What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-01 compared with 2022-11-02 · 259 added, 350 removed, 921 unchanged (40% of the section changed)

12 unchanged sentences

The Company cautions readers that the following factors, in addition to other factors mentioned from time to time, could cause actual results to differ materially from those contemplated by the forward-looking statements:

• difficult conditions in global capital markets and the economy, including those caused by COVID-19

• difficult conditions in global capital markets and the economy, including inflation and the continued effects caused by COVID-19

• defaults and credit downgrades of investments

3 unchanged sentences

• foreign currency fluctuations in the yen/dollar exchange rate

• differing judgments applied to investment valuations

• differing interpretations applied to investment valuations

• significant valuation judgments in determination of expected credit losses recorded on the Company's investments

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

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

• major public health issues, including COVID-19 and any resulting or coincidental economic effects, on the Company's business and financial results

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

• deviations in actual experience from pricing and reserving assumptions

• ability to continue to develop and implement improvements in information technology systems

• ability to continue to develop and implement improvements in information technology systems and on successful execution of revenue growth and expense management initiatives

• interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems

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MD&A OVERVIEW

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

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three-month periods ended March 31, 2023 and 2022, respectively.

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

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Company Overview

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) provide financial protection to more than 50 million people worldwide.

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) provide financial protection to millions of policyholders and customers in Japan and the U.S.

The Company’s principal business is supplemental health and life insurance products with the goal to provide customers the best value in supplemental insurance products in the United States (U.S.) and Japan.

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

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

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

(collectively, Aflac U.S.).

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.

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

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

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

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

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

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

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

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.

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.

Performance Highlights

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

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

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

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

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

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

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

$22 million of net losses on equity securities;

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

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

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

Total revenues were $4.8 billion in the first three months of 2023, compared with $5.2 billion in the first three months of 2022.

Net earnings were $1.2 billion, or $1.94 per diluted share in the first three months of 2023, compared with $1.0 billion, or $1.60 per diluted share, in the first three months of 2022.

Results in the first quarter of 2023 included pretax net investment gains of $123 million, compared with pretax net investment gains of $122 million in the first three months of 2022.

Net investment gains in the first three months of 2023 included an increase in credit loss allowances of $30 million;

$99 million of net gains from certain derivative and foreign currency gains or losses;

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and $57 million of net gains from sales and redemptions.

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

The average yen/dollar

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

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

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

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

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

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

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

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

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

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

Shareholders’ equity at September 30, 2022 also included an unrealized foreign currency translation loss of $4.5 billion, compared with an unrealized foreign currency translation loss of $2.0 billion at December 31, 2021.

The annualized return on average shareholders’ equity in the third quarter of 2022 was 25.3%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $27.7 billion, or $44.34 per share at September 30, 2022, compared with $25.9 billion, or $39.65 per share, at December 31, 2021.

The annualized adjusted return on equity (ROE) excluding foreign currency impact (2) in the third quarter of 2022 was 11.4%.

The average yen/dollar exchange rate (1) for the three-month period ended March 31, 2023 was 132.30, or 12.2% weaker than the average yen/dollar exchange rate (1) of 116.18 for the same period in 2022.

Adjusted earnings (2) in the first quarter of 2023 were $1.0 billion, or $1.55 per diluted share, compared with $942 million, or $1.44 per diluted share, in the first quarter of 2022.

The weaker yen/dollar exchange rate negatively impacted adjusted earnings per diluted share by $.07.

Total investments and cash at March 31, 2023 were $120.5 billion, compared with $117.4 billion at December 31, 2022.

In the first quarter of 2023, Aflac Incorporated repurchased $700 million, or 10.3 million of its common shares.

At March 31, 2023, the Company had 106.3 million remaining shares authorized for repurchase.

Shareholders’ equity was $19.8 billion, or $32.65 per share, at March 31, 2023, compared with $20.1 billion, or $32.73 per share, at December 31, 2022.

Shareholders’ equity at March 31, 2023 included a cumulative decrease of $4.9 billion from the effect of changes in discount rate assumptions on insurance contracts, driven by the adoption of the new accounting guidance for long-duration insurance contracts, compared with a corresponding cumulative decrease of $2.1 billion at December 31, 2022, and a net unrealized gain on investment securities and derivatives of $1.3 billion, compared with a net unrealized loss of $729 million at December 31, 2022.

Shareholders’ equity at March 31, 2023 also included an unrealized foreign currency translation loss of $3.6 billion, compared with an unrealized foreign currency translation loss of $3.6 billion at December 31, 2022.

The annualized return on average shareholders’ equity in the first quarter of 2023 was 23.8%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI) (2) (adjusted book value) was $27.1 billion, or $44.66 per share at March 31, 2023, compared with $26.6 billion, or $43.18 per share, at December 31, 2022.

The annualized adjusted return on equity (ROE) excluding foreign currency impact (2) in the first quarter of 2023 was 14.8%.

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

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

The Company believes that amortized hedge costs/income measure the periodic currency risk management costs/income related to hedging certain foreign currency exchange risks and are an important component of net investment income.

The Company believes that amortized hedge costs/income measure the periodic currency risk management costs/

income related to hedging certain foreign currency exchange risks and are an important component of net investment income.

There is no comparable U.S.

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Reconciliation of Net Earnings to Adjusted Earnings

In Millions Per Diluted Share In Millions Per Diluted Share

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

In Millions Per Diluted Share

Three Months Ended March 31,

2023 2022 2023 2022

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Other and non-recurring (income) loss 0 1 .00 .00

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

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

Income tax (benefit) expense on items excluded from adjusted earning (26) 28 (.04) .04

Adjusted earnings 953 942 1.55 1.44

Current period foreign currency impact (2)

53 N/A .08 N/A 147 N/A .23 N/A

41 N/A .07 N/A

Adjusted earnings excluding current period foreign currency impact $ 994 $ 942 $ 1.62 $ 1.44

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

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

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

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

Reconciling Items

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

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

Three Months Ended March 31,

(In millions) 2023 2022

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Net interest cash flows from derivatives associated with certain investment strategies

(26) (6) (36) (23)

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

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

However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific

issuers, tax planning strategies, and/or general portfolio management and rebalancing.

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

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

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

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

regular operational cost for an insurance company.

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

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

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

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

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

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

Corporate Life and Pensions business;

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

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

The Company's combined U.S.

and Japanese effective income tax rate on pretax earnings was (44.7)% for the three-month period ended September 30, 2022, compared with 20.2% for the same period in 2021.

The Company's combined U.S.

and Japanese effective income tax rate on pretax earnings was 1.6% for the nine-month period ended September 30, 2022, compared with 19.7% for the same period in 2021.

and Japanese effective income tax rate on pretax earnings was 11.5% for the three-month period ended March 31, 2023, compared with 19.1% for the same period in 2022.

The 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.

statutory rate primarily due to historic and solar tax credits and the exclusion of foreign currency translation gains and losses held in the Delaware Statutory Trust.

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

MD&A in the 2022 Annual Report.

Aflac Japan holds certain U.S.

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

These assets are mostly comprised of various U.S.

dollar-denominated commercial mortgage loans.

The functional currency of the DST for U.S.

tax purposes was historically the Japanese yen.

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

tax purposes to the U.S.

dollar (USD).

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

tax purposes.

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

tax purposes.

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

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

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

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

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

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

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

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

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

The effective tax rate continues to be subject to future tax law changes both in the U.S.

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Aflac Japan is the principal contributor to consolidated earnings.

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

In addition, the Parent Company, other 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.

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• Average Weekly Producer

• Premium Persistency

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

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Aflac Japan Summary of Operating Results

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

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Total adjusted revenues 2,790 3,314

Benefits and claims, net 1,676 1,938 5,133 6,072

Benefits and claims:

Benefits and claims, excluding reserve remeasurement 1,466 1,793

Reserve remeasurement (gains) losses (13) (14)

Total benefits and claims, net 1,453 1,779

Adjusted expenses:

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previous period:

Three Months Ended

September 30, Nine Months Ended

September 30, Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31, Three Months Ended March 31,

2023 2022 2023 2022

3 unchanged sentences

Pretax adjusted earnings (9.4) (5.0) 3.2 4.7

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(25) and $(7) for the three-month periods and $(37) and $(24) for the nine-month periods ended September 30, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three- and nine-month periods ended September 30, 2022, Aflac Japan's net earned premiums decreased, in yen terms, mainly due to limited-pay products reaching premium paid-up status and constrained sales from the impact of pandemic conditions.

In yen terms, adjusted net investment income increased in the three- and nine-month periods ended September 30, 2022, primarily due to the impact of a weaker yen on U.S.

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

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

Annualized premiums in force decreased 4.3% to ¥1.32 trillion as of September 30, 2022, compared with ¥1.38 trillion as of September 30, 2021.

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

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

(1) 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.

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

In the three-month period ended March 31, 2023, Aflac Japan's net earned premiums decreased, in yen terms, mainly due to limited-pay products reaching premium paid-up status and the implementation of the Aflac Re global reinsurance strategy.

Adjusted net investment income, in yen terms, increased in the three-month period ended March 31, 2023, primarily due to the impact of foreign exchange on U.S.

dollar-denominated investments offset by higher hedge costs.

The increase in pretax adjusted earnings in yen for the three-month period ended March 31, 2023 was primarily due to a decrease in total benefits and adjusted expenses.

Annualized premiums in force decreased 4.8% to ¥1.28 trillion as of March 31, 2023, compared with ¥1.35 trillion as of March 31, 2022.

The decrease in annualized premiums in force in yen was driven primarily by limited-pay products

reaching premium paid-up status and lower sales.

Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $9.6 billion at March 31, 2023, compared with $11.0 billion at March 31, 2022.

As of March 31, 2023, Aflac Japan exceeded 23 million individual policies in force in Japan, with more than 14 million cancer policies in force in Japan.

Aflac Japan's investment portfolios include U.S.

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(Yen Operating Results)

For the Periods Ended September 30,

For the Periods Ended March 31,

Including Foreign

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Currency Changes

Three Months Nine Months Three Months Nine Months

2023 2022 2023 2022

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Pretax adjusted earnings 3.2 4.7 (3.0) .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.

The following table presents a summary of operating ratios in yen terms for Aflac Japan.

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

Ratios to total adjusted revenues:

2022 2021 2022 2021

Benefits and claims, net 57.6 % 52.3 % 54.3 % 53.5 %

Total benefits and claims, net 52.1 % 53.7 %

Adjusted expenses:

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Ratios to total premiums:

Benefits and claims, net 75.0 % 66.1 % 69.8 % 67.1 %

Total benefits and claims, net 67.0 % 67.9 %

Adjusted expenses:

Amortization of deferred policy acquisition costs 3.9 3.6

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

In the three- and nine-month periods ended September 30, 2022, the adjusted expense ratio decreased slightly, compared with the same periods in the prior year, reflecting the decrease in total adjusted revenues and an offsetting decrease in total adjusted expenses.

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

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

In the three-month period ended March 31, 2023, the total benefits and claims ratio to total premiums decreased, compared with the same period in the prior year, primarily due to a decrease in the third sector benefit ratio due to favorable experience and the continued change in the mix of first and third sector business.

In the three-month period ended March 31, 2023, the total adjusted expense ratio decreased slightly, compared with the same period in the prior year, reflecting the decrease in total adjusted revenues and an offsetting decrease in total adjusted expenses due to expense control efforts as well as the reinsurance transaction with Aflac Re.

In total, the pretax adjusted profit margin

increased in the three-month period ended March 31, 2023 primarily due to a lower benefit ratio and a lower expense ratio and an offsetting decrease in total adjusted revenues.

The following table presents Aflac Japan's premium persistency on a 12-month rolling basis as of March 31.

Premium persistency 93.9 % 94.3 %

Aflac Japan Sales

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

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

In Dollars In Yen

Three Months Nine Months Three Months Nine Months

(In millions of dollars and billions of yen) 2023 2022 2023 2022

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Increase (decrease) over prior period (3.2) % (22.4) % 10.8 % (14.8) %

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

Three Months Nine Months

2022 2021 2022 2021

In 2023, the new annualized premium sales on a yen basis increased, compared with 2022, due primarily to sales of Aflac Japan's new cancer insurance product and updated first sector products, all of which were launched in the second half of 2022.

Further, these products were launched at Dai-ichi Life and other financial institutions in January 2023.

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

Cancer 59.9 % 53.0 %

Medical and other health:

Medical 20.8 31.4

Income support .6 1.1

Ordinary life:

WAYS .6 .7 .7 .7

Life insurance:

Traditional life (1)

Child endowment .6 .3

Other ordinary life (1)

7.7 9.0 8.6 9.1

Other 1.9 4.5

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(1) Includes term and whole life

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical and income support insurance products.

Aflac Japan has been focusing more on promotion of cancer and medical insurance products in this low-interest-rate environment.

These products are less interest-rate sensitive and more profitable compared to first sector savings products.

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical, income support, and nursing care insurance products.

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

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

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

Moreover, in November 2022, Aflac Japan refreshed its first sector savings-type products WAYS and Child Endowment and began to actively promote sales of these products after having curtailed sales of both products beginning in 2013.

The refreshment of these first sector products position Aflac Japan for potential future long-term sales opportunities by marketing these products to a younger demographic as well as potential cross-selling opportunities of Aflac Japan's third sector products.

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

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

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

were transferred to Japan Post Insurance.

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

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

For example, in 2021 and the first nine months of 2022, Aflac Japan observed an increase in the number of proposals to potential customers in the Japan Post Group channel, and the Japan Post Group continues to conduct a nationwide campaign to improve certain sales process practices.

In April 2023, Japan Post Group began selling Aflac Japan's new cancer insurance product that was launched in August 2022.

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

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Risk Factors in the 2022 Annual Report.

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

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

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

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

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

Independent corporate and individual 50.9 % 48.9 %

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Total 100.0 % 100.0 %

(1) Includes Japan Post Group

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

At September 30, 2022, Aflac Japan was represented by approximately 7,500 sales agencies, with approximately 110,000 licensed sales associates employed by those agencies.

(1) Includes Japan Post Group, Dai-ichi Life and Daido Life

During the three-month period ended March 31, 2023, Aflac Japan recruited 4 new sales agencies.

At March 31, 2023, Aflac Japan was represented by approximately 7,300 sales agencies, with approximately 110,000 licensed sales associates employed by those agencies.

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

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

At March 31, 2023, Aflac Japan had agreements to sell its products at 359 banks, approximately 90% of the total number of banks in Japan.

Aflac Japan Investments

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The following table details the investment purchases for Aflac Japan.

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

Three Months Ended March 31,

(In millions) 2023 2022

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Other fixed maturity securities $ 376 $ 85

Infrastructure debt 182 0 296 0

Collateralized loan obligations 0 67

Equity securities 0 0 22 8

Commercial mortgage and other loans:

Transitional real estate loans 53 507

Commercial mortgage loans 0 0 0 17

Middle market loans 150 311

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See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report for more information regarding loans and loan receivables.

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

Three Months Nine Months

2022 2021 2022 2021

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

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

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Return on average invested assets (3)

2.87 2.72 2.79 2.68

Portfolio book yield, including U.S.

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

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

The increase in the Aflac Japan new money yield in the three-month period ended March 31, 2023 was primarily due to increases in U.S.

interest rates.

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Summary of Operating Results

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

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Adjusted net investment income (1)

185 191 563 557

Other income 35 42

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Benefits and claims:

Benefits and claims, excluding reserve remeasurement 691 686

Reserve remeasurement (gains) losses (40) (20)

Total benefits and claims 651 666

Adjusted expenses:

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Pretax adjusted earnings 5.7 .6

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(1) and $1 for the three-month periods and $1 and $1 for the nine-month periods ended September 30, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

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

decreased primarily due to lower persistency.

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

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

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

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

(1) 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, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

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

In the three-month period ended March 31, 2023, net earned premiums for Aflac U.S.

increased primarily driven by continued investments in growth initiatives.

Adjusted net investment income increased in the three-month period ended March 31, 2023 primarily due to higher floating rate income due to higher volumes and rates.

The increase in pretax adjusted earnings in the three-month period ended March 31, 2023 was driven primarily by lower benefits and higher revenues, partially offset by higher expenses.

Annualized premiums in force increased 1.4% to $6.0 billion at March 31, 2023, compared with $5.9 billion at March 31, 2022.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

Ratios to total adjusted revenues:

2022 2021 2022 2021

Benefits and claims 38.9 % 38.9 % 38.6 % 36.9 %

Total benefits and claims 39.2 % 40.7 %

Adjusted expenses:

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Ratios to total premiums:

Benefits and claims 45.2 % 45.1 % 44.9 % 42.6 %

Total benefits and claims 45.6 % 47.1 %

Adjusted expenses:

Amortization of deferred policy acquisition costs 8.3 8.1

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

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

The adjusted expense ratio increased in the three- and nine-month periods ended September 30, 2022, when compared with the same periods in 2021, primarily due to higher DAC amortization associated with lower persistency and planned spending reflecting ongoing investments in the U.S.

The pretax adjusted profit margin decreased in the three- and nine-month periods ended September 30, 2022, compared with the same periods in 2021, primarily due to the higher adjusted expense and benefit ratios.

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

For the three-month period ended March 31, 2023, the total benefits and claims ratio to total premiums decreased compared with the same period in 2022, reflecting assumption updates in the third quarter of 2022 and reserve remeasurement gains related to experience.

The total adjusted expense ratio increased in the three-month period ended March 31, 2023, when compared with the same period in 2022, primarily due to higher planned spending, reflecting ongoing investments in the U.S.

platform and higher DAC amortization associated with lower persistency.

The pretax adjusted profit margin increased in the three-month period ended March 31, 2023, compared with the same period in 2022, primarily due to the lower benefit ratio.

The following table presents premium persistency for Aflac U.S.

on a 12-month rolling basis as of March 31.

Premium persistency 77.9 % 78.7 %

The following table presents Aflac's U.S.

new annualized premium sales for the periods ended September 30.

Three Months Nine Months

new annualized premium sales for the periods ended March 31.

(In millions) 2023 2022

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hospital indemnity insurance sales increased .2%;

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

dental/vision sales increased 22.7%;

and life sales increased 10.3% in the first quarter of 2023, compared with the first quarter of 2022.

The increase in sales for Aflac U.S.

in the third quarter of 2022 reflects continued improvement from investment in growth initiatives as well as productivity gains.

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

expects this trend of increasing sales to continue.

in the first quarter of 2023 reflects continued improvement from investment in growth initiatives as well as productivity gains.

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

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

Three Months Nine Months

2022 2021 2022 2021

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

Accident 23.5 % 25.3 %

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Critical care (1)

18.1 19.1 19.9 20.8

Hospital indemnity 15.9 16.7

Dental/vision 6.6 5.6

Life 10.0 9.2 8.8 7.8

Total 100.0 % 100.0 %

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

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

In the first quarter of 2023, the Aflac U.S.

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

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

believes that during 2021 and continuing into 2022, constraints in the labor market have limited its recruiting of new sales agents, and that limitations on face-to-face sales opportunities during the COVID-19 pandemic suppressed the development of newly recruited agents into business producers and the productivity of veteran agents and brokers.

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

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

economy continues to recover from the pandemic.

In response to the COVID-19 pandemic, Aflac U.S.

remains focused on supporting its agency channel, most of which are small businesses, by offering financial support and an extended value proposition.

The Aflac U.S.

sales team has pivoted to accommodate preferred enrollment conditions which include realizing sales at the worksite through in-person enrollment, an enrollment call center, video enrollment through co-browsing and self-enrollment.

The traditional agent sales team is also using virtual recruiting and training through video conferencing in order to maintain or increase the recruiting pipeline.

The Aflac U.S.

broker sales team is focused on product enhancements due to COVID-19 as well as leveraging technology based solutions to drive enrollment.

The level of investment income is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, and other factors.

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The following table details the investment purchases for Aflac U.S.

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

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Infrastructure debt 0 9

Collateralized loan obligations 0 22 199 52

Equity securities 0 9

Other investments:

Commercial mortgage and other loans:

Transitional real estate loans 14 107

Commercial mortgage loans 0 0 0 163

Middle market loans 19 166

Limited partnerships 11 10 32 27

Other investments 15 5

Total Aflac U.S.

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

investment yields for the periods ended September 30.

Three Months Nine Months

2022 2021 2022 2021

investment yields for the periods ended March 31.

Total purchases for period (in millions) (1)

$ 427 $ 430 $ 1,394 $ 1,348

New money yield (1),(2)

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Return on average invested assets (3)

4.57 4.88 4.74 4.84

Portfolio book yield, end of period (1),(2)

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The increase in the Aflac U.S.

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

new money yield in the three-month period ended March 31, 2023 was primarily due to increases in U.S.

interest rates.

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Corporate and Other Summary of Operating Results

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

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Total adjusted revenues 129 74

Benefits and claims, net 43 42 116 126

Total benefits and claims, net 46 37

Adjusted expenses:

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Pretax adjusted earnings $ (7) $ (42)

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

Tax credits on these investments of $19 and $10 for the three-month periods and $63 and $35 for the nine-month periods ended September 30, 2022, and 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings.

(1) 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.

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

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

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

In the three-month period ended March 31, 2023, total adjusted revenues increased compared to the same period in 2022 primarily due to higher total premiums associated with the Aflac Re global reinsurance strategy and an increase in adjusted net investment income.

Total adjusted expenses increased compared to the same period in 2022 primarily due to expenses associated with the Aflac Re global reinsurance strategy.

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

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

Pretax adjusted earnings increased in the three-month period ended March 31, 2023 when compared to the same period in 2022 reflecting the increase in total adjusted revenue, partially offset by higher other adjusted expenses, net benefits and claims.

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

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

These investments are classified as

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

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

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

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

The Company is also a signatory to the Principles for Responsible Investment, a global framework for incorporating environmental, social and governance (ESG) considerations into investment and ownership decisions.

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

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Investment Securities by Segment

September 30, 2022

March 31, 2023

(In millions) Aflac Japan Aflac U.S.

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Other 0 34 0 34

Investment in affiliate (3)

0 119 (119) 0

Total investments 95,661 15,527 5,503 116,691

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(2) Includes securities lending collateral

(3) For consolidated reporting, Aflac U.S.'s investment in Aflac Re is eliminated in Corporate and other

December 31, 2022

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Other 0 34 0 34

Investment in affiliate (3)

0 195 (195) 0

Total investments 94,689 15,267 3,498 113,454

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(2) Includes securities lending collateral

(3) For consolidated reporting, Aflac U.S.'s investment in Aflac Re is eliminated in Corporate and other

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

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Composition of Fixed Maturity Securities by Credit Rating

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Value Amortized

5 unchanged sentences

Total 100.0 % 100.0 % 100.0 % 100.0 %

As of September 30, 2022, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of September 30, 2022.

As of March 31, 2023, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of March 31, 2023.

(In millions) Credit

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Value Unrealized Loss

KLM Royal Dutch Airlines B $ 136 $ 103 $ (33)

BBB 112 80 (32)

Autostrade Per Litalia Spa BBB 148 116 (32)

Prologis LP A 171 141 (30)

JP Morgan Chase and Co.

A 200 171 (29)

Investcorp Capital Limited BB 305 273 (32)

Autostrade Per Litalia Spa BB 137 106 (31)

KLM Royal Dutch Airlines B 122 93 (29)

Banco de Chile A 150 122 (28)

Oracle Corp BBB 173 148 (25)

Prologis LP A 159 136 (23)

AXA BBB 235 215 (20)

Morgan Stanley A 124 104 (20)

BBB 104 85 (19)

Investcorp Capital Limited BB 327 306 (21)

Credit Suisse Group AG BBB 75 55 (20)

Grand City Properties SA BBB 56 37 (19)

Urban Renaissance Agency A 183 164 (19)

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

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Below-Investment-Grade Investments

September 30, 2022

March 31, 2023

(In millions) Par

4 unchanged sentences

Commerzbank 187 145 205 60

KLM Royal Dutch Airlines 138 122 93 (29)

Telecom Italia SpA 150 150 183 33

Autostrade Per Litalia Spa 138 137 106 (31)

KLM Royal Dutch Airlines 150 136 103 (33)

Apache Corporation 138 110 130 20

Howmet Aerospace Inc.

100 70 101 31

IKB Deutsche Industriebank AG 97 48 77 29

Generalitat de Catalunya 60 25 60 35

National Gas Co.

Trinidad & Tobago 52 50 46 (4)

Other Issuers 63 64 51 (13)

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

September 30, 2022

March 31, 2023

(In millions) Amortized Cost (1)

7 unchanged sentences

Other 577 51 (25) 604 .6

Utility/Energy 558 38 (25) 572 .6

Sovereign and supranational 1,118 134 (14) 1,238 1.2

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Investment Securities by Type of Issuance

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions) Amortized

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Reverse-Dual Currency Securities (1)

(Amortized cost, in millions) September 30,

(Amortized cost, in millions) March 31,

2023 December 31,

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• The Parent Company designates yen-denominated liabilities (notes payable and loans) as non-derivative hedging instruments and designates certain foreign currency forwards and options as derivative hedges of the Company’s net investment in Aflac Japan ( see Enterprise Corporate Hedging Program below) .

• The Parent Company enters into forward and option contracts to accomplish a dual objective of hedging foreign currency exchange rate risk related to dividend payments by its subsidiary, ALIJ, and reducing enterprise-wide hedge costs.

( see Enterprise Corporate Hedging Program below ).

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

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

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

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

Three Months Nine Months

2022 2021 2022 2021

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

$4.1 $6.4 $4.1 $6.4

Weighted average remaining tenor (in months) (2)

3.7 3.7 3.7 3.7

Amortized hedge income (cost) for period (in millions) $(39) $(13)

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

$13.5 $8.0 $13.5 $8.0

Weighted average remaining tenor (in months) (2)

3.2 3.6 3.2 3.6

Amortized hedge income (cost) for period (in millions) $(19) $(13)

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

$5.0 $5.0 $5.0 $5.0

Weighted average remaining tenor (in months) (2)

11.9 12.2 11.9 12.2

Amortized hedge income (cost) for period (in millions) $31 $12

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

$1.7 $2.0 $1.7 $2.0

Weighted average remaining tenor (in months) (2)

6.1 7.2 6.1 7.2

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

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dollar-denominated investments held by Aflac Japan.

September 30,

2023 December 31,

20 unchanged sentences

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

As of September 30, 2022, there were no collars in Aflac Japan, and none of the Company's foreign currency options hedging Aflac Japan's U.S.

As of March 31, 2023, there were no collars in Aflac Japan, and none of the Company's foreign currency options hedging Aflac Japan's U.S.

dollar-denominated assets were in-the-money.

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

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

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

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

dollar-denominated investments.

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

As of March 31, 2023, the fair value of Aflac Japan's unhedged U.S.

dollar-denominated portfolio was $9.7 billion (excluding certain U.S.

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dollar-denominated investments.

Three Months Ended

September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(In millions) 2023 2022

2 unchanged sentences

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

The Company's consolidated yen-denominated net asset position was partially hedged at $10.3 billion as of September 30, 2022, with hedging instruments comprised of $3.6 billion of yen-denominated debt and $6.7 billion of foreign currency forwards and options, compared with $10.2 billion as of December 31, 2021, with hedging instruments comprised of $3.3 billion of yen-denominated debt and $6.9 billion of foreign currency forwards and options .

The Company's consolidated yen-denominated net asset position was partially hedged at $11.1 billion as of March 31, 2023, with hedging instruments comprised of $3.9 billion of yen-denominated debt and $7.2 billion of foreign currency forwards and options, compared with $11.6 billion as of December 31, 2022, with hedging instruments comprised of $4.0 billion of yen-denominated debt and $7.6 billion of foreign currency forwards and options .

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

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

The Company's net investment hedge was effective during the 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.

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

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The Company continually evaluates the program’s efficacy.

As part of the Company’s internal reinsurance platform, Aflac Re enters into foreign currency forwards with the Parent Company to economically manage the currency mismatch between Aflac Re's assets, which are mostly denominated in U.S.

dollars, and liabilities, which are mostly denominated in yen, in order to support and optimize BMA capital requirements.

For additional information on the Company's internal reinsurance platform, see Note 8 of the Notes to the Consolidated Financial Statements and the Liquidity and Capital Resources section of this MD&A.

Interest Rate Risk Hedge Program

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The following table presents deferred policy acquisition costs by segment.

(In millions) September 30,

(In millions) March 31,

2023 December 31, 2022 % Change

2 unchanged sentences

Total $ 9,267 $ 9,239 .3 %

(1) Aflac Japan’s deferred policy acquisition costs decreased .4% in yen during the nine months ended September 30, 2022.

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

(1) Aflac Japan’s deferred policy acquisition costs increased .6% in yen during the three months ended March 31, 2023.

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

POLICY LIABILITIES

The following table presents policy liabilities by segment.

(In millions) September 30,

(In millions) March 31,

2023 December 31, 2022 % Change

1 unchanged sentence

11,542 11,187 3.2

Other 236 276 (14.5)

Corporate and other 1,874 302 100.0

Intercompany eliminations (2)

1 unchanged sentence

Total $ 99,933 $ 96,910 3.1 %

(1) Aflac Japan’s policy liabilities increased .6% in yen during the nine months ended September 30, 2022.

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

(1) Aflac Japan’s policy liabilities increased 4.0% in yen during the three months ended March 31, 2023.

(2) Elimination entry necessary due to the internal reinsurance transaction with Aflac Re and to recapture of a portion of policy liabilities ceded externally as a result of the reinsurance retrocession transaction.

See Note 8 of the Notes to the Consolidated Financial Statements.

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 Note 7 of the Notes to the Consolidated Financial Statements for additional information on the Company's policy liabilities.

BENEFIT PLANS

10 unchanged sentences

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

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

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

Accordingly, Aflac Japan did not recognize an expense for LIPPC assessments for the three-month period ended March 31, 2023.

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

Guaranty Fund Assessments

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

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

Guaranty fund assessments for the three-month periods ended March 31, 2023 and 2022 were immaterial.

LIQUIDITY AND CAPITAL RESOURCES

10 unchanged sentences

The governance framework supporting liquidity, capital and leverage includes global senior management and board committees that review and approve all significant capital related decisions.

The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure.

The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which have minimal market, settlement or other risk exposure.

The target minimum amount for the Parent Company’s cash and cash equivalents is approximately $1.8 billion to provide a capital buffer and liquidity support at the holding company.

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

The Company remains committed to prudent liquidity and capital management.

At September 30, 2022, the Company held $4.7 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion.

At March 31, 2023, the Company held $3.8 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $1.8 billion.

Aflac Japan and Aflac U.S.

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

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

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

Liquidity Provided by Subsidiaries to Parent Company

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Dividends declared or paid by subsidiaries 780 514

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

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

Aflac Japan Remittances

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

Additionally, as of September 30, 2022, the Parent Company and Aflac had four lines of credit with third parties and ten intercompany lines of credit.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at September 30, 2022.

Additionally, as of March 31, 2023, the Parent Company and Aflac had four lines of credit with third parties and twelve intercompany lines of credit.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2023.

For additional information, see Note 9 of the Notes to the Consolidated Financial Statements.

As part of enterprise-wide capital management and optimization, the Company also utilizes the newly-created intercompany reinsurance platform to execute internal reinsurance transactions with Aflac Re.

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

The Company's consolidated financial statements convey its financing arrangements during the periods presented.

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

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

As of March 31, 2023, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

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

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

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

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

(In millions) 2023 2022

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

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

From time to time or when market opportunities arise, the Company disposes of selected fixed maturity securities that are available for

sale to improve the duration matching of assets and liabilities, improve future investment yields, and/or re-balance its portfolio.

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

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

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

In the first three months of 2023, Aflac U.S.

borrowed and repaid $37 million under this program.

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

As of March 31, 2023, Aflac U.S.

had outstanding borrowings of $591 million reported in its balance sheet.

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

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

shelf registration statement.

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

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

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

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

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

taxation, as specified in the indenture governing the terms of the issuance.

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

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

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

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

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

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

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

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

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

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

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

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

Cash returned to shareholders through treasury stock purchases and dividends was $948 million during the three-month period ended March 31, 2023, compared with $750 million during the three-month period ended March 31, 2022.

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

Treasury Stock Purchased

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Number of shares issued 458 526

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

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

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

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

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

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.

Cash dividends paid to shareholders were $.42 per share in the first quarter of 2023, compared with $.40 per share in the first quarter of 2022.

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

(In millions) 2023 2022

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Total dividends to shareholders $ 257 $ 259

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

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

In April 2023, the board of directors declared the second quarter cash dividend of $.42 per share, an increase of 5.0% compared with the same period in 2022.

The dividend is payable on June 1, 2023 to shareholders of record at the close of business on May 17, 2023.

Regulatory Restrictions

Aflac Japan is required to meet certain financial criteria as governed by Japanese corporate law in order to provide dividends to the Parent Company.

Under these criteria, dividend capacity at the Japan subsidiary is basically defined as total equity excluding common stock, accumulated other comprehensive income amounts, capital reserves (representing statutorily required amounts in Japan) but reduced for net after-tax unrealized losses on available-for-sale securities.

Under these criteria, dividend capacity at the Japan subsidiary is basically defined as total equity excluding common stock and capital reserves (representing statutorily required amounts in Japan) but reduced for net after-tax unrealized losses on available-for-sale securities.

These dividend capacity requirements are generally aligned with the SMR.

Japan's FSA maintains its own solvency standard which is quantified through the SMR.

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

Japan's Financial Services Agency (FSA) maintains its own solvency standard which is quantified through the SMR.

Aflac Japan's SMR is sensitive to interest rate, credit spread, and foreign exchange rate changes;

therefore, the Company continues to evaluate alternatives for reducing this sensitivity, including the reduction of subsidiary dividends paid to the Parent Company and Parent Company capital contributions.

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

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

dollar-denominated investments with foreign currency options or forwards.

Additionally, subject to market conditions, the Company expects that it could take action to enter into derivatives on unhedged U.S.

dollar-denominated investments with foreign currency options or forwards or execute additional internal reinsurance transactions with Aflac Re.

See Notes 8 and 9 of the Notes to the Consolidated Financial Statements for additional information.

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

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

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

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

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

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See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.

As of September 30, 2022, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

As of March 31, 2023, Aflac Japan's SMR remains high and reflects a strong capital and surplus position.

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

The FSA is considering the introduction of an economic value-based solvency regime based on the Insurance Capital Standards (ICS) for insurance companies in Japan.

The FSA continues to conduct field testing with insurance companies in Japan for the purpose of investigating the impact of the introduction of such regulations.

Final specifications are expected to be decided in 2024, and a new capital regime to replace the current solvency regime is expected to be introduced in 2025.

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

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

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

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

The RBC formula quantifies insurance risk, business risk, asset risk and

interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations.

As of March 31, 2023, Aflac U.S.'s combined RBC ratio remains high and reflects a strong capital and surplus position.

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

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The Board has delegated oversight of the Company’s information security program to the Audit and Risk Committee.

The Company’s senior officers, including its Global Security and Chief Information Security Officer, are responsible for the operation of the global information security program and communicates quarterly with the Audit and Risk Committee on the program, including with respect to the state of the program, compliance with applicable regulations, current and evolving threats, and recommendations for changes in the information security program.

The Company’s senior officers, including its Global Chief Information Security Officer, are responsible for the operation of the global information security program and communicate quarterly with the Audit and Risk Committee on the program, including with respect to the state of the program, compliance with applicable regulations, current and evolving threats, and recommendations for changes in the information security program.

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

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

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

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

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

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

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

The application of these critical accounting estimates determines the values at which 92% of the Company's assets and 78% of its liabilities are reported as of September 30, 2022, and thus has a direct effect on net earnings and shareholders’ equity.

Calculations of DAC and the liability for future policy benefits require the use of estimates based on actuarial valuation techniques.

The application of these critical accounting estimates determines the values at which 93% of the Company's assets and 80% of its liabilities are reported as of March 31, 2023, and thus has a direct effect on net earnings and shareholders’ equity.

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

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

On January 1, 2023, the Company adopted Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance:

Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI).

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

As part of this adoption,

the Company measures together all payments under an insurance contract including future expected claims and unpaid policy claims and related expenses, as an integrated reserve.

This resulted in unpaid policy claims on long-duration insurance contracts and accrued claim adjustment expenses that were presented separately in the Company’s consolidated balance sheet pre-adoption to now be presented as part of liabilities for future policy benefits.

For additional information, see Note 1 of the Notes to the Consolidated Financial Statements in this document and in the 2022 Annual Report.

Deferred Policy Acquisition Costs

Amortization of DAC is computed using the same contract groupings (also referred to as cohorts) and mortality and termination assumptions that are used in computing the liability for future policy benefits, 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 future amortization pattern, while current period amortization is calculated based on the actual experience during the quarter.

For additional information, see Note 6 of the Notes to the Consolidated Financial Statements.

Future Policy Benefits

The Company's liabilities for future policy benefits are determined in accordance with applicable guidelines as defined under U.S.

GAAP and Actuarial Standards of Practice and represent claims that are expected to occur in the future and already incurred claims (which represent claims that have been incurred and are in the process of payment as well as an estimate of those claims that have been incurred but have not yet been reported to the Company) and are measured using the net level premium method.

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 recognized in reserve remeasurement (gains) losses in the consolidated statement of earnings.

Expense assumptions are established at policy inception and are not updated.

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 liability for future policy benefits in the consolidated balance sheet are updated each reporting period, and the differences between the liability balances calculated using the locked-in discount rates and the updated discount rates are recognized in other comprehensive income (loss) (OCI).

The discount rate 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.

Upon adoption, if interest rates increased by 100 basis points the Company's FPB balance as of December 31, 2022, would decrease by $13.3 billion, and if interest rates decreased by 100 basis points the Company's FPB balance as of December 31, 2022 would increase by $10.4 billion.

See Note 7 of the Notes to the Consolidated Financial Statements for details of future policy benefits activity.

There have been no other changes in the items the Company has identified as critical accounting estimates during the three-month period ended March 31, 2023.

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

MD&A included in the 2022 Annual Report.

Future Adoption of Accounting Standard for Long-Duration Insurance Contracts

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

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

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

Year ended December 31, 2021

Ratios to total premiums:

Benefits and claims, net 67.0 % 67.9 %

Ratios to total adjusted revenues:

Total adjusted expenses 21.6 20.5

Ratios to total premiums:

Benefits and claims, net 43.6 % 47.0 %

Ratios to total adjusted revenues:

Total adjusted expenses 39.5 38.4

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

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

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

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

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

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

MD&A in the 2021 Annual Report;

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

New Accounting Pronouncements

On January 1, 2023, the Company adopted LDTI employing a 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).

The Transition Date impact from adoption resulted in a decrease in AOCI of approximately $18.6 billion and a decrease in retained earnings of approximately $0.3 billion.

For information on new accounting pronouncements and the impact, if any, on the Company's financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis