 ) ( 16 ) 6

Adjusted beginning of period balance 21,547 19,059 9,489 1,476 2,795 1,722 4,932 1,311 231 763 129

Issuances 947 639 221 62 355 384 537 273 33 146 0

Interest accrual 459 364 146 22 105 57 193 45 9 27 5

Net premiums earned (1)

( 1,734 ) ( 1,376 ) ( 1,229 ) ( 123 ) ( 496 ) ( 382 ) ( 612 ) ( 261 ) ( 42 ) ( 131 ) ( 17 )

Foreign currency translation ( 2,997 ) ( 2,488 ) ( 1,343 ) ( 195 ) 0 0 0 0 0 0 0

Other ( 1 ) ( 3 ) 0 0 1 ( 6 ) 0 ( 3 ) 0 ( 6 ) 1

Ending balance at original discount rate 18,221 16,195 7,284 1,242 2,760 1,775 5,050 1,365 231 799 118

Effect of changes in discount rate assumptions 1,077 519 201 14 ( 226 ) ( 140 ) ( 564 ) ( 145 ) ( 20 ) ( 75 ) ( 8 )

Balance at December 31, 2022

$ 19,298 $ 16,714 $ 7,485 $ 1,256 $ 2,534 $ 1,635 $ 4,486 $ 1,220 $ 211 $ 724 $ 110

Present value of expected future policy benefits:

Balance at December 31, 2021

$ 72,747 $ 36,021 $ 42,720 $ 7,322 $ 3,949 $ 2,871 $ 15,388 $ 2,552 $ 616 $ 1,843 $ 837

Beginning balance at original discount rate 56,807 31,398 39,002 6,787 3,594 2,670 13,079 2,300 549 1,694 645

Effect of changes in cash flow assumptions ( 721 ) 352 ( 550 ) 96 ( 70 ) 5 ( 43 ) 40 13 ( 1 ) ( 15 )

Effect of actual variances from expected

experience ( 333 ) 83 ( 91 ) ( 10 ) ( 177 ) ( 48 ) ( 465 ) ( 130 ) ( 23 ) ( 21 ) 7

Adjusted beginning of period balance 55,753 31,833 38,361 6,873 3,347 2,627 12,571 2,210 539 1,672 637

Issuances 960 646 222 68 364 397 550 282 34 149 0

Interest accrual 1,599 642 670 106 128 94 539 85 21 62 32

Benefit payments ( 3,050 ) ( 1,375 ) ( 1,248 ) ( 202 ) ( 456 ) ( 483 ) ( 823 ) ( 277 ) ( 62 ) ( 103 ) ( 45 )

Foreign currency translation ( 7,585 ) ( 4,180 ) ( 5,205 ) ( 905 ) 0 0 0 0 0 0 0

Other 0 0 0 0 8 1 9 0 0 ( 2 ) 0

Ending balance at original discount rate 47,677 27,566 32,800 5,940 3,391 2,636 12,846 2,300 532 1,778 624

Effect of changes in discount rate assumptions 7,089 ( 147 ) ( 846 ) ( 358 ) ( 293 ) ( 191 ) ( 1,357 ) ( 226 ) ( 44 ) ( 252 ) ( 2 )

Balance at December 31, 2022

54,766 27,419 31,954 5,582 3,098 2,445 11,489 2,074 488 1,526 622

Net liability for future policy benefits 35,468 10,705 24,469 4,326 564 810 7,003 854 277 802 512

reinsurance recoverable 0 1,579 0 0 0 0 0 0 0 9 0

Net liability for future policy benefits after

reinsurance recoverable $ 35,468 $ 9,126 $ 24,469 $ 4,326 $ 564 $ 810 $ 7,003 $ 854 $ 277 $ 793 $ 512

(1) Net premiums earned represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

The following tables present the weighted-average interest rates and weighted-average liability duration (calculated using the original discount rate) by reporting segment and disaggregated by product type.

March 31, 2023

Aflac Japan Aflac U.S.

Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Weighted-average interest, original discount rate (1)

3.9 % 2.6 % 2.1 % 1.8 % 3.9 % 4.2 % 4.6 % 4.4 % 4.3 % 3.7 % 5.4 %

Weighted-average interest, current discount rate (1)

1.7 % 2.2 % 1.7 % 2.0 % 5.0 % 5.0 % 5.1 % 5.1 % 5.0 % 5.0 % 5.1 %

Weighted-average liability duration (years) 13.7 26.7 17.3 18.0 8.5 5.6 11.8 9.6 8.0 12.9 9.5

(1) The weighted-average interest rates are calculated using the reserve balances as the weights.

No adjustments were made to observable market information.

December 31, 2022

Aflac Japan Aflac U.S.

Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other

Weighted-average interest, original discount rate (1)

4.1 % 2.6 % 2.1 % 1.8 % 3.8 % 4.2 % 4.6 % 4.4 % 4.3 % 3.7 % 5.4 %

Weighted-average interest, current discount rate (1)

1.6 % 2.2 % 1.6 % 1.9 % 4.8 % 4.7 % 4.8 % 4.8 % 4.8 % 4.8 % 4.8 %

Weighted-average liability duration (years) 13.7 26.9 17.3 18.2 8.5 5.6 12.0 9.4 8.1 13.1 9.6

(1) The weighted-average interest rates are calculated using the reserve balances as the weights.

No adjustments were made to observable market information.

The following table presents a reconciliation of the disaggregated rollforwards above to the ending future policy benefits presented in the Consolidated Balance Sheets.

The deferred profit liability for limited-payment contracts and the deferred profit liability for reinsurance is presented together with the liability for future policy benefits in the Consolidated Balance Sheets and has been included as a reconciling item in the table below.

(In millions) March 31,

2023 December 31, 2022

Balances included in future policy benefits rollforward:

Cancer $ 36,345 $ 35,468

Medical and other health 11,472 10,705

Life insurance 25,311 24,469

Other 4,514 4,326

Accident 586 564

Disability 812 810

Critical care 7,224 7,003

Hospital indemnity 878 854

Dental/vision 281 277

Life insurance 844 802

Other 525 512

Corporate and other 31 19

Deferred profit liability - limited-payment contracts 1,788 1,740

Deferred profit liability - reinsurance 682 692

Total $ 91,293 $ 88,241

Discount rates are determined using upper-medium grade (low-credit-risk) fixed-income instrument yields that reflect the duration characteristics of the liability.

Locked-in discount rates are determined as a weighted average of monthly upper-medium grade (low-credit-risk) fixed-income instrument forward curves, where the weights are the annualized premiums issued for each month of the cohort.

Discount rates are updated each reporting period and require estimation techniques (e.g., interpolation, extrapolation) for determination of points on the curve for which there is limited or no observable market data.

More specifically, the Company constructs a discount rate curve separately for discounting cash flows used to calculate each of the Japan and U.S.

liabilities for future policy benefits, reflective of the characteristics of the corresponding insurance liabilities, such as currency and tenor.

In the Aflac Japan segment, all long-duration insurance policies are denominated in yen.

A significant portion of policies are characterized by tenors exceeding the availability of liquid market data in Japan for single-A rated (as a proxy for upper-medium grade) corporate yen-denominated debt.

The discount rate curve is designed to prioritize the observable inputs where available, while past the last liquid point, the data is derived based on estimation techniques consistent with the fair value guidance in ASC 820.

The Aflac Japan segment curve utilizes liquid market indices tracking publicly traded yen-denominated single-A corporate debt for the initial 10-year tenor.

For the bonds within these market indices where only local ratings are available, the Company prioritizes the bonds with local ratings that are equivalent to a single-A rating based on international rating standards.

For the discount rates applicable to tenors for which the Japan single-A debt market is not liquid but there is sufficient observable market data and/or the observable market data is available for similar instruments (between 10 and 30 years), the Company estimates tenor-specific single-A credit spreads and applies them to risk-free government rates.

Lastly, for the tenors where there is limited or no observable single-A or similar market data or risk-free government rates (beyond 30 years), the discount curve is derived by extrapolation of risk free rates beyond their last liquid point following the Smith-Wilson method and grading of the estimated forward credit spread anchored by the ultimate forward rate.

The ultimate forward rate is based on the economic value-based solvency regime, which is consistent with the International Association of Insurance Supervisors (IAIS) Insurance Capital Standards (ICS) (which is expected to be introduced in Japan in 2025), and is adjusted for credit and inflation components.

For the Aflac U.S.

segment where all long-duration insurance policies are denominated in U.S.

dollar and substantially all have cash flow duration within 30 years, for which the U.S.

upper-medium grade fixed-income market is liquid and observable, the Company uses data from a liquid fixed-income market index tracking single-A U.S.

corporate debt.

For the insignificant portion of the policies with cash flow tenors exceeding 30 years, the discount curve beyond that tenor is extrapolated following the Smith-Wilson method from year 30 to the same ultimate forward rate calculated for the Japan discount curve at year 60 and held constant thereafter.

The use of the same ultimate rate for U.S.

and Japan segments is based on the assumption of long-term global economic convergence.

For the three-month periods ended March 31, 2023 and 2022, the Company recognized $( 2.8 ) billion and $ 4.2 billion in other comprehensive income (loss) net of tax, respectively, due to changes in the future policy benefits estimate from updating the discount rate assumptions.

There were no changes to the methods used to determine the discount rates during the three-month periods ended March 31, 2023 and 2022.

For the year ended December 31, 2022, the Company recognized $ 13.7 billion in other comprehensive income (loss) net of tax, due to changes in the future policy benefits estimate from updating the discount rate assumptions.

There were no changes to the methods used to determine the discount rates during the year ended December 31, 2022.

Mortality rate assumptions are based on industry tables and adjusted for the Company's actual or expected experience where credible or appropriate.

These assumptions typically will vary by age, gender, and other demographic characteristics such as smoking status.

Morbidity assumptions are based on the Company's internal data and consider emerging experience.

These assumptions are reflective of the coverage and benefits provided and generally vary by age, gender, duration, and any other material policyholder characteristics.

In cases where a calendar-year trend is significant, future cash flow projections may include a trend adjustment.

In Japan, separate lapse assumptions are set based on actual or expected experience.

These lapse and total termination rate assumptions will vary by line of business and with policyholder characteristics such as duration.

In the U.S., the majority of the future cash flows are modeled using total termination rates (which include both lapse and mortality) and are adjusted for actual experience.

Policy provisions, such as reaching premium paid-up status, are taken into account when setting assumptions.

During the three-month periods ended March 31, 2023 and 2022, the Company's adjustment for actual variances from expected experience resulted in reserve remeasurement gains of $ 53 million and $ 34 million in the consolidated statement of earnings, respectively.

The variance of actual experience from expected experience was primarily due to favorable variances in morbidity assumptions as compared to actual experience.

There were no changes to the inputs, judgments, assumptions and methods used in measuring the liability for future policy benefits during the three-month periods ended March 31, 2023 and 2022.

In 2022, the Company's annual review process resulted in favorable changes to its morbidity assumptions due to favorable claims experience, primarily.

This, together with the variance of actual experience from expected experience, resulted in reserve remeasurement gains of $ 215 million in the consolidated statement of earnings for the year ended December 31, 2022.

The following table summarizes the amount of net earned premiums recognized in the Consolidated Statements of Earnings by reporting segment and disaggregated by product type.

Three Months Ended March 31,

(In millions) 2023 2022

Unpaid supplemental health claims, beginning of period $ 3,779 $ 4,162 $ 4,067 $ 4,389

Less reinsurance recoverables 38 37 37 39

Net balance, beginning of period 3,741 4,125 4,030 4,350

Add claims incurred during the period related to:

Current year 1,689 1,720 5,007 5,302

Prior years ( 151 ) ( 215 ) ( 512 ) ( 739 )

Total incurred 1,538 1,505 4,495 4,563

Less claims paid during the period on claims incurred during:

Current year 1,148 1,279 2,703 2,947

Prior years 214 219 1,554 1,676

Total paid 1,362 1,498 4,257 4,623

Effect of foreign exchange rate changes on unpaid claims ( 105 ) ( 29 ) ( 456 ) ( 187 )

Net balance, end of period 3,812 4,103 3,812 4,103

Add reinsurance recoverables 50 39 50 39

Unpaid supplemental health claims, end of period 3,862 4,142 3,862 4,142

Unpaid life claims, end of period 654 767 654 767

Total liability for unpaid policy claims $ 4,516 $ 4,909 $ 4,516 $ 4,909

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

The favorable claims development of $ 512 million for the nine-month period ended September 30, 2022 comprises approximately $ 321 million from Japan and $ 191 million from the U.S., representing approximately 63 % and 37 % of the total, respectively.

Excluding the impact of foreign exchange of a loss of approximately $ 83 million from December 31, 2021 to September 30, 2022, the favorable claims development in Japan would have been approximately $ 404 million, representing approximately 79 % of the total.

The Company has experienced continued favorable claim trends in 2022 for its core health products in Japan.

During the first nine months of 2022, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic.

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

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

Although overall experience is favorable, during the first nine months of 2022, there has been an increase in medical hospitalization claims related to COVID-19, mainly due to a wider scope of "deemed hospitalization" being utilized in Japan.

In addition, dating back to before the pandemic, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams.

Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis.

Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

In the first nine months of 2022, as experienced in 2021 and 2020, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates.

The favorable claims trend continued for the majority of the Company's major U.S.

accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability.

Additionally, refinements to COVID-19 incurred estimates also contributed to the favorable development.

portion of the favorable claims development in the first nine months of 2022 includes $ 63 million related to refinements in the estimates for COVID-19 and non-COVID-19 claims as experience emerges.

Net earned premiums:

Cancer $ 1,132 $ 1,336

Medical and other health 689 828

Life insurance 399 524

Accident 329 337

Disability 309 296

Critical care 443 446

Hospital indemnity 184 185

Dental/vision 53 49

Life insurance 115 99

Corporate and other 90 42

Reinsurance ceded ( 104 ) ( 117 )

Total $ 3,688 $ 4,079

The following table summarizes the amount of interest expense related to insurance contracts recognized in total benefits and claims, net in the Consolidated Statements of Earnings by reporting segment and disaggregated by product type.

Three Months Ended March 31,

(In millions) 2023 2022

Interest expense:

Cancer $ 285 $ 329

Medical and other health 71 80

Life insurance 133 149

Disability 8 9

Critical care 87 86

Hospital indemnity 10 10

Dental/vision 3 3

Life insurance 9 8

Corporate and other 0 0

Total $ 641 $ 710

The following tables summarize the amount of undiscounted expected future gross premiums and expected future benefits and expenses and discounted (discounted at the current period discount rate) expected future gross premiums and expected future benefits and expenses by reporting segment and disaggregated by product type.

Future gross premiums represent the expected amount of future premiums to be received.

For limited-payment policies, the premiums are collected over a shorter period than the policy term over which benefits are provided.

As a result, once the policy reaches premium paid-up status, the future gross premiums can be significantly less than the future benefit payments.

Further, benefits and expenses are generally greater in the later years of a policy.

These are the primary factors that result in future gross premiums lower than future benefit and expense payments for certain lines of business of the Company.

March 31, 2023 December 31, 2022

(In millions) Gross

Premiums Benefits and Expenses Gross Premiums Benefits and Expenses

Undiscounted expected future gross premiums

and expected future benefits and expenses:

Cancer $ 74,863 $ 83,549 $ 75,529 $ 84,246

Medical and other health 50,153 50,573 50,720 50,778

Life insurance 16,690 52,993 16,946 53,271

Other 2,309 9,379 2,322 9,433

Accident 9,467 4,621 9,481 4,636

Disability 5,889 3,286 5,858 3,267

Critical care 21,134 22,085 21,069 22,113

Hospital indemnity 5,213 3,360 5,164 3,338

Dental/vision 1,194 754 1,208 759

Life insurance 2,466 2,871 2,375 2,787

Other 359 1,165 333 1,147

Total $ 189,737 $ 234,636 $ 191,005 $ 235,775

March 31, 2023 December 31, 2022

(In millions) Gross Premiums Benefits and Expenses Gross Premiums Benefits and Expenses

Discounted expected future gross premiums

and expected future benefits and expenses:

Cancer $ 53,806 $ 55,799 $ 53,278 $ 54,766

Medical and other health 35,030 28,439 34,693 27,419

Life insurance 12,875 32,714 12,951 31,954

Other 1,712 5,770 1,697 5,582

Accident 6,625 3,149 6,510 3,098

Disability 4,554 2,495 4,468 2,445

Critical care 13,013 11,817 12,659 11,489

Hospital indemnity 3,592 2,139 3,483 2,074

Dental/vision 826 494 821 488

Life insurance 1,756 1,606 1,663 1,526

Other 252 656 228 622

Total $ 134,041 $ 145,078 $ 132,451 $ 141,463

Loss expense as a result of net premium ratio capping for the three-month periods ended March 31, 2023 and 2022 was immaterial.

Other Policyholders' Funds

As of March 31, 2023 and December 31, 2022, the largest component of the other policyholders' funds liability was the Company's annuity line of business in Aflac Japan.

The Company's annuities have fixed benefits and premiums.

The following table presents the changes in other policyholders’ funds.

(In millions) March 31,

2023 December 31, 2022

Other policyholders' funds:

Fixed annuities account balance, beginning of period (1)

$ 6,423 $ 7,410

Premiums received 39 150

Transfers from WAYS conversions 58 214

Surrenders and withdrawals ( 14 ) ( 52 )

Benefit payments ( 104 ) ( 367 )

Interest credited 14 57

Foreign currency translation and other ( 40 ) ( 989 )

Fixed annuities account balance, end of period 6,376 6,423

Other deposit type reserves 292 220

Total $ 6,668 $ 6,643

(1) Aflac Japan fixed annuities

The following table presents other policyholders’ funds balances by range of guaranteed crediting rates.

March 31, 2023 December 31, 2022

(In millions) Range of Guaranteed Minimum Crediting Rates (2)

At Guaranteed Minimum Cash Surrender Value Range of Guaranteed Minimum Crediting Rates (2)

At Guaranteed Minimum Cash Surrender Value

Fixed annuities (1)

0.5 % - 2.3 %

$ 6,376 $ 6,281 0.5 % - 2.3 %

$ 6,423 $ 6,326

(1) Aflac Japan fixed annuities

(2) Weighted-average crediting rate of 1.5 % at March 31, 2023 and December 31, 2022, respectively.

Aflac Japan’s fixed annuities have guaranteed fixed crediting rates which results in the policyholders' funds balances being able to cover all guaranteed benefit amounts.

The reserves are adequate to fully fund future benefits at any given time.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information on policy liabilities.

The Company periodically enters into fixed quota-share coinsurance agreements in the normal course of business.

2 unchanged sentences

Premiums and benefits are reported net of insurance ceded.

In January 2023, ALIJ entered into a coinsurance transaction whereby it ceded 28 % of the liabilities associated with certain cancer insurance policies and riders to Aflac Re.

This transaction transferred approximately $ 2.1 billion of reserves associated with these policies.

Approximately $ 1.9 billion of assets were transferred from ALIJ to Aflac Re as preliminary consideration for assuming the reinsurance risk, and final settlement is expected in the second quarter of 2023.

This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis, except for the effect of foreign currency accounting.

In January 2023, ALIJ also entered into an external coinsurance transaction to cede 1.5 % of the liabilities associated with the same cancer insurance policies and riders, in connection with which ALIJ transferred cash consideration to the reinsurer.

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

The remaining deferred profit liability of $ 646 million and $ 859 million as of September 30, 2022 and December 31, 2021, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies.

The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $ 761 million and $ 937 million as of September 30, 2022 and December 31, 2021, respectively.

The spot yen/dollar exchange rate weakened by approximately 20.6 % and ceded reserves decreased approximately 19.1 % from December 31, 2021 to September 30, 2022.

The remaining deferred profit liability of $ 682 million and $ 692 million as of March 31, 2023 and December 31, 2022, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies.

The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $ 1.1 billion and $ 912 million as of March 31, 2023 and December 31, 2022, respectively.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

5 unchanged sentences

Retrocession activities 34 41

Other 35 27 116 84

Net earned premiums $ 3,688 $ 4,079

Direct benefits and claims $ 2,385 $ 2,649 $ 7,209 $ 8,112

Direct benefits and claims, excluding reserve remeasurement $ 2,256 $ 2,334

Reserve remeasurement (gains) losses ( 53 ) ( 34 )

Total direct benefits and claims 2,203 2,300

Ceded benefits and change in reserves for future benefits:

5 unchanged sentences

Eliminations 10 ( 5 )

Other 24 21 105 71

Benefits and claims, net $ 2,340 $ 2,609 $ 7,125 $ 7,996

Total benefits and claims, net $ 2,150 $ 2,483

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

These reinsurance transactions are indemnity reinsurance that do not relieve the Company from its obligations to policyholders.

In the event that the reinsurer is unable to meet their obligations, the Company remains liable for the reinsured claims.

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥ 120 billion as of September 30, 2022.

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥ 120 billion as of March 31, 2023.

This reinsurance facility agreement was renewed in 2022 and is effective until December 31, 2023.

1 unchanged sentence

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

As of September 30, 2022, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

As of March 31, 2023, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

NOTES PAYABLE AND LEASE OBLIGATIONS

A summary of notes payable and lease obligations follows:

(In millions) September 30,

(In millions) March 31,

2023 December 31,

3.625 % senior notes paid September 2022

3.25 % senior notes due March 2025 (1)

1.125 % senior sustainability notes due March 2026

30 unchanged sentences

Yen-denominated loans:

Variable interest rate loan due August 2027 ( .34 % in 2022, principal amount

¥ 11.7 billion)

Variable interest rate loan due August 2027 ( .35 % in 2023 and .33 % in 2022, principal amount ¥ 11.7 billion)

Variable interest rate loan due August 2029 ( .45 % in 2023 and .43 % in 2022,

principal amount ¥ 25.3 billion in 2022 and ¥ 5.0 billion in 2021)

principal amount ¥ 25.3 billion)

Variable interest rate loan due August 2032 ( .60 % in 2023 and .58 % in 2022,

principal amount ¥ 70.0 billion in 2022 and ¥ 25.0 billion in 2021)

principal amount ¥ 70.0 billion)

Finance lease obligations payable through 2030 8 8

1 unchanged sentence

Total notes payable and lease obligations $ 7,420 $ 7,442

(1) Redeemed in October 2022

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

In 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.

A summary of the Company's lines of credit as of September 30, 2022 follows:

A summary of the Company's lines of credit as of March 31, 2023 follows:

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

6 unchanged sentences

¥ 0.0 billion

A rate per annum equal to (a) TIBOR plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period No later than

A rate per annum equal to (a) Tokyo Interbank Market Rate (TIBOR) plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period No later than

May 10, 2027 .28 % to .45 %, depending on the Parent Company's debt ratings as of the date of determination

3 unchanged sentences

$ 0.0 billion

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

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

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

A rate per annum equal to, at the

Company's option, either, (a) Secured

Overnight Financing Rate (SOFR) for U.S.

dollar denominated borrowings or TIBOR

for Japanese yen denominated borrowings,

in either case adjusted for certain costs, or

(b) a base rate determined by reference to

the highest of (1) the federal funds rate

plus 1/2 of 1%, (2) the rate of interest for

such day announced by the agent as its

prime rate, or (3) SOFR for an interest

period of one month plus 1.00%, in each

case plus an applicable margin No later than November 15, 2027 .08 % to

.20 %, depending on the Parent Company's debt ratings as of the date of determination

2 unchanged sentences

and Aflac uncommitted bilateral None specified None specified $ 50 million

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

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

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

A rate per annum equal to, at the Parent

Company's option, either (a) a rate

determined by reference to USD LIBOR for

the interest period relevant to such

borrowing or (b) the base rate determined

by reference to the highest of (a) the

lender's USD short-term commercial loan

rate, (b) the federal funds rate plus 1/2 of

1% and (c) USD one-month LIBOR plus

USD LIBOR is subject to replacement

with SOFR under certain circumstances Up to 3 months

None General corporate purposes

uncommitted revolving 364 days November 30, 2023 $ 250 million

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

USD three-month LIBOR plus 75 basis points per annum No later than December 1, 2023 None General corporate purposes

Aflac Incorporated (1)

1 unchanged sentence

¥ 0.0 billion

Three-month TIBOR plus 70 basis points per annum 3 months None General corporate purposes

Three-month yen TIBOR plus 45 basis points per annum No later than November 28, 2023 None General corporate purposes

Aflac Incorporated (1)

1 unchanged sentence

¥ 0.0 billion

Three-month TIBOR plus 70 basis points per annum 3 months None General corporate purposes

Three-month yen TIBOR plus 45 basis points per annum No later than November 28, 2023 None General corporate purposes

Aflac New York (1)

uncommitted revolving 364 days April 10, 2023 $ 25 million

uncommitted revolving 364 days April 10, 2023 (2)

USD three-month LIBOR plus 75 basis points per annum No later than

April 11, 2023 None General corporate purposes

uncommitted revolving 364 days March 21, 2023 $ 15 million

uncommitted revolving 364 days March 21,

2024 $ 15 million

USD three-month LIBOR plus 75 basis points per annum No later than

1 unchanged sentence

(1) Intercompany credit agreement

(2) Renewed in April 2023 with an expiration date of April 8, 2024

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

Tier One Insurance Company (1)

uncommitted revolving 364 days March 21, 2023 $ 0.3 million

uncommitted revolving 364 days March 21,

2024 $ 0.3 million

USD three-month LIBOR plus 75 basis points per annum No later than March 22, 2024 None General corporate purposes

Aflac Ventures Japan K.K.

uncommitted revolving 364 days May 2, 2023 ¥ 500 million

uncommitted revolving 364 days May 2,

2023 ¥ 500 million

2 unchanged sentences

Hatch Healthcare K.K.

uncommitted revolving 364 days January 3, 2023 ¥ 900 million

uncommitted revolving 364 days January 3,

2024 ¥ 900 million

A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period No later than January 4, 2024 None General corporate purposes

Hatch Insight K.K.

uncommitted revolving 364 days January 3, 2023 ¥ 600 million

uncommitted revolving 364 days January 3,

2024 ¥ 600 million

Aflac GI Holdings LLC (1)

uncommitted revolving 364 days July 17, 2023 $ 30 million

uncommitted revolving 364 days July 17,

2023 $ 30 million

USD three-month LIBOR plus 75 basis points per annum No later than July 18, 2023 None General corporate purposes

Aflac Incorporated (1)

uncommitted revolving 364 days January 2,

2024 $ 400 million

A rate per annum equal to three-month term SOFR plus 10 basis points for U.S.

dollar denominated borrowings or three-month TIBOR for Japanese yen denominated borrowings No later than January 3, 2024 None General corporate purposes

Aflac Re Bermuda Ltd.

uncommitted revolving 364 days January 2,

2024 $ 400 million

A rate per annum equal to three-month term SOFR plus 10 basis points for U.S.

dollar denominated borrowings or three-month TIBOR for Japanese yen denominated borrowings No later than January 3, 2024 None General corporate purposes

(1) Intercompany credit agreement

The Company was in compliance with all of the covenants of its notes payable and lines of credit at September 30, 2022.

No events of default or defaults occurred during the nine-month period ended September 30, 2022.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2023.

No events of default or defaults occurred during the three-month period ended March 31, 2023.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report.

The Company uses a full year estimated annual effective tax rate to calculate total income tax expense on interim quarters.

In addition, the Company discretely recognizes certain other items in the period in which they occur.

The estimated annual effective tax rate is calculated as the ratio of projected total income tax expense divided by projected earnings before income taxes for the year.

The interim period tax expense (or benefit) is the difference between the year-to-date income tax provision and the amounts reported for the previous interim periods of the year.

The Company’s consolidated effective income tax rate on pretax earnings was ( 44.7 )% and 20.2 % for the three-month periods and 1.6 % and 19.7 % for the nine-month periods ended September 30, 2022 and 2021, respectively.

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

statutory rate primarily due to the impact of the tax accounting method change discussed below, as well as solar, historic and foreign tax credits.

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.

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 U.S.

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.

SHAREHOLDERS’ EQUITY

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

The following table is a reconciliation of the number of shares of the Company's common stock for the three-month periods ended March 31.

(In thousands of shares) 2023 2022

15 unchanged sentences

Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic earnings per share (EPS).

The following table presents the approximate number of share-based awards to

purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted EPS for the following periods.

Three Months Ended

September 30, Nine Months Ended

September 30,

The following table presents the approximate number of share-based awards to purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted EPS for the following periods.

Three Months Ended March 31,

(In thousands) 2023 2022

1 unchanged sentence

Share Repurchase Program

During the first nine months of 2022, the Company repurchased 30.2 million shares of its common stock for $ 1.8 billion as part of its share repurchase program.

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

As of September 30, 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 Inflation Reduction Act of 2022 (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.

During the first three months of 2023, the Company repurchased 10.3 million shares of its common stock for $ 700 million as part of its share repurchase program.

During the first three months of 2022, the Company repurchased 8.0 million shares of its common stock for $ 500 million as part of its share repurchase program.

As of March 31, 2023, a remaining balance of 106.3 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Reclassifications from Accumulated Other Comprehensive Income

2 unchanged sentences

Three Months Ended

September 30, 2022

(In millions) Unrealized Foreign

Currency Translation

Gains (Losses) Unrealized

Gains (Losses)

on Fixed Maturity Securities Unrealized

Gains (Losses)

on Derivatives Pension

Adjustment Total

Balance at June 30, 2022 $ ( 3,289 ) $ 2,930 $ ( 29 ) $ ( 160 ) $ ( 548 )

Other comprehensive

income (loss) before

reclassification ( 1,166 ) ( 1,753 ) ( 1 ) ( 4 ) ( 2,924 )

Amounts reclassified from

accumulated other

comprehensive income

(loss) 0 ( 46 ) 1 6 ( 39 )

Net current-period other

comprehensive

income (loss) ( 1,166 ) ( 1,799 ) 0 2 ( 2,963 )

Balance at September 30, 2022 $ ( 4,455 ) $ 1,131 $ ( 29 ) $ ( 158 ) $ ( 3,511 )

All amounts in the table above are net of tax.

Three Months Ended

September 30, 2021

(In millions) Unrealized Foreign

Currency Translation

Gains (Losses) Unrealized

Gains (Losses)

on Fixed Maturity Securities Unrealized

Gains (Losses)

on Derivatives Pension Liability Adjustment Total

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

Other comprehensive

income (loss) before

reclassification ( 99 ) ( 251 ) 0 ( 5 ) ( 355 )

Amounts reclassified from

accumulated other

comprehensive income

(loss) 0 ( 10 ) 2 6 ( 2 )

Net current-period other

comprehensive

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

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

All amounts in the table above are net of tax.

Nine Months Ended

September 30, 2022

March 31, 2023

(In millions) Unrealized Foreign

4 unchanged sentences

Gains (Losses)

on Derivatives Pension

on Derivatives Effect of Changes in Discount Rate Assumptions Pension

Adjustment Total

10 unchanged sentences

income (loss) ( 54 ) 1,991 1 ( 2,794 ) 7 ( 849 )

Balance at September 30, 2022 $ ( 4,455 ) $ 1,131 $ ( 29 ) $ ( 158 ) $ ( 3,511 )

Balance at March 31, 2023 $ ( 3,618 ) $ 1,289 $ ( 26 ) $ ( 4,894 ) $ ( 29 ) $ ( 7,278 )

All amounts in the table above are net of tax.

Nine Months Ended

September 30, 2021

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

Three Months Ended

March 31, 2022

(In millions) Unrealized Foreign

4 unchanged sentences

Gains (Losses)

on Derivatives Pension Liability Adjustment Total

on Derivatives Effect of Changes in Discount Rate Assumptions Pension Liability Adjustment Total

Balance at December 31, 2021 $ ( 1,985 ) $ 9,602 $ ( 30 ) $ ( 15,832 ) $ ( 166 ) $ ( 8,411 )

9 unchanged sentences

income (loss) ( 453 ) ( 3,815 ) 1 4,224 3 ( 40 )

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

Balance at March 31, 2022 $ ( 2,438 ) $ 5,787 $ ( 29 ) $ ( 11,608 ) $ ( 163 ) $ ( 8,451 )

All amounts in the table above are net of tax.

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income into net earnings for the following periods.

1 unchanged sentence

(In millions) Three Months Ended

September 30, 2022

March 31, 2023

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

14 unchanged sentences

(1) Based on 21 % tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).

(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost (see Note 12 for additional details).

(In millions) Three Months Ended

September 30, 2021

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

Statements of Earnings

Unrealized gains (losses) on available-for-sale

securities $ 13 Net investment gains (losses)

( 3 ) Tax (expense) or benefit (1)

$ 10 Net of tax

Unrealized gains (losses) on derivatives $ ( 2 ) Net investment gains (losses)

0 Tax (expense) or benefit (1)

$ ( 2 ) Net of tax

Amortization of defined benefit pension items:

Actuarial gains (losses) $ ( 8 ) Acquisition and operating expenses (2)

Prior service (cost) credit 0 Acquisition and operating expenses (2)

2 Tax (expense) or benefit (1)

$ ( 6 ) Net of tax

Total reclassifications for the period $ 2 Net of tax

(1) Based on 21 % tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).

(In millions) Nine Months Ended

September 30, 2022

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

Statements of Earnings

Unrealized gains (losses) on available-for-sale

securities $ 252 Net investment gains (losses)

( 53 ) Tax (expense) or benefit (1)

$ 199 Net of tax

Unrealized gains (losses) on derivatives $ ( 3 ) Net investment gains (losses)

1 Tax (expense) or benefit (1)

$ ( 2 ) Net of tax

Amortization of defined benefit pension items:

Actuarial gains (losses) $ ( 18 ) Acquisition and operating expenses (2)

Prior service (cost) credit 0 Acquisition and operating expenses (2)

4 Tax (expense) or benefit (1)

$ ( 14 ) Net of tax

Total reclassifications for the period $ 183 Net of tax

(1) Based on 21 % tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).

(In millions) Nine Months Ended

September 30, 2021

March 31, 2022

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

14 unchanged sentences

(1) Based on 21 % tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).

(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost (see Note 12 for additional details).

SHARE-BASED COMPENSATION

As of September 30, 2022, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017), as further amended on August 9, 2022 (the Plan).

As of March 31, 2023, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017), as further amended on August 9, 2022 (the Plan).

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

1 unchanged sentence

The Plan, allows for a maximum number of shares issuable over its term of 75 million shares including 38 million shares that may be awarded in respect of awards other than options or stock appreciation rights.

If any awards granted under the

Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture, then the shares underlying the awards will again be available under the Plan.

If any awards granted under the Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture, then the shares underlying the awards will again be available under the Plan.

The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights.

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

As of September 30, 2022, approximately 35.7 million shares were available for future grants under this plan.

As of March 31, 2023, approximately 34.8 million shares were available for future grants under this plan.

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

1 unchanged sentence

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

As of September 30, 2022, the only performance-based awards issued and outstanding were restricted stock awards and units.

As of March 31, 2023, the only performance-based awards issued and outstanding were restricted stock awards and units.

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

2 unchanged sentences

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

The following table provides information on stock options outstanding and exercisable at September 30, 2022.

The following table provides information on stock options outstanding and exercisable at March 31, 2023.

Option Shares

6 unchanged sentences

Exercisable 1,414 2.8 45 32.56

The Company received cash from the exercise of stock options in the amount of $ 13 million during the first nine months of 2022, compared with $ 20 million in the first nine months of 2021.

The tax benefit realized as a result of stock option exercises and restricted stock releases was $ 18 million in the first nine months of 2022, compared with $ 16 million in the first nine months of 2021.

As of September 30, 2022, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $ 46 million, of which $ 23 million ( 1.8 million shares) was related to restricted stock awards and units with a performance-based vesting condition.

The Company received cash from the exercise of stock options in the amount of $ 4 million during the first three months of 2023, compared with $ 8 million in the first three months of 2022.

The tax benefit realized as a result of stock option exercises and restricted stock releases was $ 17 million in the first three months of 2023, compared with $ 16 million in the first three months of 2022.

As of March 31, 2023, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $ 75 million, of which $ 43 million ( 1.8 million shares) was related to restricted stock awards and units with a performance-based vesting condition.

The Company expects to recognize these amounts over a weighted-average period of approximately 1.9 years.

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

The following table summarizes restricted stock activity during the nine-month period ended September 30, 2022.

The following table summarizes restricted stock activity during the three-month period ended March 31, 2023.

(In thousands of shares) Shares Weighted-Average

6 unchanged sentences

( 1,080 ) 52.66

Restricted stock at September 30, 2022

Restricted stock at March 31, 2023

2,359 $ 62.34

23 unchanged sentences

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

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $ 5 million and $ 4 million for the three-month periods and $ 11 million and $ 18 million for the nine-month periods ended September 30, 2022 and 2021, respectively.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $ 2 million and $ 4 million for the three-month periods ended March 31, 2023 and 2022, respectively.

Total net periodic benefit cost includes the following components:

Three Months Ended September 30,

Pension Benefits Other

Postretirement Benefits

(In millions) 2022 2021 2022 2021 2022 2021

Components of net periodic

benefit cost:

Service cost $ 5 $ 6 $ 6 $ 7 $ 0 $ 0

Interest cost 1 1 9 8 1 0

Expected return on plan assets ( 2 ) ( 2 ) ( 11 ) ( 11 ) 0 0

Amortization of net actuarial loss 0 1 6 7 1 0

Net periodic (benefit) cost $ 4 $ 6 $ 10 $ 11 $ 2 $ 0

Nine Months Ended September 30,

Three Months Ended March 31,

Pension Benefits Other

8 unchanged sentences

Net periodic (benefit) cost $ 4 $ 5 $ 6 $ 9 $ 0 $ 1

During the nine months ended September 30, 2022, Aflac Japan contributed approximately $ 25 million (using the weighted-average yen/dollar exchange rate for the nine-month period ended September 30, 2022) to the Japanese funded defined benefit plan, and Aflac U.S.

During the three months ended March 31, 2023, Aflac Japan contributed approximately $ 6 million (using the weighted-average yen/dollar exchange rate for the three-month period ended March 31, 2023) to the Japanese funded defined benefit plan, and Aflac U.S.

did not make a contribution to the U.S.

3 unchanged sentences

COMMITMENTS AND CONTINGENT LIABILITIES

Effective April 1, 2022, the Company renewed an outsourcing agreement with an information technology and data services company to provide application maintenance and development services for Aflac Japan.

As of September 30, 2022, the agreement has a remaining term of four years and an aggregate remaining cost of ¥ 6.7 billion ($ 46 million using the September 30, 2022 exchange rate).

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

Members of the Company's senior legal and financial management teams review litigation on a quarterly and annual basis.

The final results of any litigation cannot be predicted with certainty.

In February 2023, the Company renewed an outsourcing agreement with a management consulting and technology services company to provide application maintenance and development services for Aflac Japan.

As of March 31, 2023, the agreement has a remaining term of five years and an aggregate remaining cost of ¥ 20.9 billion ($ 157 million using the March 31, 2023 exchange rate).

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

Members of the Company's senior legal and financial management teams review litigation and regulatory inquiries on a quarterly and annual basis.

The final results of any litigation or regulatory inquiries cannot be predicted with certainty.

Although some of this litigation is pending in states where large punitive damages, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, the Company believes the outcome of pending litigation will not have a material adverse effect on its financial position, results of operations, or cash flows.

5 unchanged sentences

Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business.

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company (collectively referred to as Penn Treaty), neither of which is affiliated with Aflac, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty.

A final order of liquidation was granted by a recognized judicial authority on March 1, 2017, and as a result, Penn Treaty is in the process of liquidation.

The Company estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation using a discounted rate of 4.25 %.

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

The Company paid a majority of these assessments by September 30, 2022.

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

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

SUBSEQUENT EVENTS

In October 2022, the Parent Company used a portion of the net proceeds from its September 2022 issuance of various series of senior notes to redeem $ 450 million of its 3.25 % senior notes due March 2025.

Guaranty fund assessments for the three-month periods ended March 31, 2023 and 2022 were immaterial.

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

What changed 10-Q

Item 1. Financial Statements