AFLAC INC 10-Q

Item 1. Financial Statements. Aflac Incorporated and Subsidiaries Consolidated Statements of Earnings Three Months Ended March 31, (In millions, except for share and per-share amounts - Unaudited) 2024 2023 Revenues: Net earned premiums, principally supplemental health insurance $ 3,456 $ 3,688 Net investment income 1,000 943 Net investment gains (losses) 951 123 Other income (loss) 29 46 Total revenues 5,436 4,800 Benefits and expenses: Benefits and claims, excluding reserve remeasurement 2,066 2,203 Reserve remeasurement (gains) losses ( 56 ) ( 53 ) Total benefits and claims, net 2,010 2,150 Acquisition and operating expenses: Amortization of deferred policy acquisition costs 215 205 Insurance commissions 255 280 Insurance and other expenses 739 775 Interest expense 47 48 Total acquisition and operating expenses 1,256 1,308 Total benefits and expenses 3,266 3,458 Earnings before income taxes 2,170 1,342 Income taxes 291 154 Net earnings $ 1,879 $ 1,188 Net earnings per share: Basic $ 3.27 $ 1.94 Diluted 3.25 1.94 Weighted-average outstanding common shares used in computing earnings per share (In thousands): Basic 574,886 611,205 Diluted 577,482 613,950 Cash dividends per share $ .50 $ .42 See the accompanying Notes to the Consolidated Financial Statements. 1 Aflac Incorporated and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, (In millions - Unaudited) 2024 2023 Net earnings $ 1,879 $ 1,188 Other comprehensive income (loss) before income taxes: Unrealized foreign currency translation gains (losses) during period ( 501 ) ( 43 ) Unrealized gains (losses) on fixed maturity securities: Unrealized holding gains (losses) on fixed maturity securities during period 103 2,578 Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings ( 168 ) ( 57 ) Unrealized gains (losses) on derivatives during period ( 5 ) 1 Effect of changes in discount rate assumptions during period 1,348 ( 3,537 ) Pension liability adjustment during period 2 9 Total other comprehensive income (loss) before income taxes 779 ( 1,049 ) Income tax expense (benefit) related to items of other comprehensive income (loss) 361 ( 200 ) Other comprehensive income (loss), net of income taxes 418 ( 849 ) Total comprehensive income (loss) $ 2,297 $ 339 See the accompanying Notes to the Consolidated Financial Statements. 2 Aflac Incorporated and Subsidiaries Consolidated Balance Sheets (In millions, except for share and per-share amounts) March 31, 2024 (Unaudited) December 31, 2023 Assets: Investments and cash: Fixed maturity securities available-for-sale, at fair value ( no allowance for credit losses in 2024 and 2023, amortized cost $ 64,838 in 2024 and $ 67,807 in 2023) $ 66,452 $ 69,578 Fixed maturity securities available-for-sale - consolidated variable interest entities, at fair value (amortized cost $ 2,756 in 2024 and $ 2,882 in 2023) 3,678 3,712 Fixed maturity securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 5 in 2024 and $ 5 in 2023 (fair value $ 18,245 in 2024 and $ 19,657 in 2023) 16,689 17,819 Equity securities, at fair value 762 1,088 Commercial mortgage and other loans, net of allowance for credit losses of $ 232 in 2024 and $ 274 in 2023 (includes $ 9,947 in 2024 and $ 10,150 in 2023 of consolidated variable interest entities) 12,360 12,527 Other investments (includes $ 2,443 in 2024 and $ 2,381 in 2023 of consolidated variable interest entities) 6,677 4,530 Cash and cash equivalents 5,098 4,306 Total investments and cash 111,716 113,560 Receivables 1,038 848 Accrued investment income 693 731 Deferred policy acquisition costs 8,819 9,132 Property and equipment, at cost less accumulated depreciation 418 445 Other 2,058 2,008 Total assets $ 124,742 $ 126,724 Liabilities and shareholders’ equity: Liabilities: Policy liabilities: Future policy benefits $ 77,867 $ 83,718 Unpaid policy claims 344 261 Unearned premiums 1,322 1,451 Other policyholders’ funds 5,831 6,169 Total policy liabilities 85,364 91,599 Income taxes 777 154 Payables for return of cash collateral on loaned securities 3,366 1,503 Notes payable and lease obligations 7,912 7,364 Other 3,786 4,119 Total liabilities 101,205 104,739 Commitments and contingent liabilities (Note 13) Shareholders’ equity: Common stock of $ .10 par value. In thousands: authorized 1,900,000 shares in 2024 and 2023; issued 1,356,480 shares in 2024 and 1,355,398 shares in 2023 136 136 Additional paid-in capital 2,806 2,771 Retained earnings 49,872 47,993 Accumulated other comprehensive income (loss): Unrealized foreign currency translation gains (losses) ( 4,666 ) ( 4,069 ) Unrealized gains (losses) on fixed maturity securities 1,092 1,139 Unrealized gains (losses) on derivatives ( 26 ) ( 22 ) Effect of changes in discount rate assumptions ( 1,495 ) ( 2,560 ) Pension liability adjustment ( 7 ) ( 8 ) Treasury stock, at average cost ( 24,175 ) ( 23,395 ) Total shareholders’ equity 23,537 21,985 Total liabilities and shareholders’ equity $ 124,742 $ 126,724 See the accompanying Notes to the Consolidated Financial Statements. 3 Aflac Incorporated and Subsidiaries Consolidated Statements of Shareholders’ Equity (In millions, except for per share amounts - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at December 31, 2023 $ 136 $ 2,771 $ 47,993 $ ( 5,520 ) $ ( 23,395 ) $ 21,985 Net earnings 0 0 1,879 0 0 1,879 Unrealized foreign currency translation gains (losses) during period, net of income taxes 0 0 0 ( 597 ) 0 ( 597 ) Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments 0 0 0 ( 47 ) 0 ( 47 ) Unrealized gains (losses) on derivatives during period, net of income taxes 0 0 0 ( 4 ) 0 ( 4 ) Effect of changes in discount rate assumptions during period, net of income taxes 0 0 0 1,065 0 1,065 Pension liability adjustment during period, net of income taxes 0 0 0 1 0 1 Dividends to shareholders (1) ($ .00 per share) 0 0 0 0 0 0 Exercise of stock options 0 4 0 0 0 4 Share-based compensation 0 18 0 0 0 18 Purchases of treasury stock 0 0 0 0 ( 793 ) ( 793 ) Treasury stock reissued 0 13 0 0 13 26 Balance at March 31, 2024 $ 136 $ 2,806 $ 49,872 $ ( 5,102 ) $ ( 24,175 ) $ 23,537 (In millions, except for per share amounts - Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at December 31, 2022 $ 135 $ 2,641 $ 44,367 $ ( 6,429 ) $ ( 20,574 ) $ 20,140 Net earnings 0 0 1,188 0 0 1,188 Unrealized foreign currency translation gains (losses) during period, net of income taxes 0 0 0 ( 54 ) 0 ( 54 ) Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments 0 0 0 1,991 0 1,991 Unrealized gains (losses) on derivatives during period, net of income taxes 0 0 0 1 0 1 Effect of changes in discount rate assumptions during period, net of income taxes 0 0 0 ( 2,794 ) 0 ( 2,794 ) Pension liability adjustment during period, net of income taxes 0 0 0 7 0 7 Dividends to shareholders (1) ($ .00 per share) 0 0 0 0 0 0 Exercise of stock options 0 3 0 0 0 3 Share-based compensation 0 14 0 0 0 14 Purchases of treasury stock 0 0 0 0 ( 732 ) ( 732 ) Treasury stock reissued 0 7 0 0 13 20 Balance at March 31, 2023 $ 135 $ 2,665 $ 45,555 $ ( 7,278 ) $ ( 21,293 ) $ 19,784 (1) Dividends to shareholders are recorded in the period in which they are declared. See the accompanying Notes to the Consolidated Financial Statements. 4 Aflac Incorporated and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended March 31, (In millions - Unaudited) 2024 2023 Cash flows from operating activities: Net earnings $ 1,879 $ 1,188 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Change in receivables and advance premiums 32 ( 34 ) Capitalization of deferred policy acquisition costs ( 254 ) ( 270 ) Amortization of deferred policy acquisition costs 215 205 Increase in policy liabilities ( 41 ) 9 Change in income tax liabilities 291 154 Net investment (gains) losses ( 951 ) ( 123 ) Other, net ( 322 ) ( 239 ) Net cash provided (used) by operating activities 849 890 Cash flows from investing activities: Proceeds from investments sold or matured: Available-for-sale fixed maturity securities 2,286 949 Equity securities 267 126 Commercial mortgage and other loans 379 418 Costs of investments acquired: Available-for-sale fixed maturity securities ( 2,127 ) ( 1,090 ) Equity securities ( 73 ) ( 134 ) Commercial mortgage and other loans ( 251 ) ( 315 ) Other investments, net ( 2,119 ) ( 1,256 ) Settlement of derivatives, net ( 256 ) ( 480 ) Cash received (pledged or returned) as collateral, net 1,973 1,756 Other, net 148 ( 51 ) Net cash provided (used) by investing activities 227 ( 77 ) Cash flows from financing activities: Purchases of treasury stock ( 750 ) ( 700 ) Proceeds from borrowings 823 0 Dividends paid to shareholders ( 278 ) ( 248 ) Change in investment-type contracts, net ( 50 ) ( 28 ) Treasury stock reissued 6 2 Other, net ( 7 ) 41 Net cash provided (used) by financing activities ( 256 ) ( 933 ) Effect of exchange rate changes on cash and cash equivalents ( 28 ) ( 14 ) Net change in cash and cash equivalents 792 ( 134 ) Cash and cash equivalents, beginning of period 4,306 3,943 Cash and cash equivalents, end of period $ 5,098 $ 3,809 Supplemental disclosures of cash flow information: Income taxes paid $ 0 $ 0 Interest paid 34 37 Noncash interest 13 11 Noncash real estate acquired in satisfaction of debt 35 0 Noncash financing activities: Lease obligations 5 18 Treasury stock issued for: Associate stock bonus 4 4 Shareholder dividend reinvestment 10 9 Share-based compensation grants 6 5 See the accompanying Notes to the Consolidated Financial Statements. 5 Aflac Incorporated and Subsidiaries Notes to the Consolidated Financial Statements (Interim period data - Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in Japan and the United States (U.S.). The Company's insurance business is marketed and administered through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan and through American Family Life Assurance Company of Columbus (Aflac), American Family Life Assurance Company of New York (Aflac New York), Continental American Insurance Company (CAIC), Tier One Insurance Company (TOIC) and Aflac Benefits Solutions, Inc. (ABS) in the U.S. The Company’s operations consist of two reportable business segments: Aflac Japan, which includes ALIJ, and Aflac U.S., which includes Aflac, Aflac New York, CAIC, TOIC and ABS. Aflac New York is a wholly owned subsidiary of Aflac. Most of the Aflac U.S. policies are individually underwritten and marketed through independent agents. With the exception of dental and vision products administered by ABS, and certain group life insurance products, Aflac U.S. markets and administers group products through CAIC, branded as Aflac Group Insurance. Additionally, Aflac U.S. markets its consumer markets products through TOIC. The Company's insurance operations in the U.S. and Japan service the two markets for the Company's insurance business. The Parent Company, other operating business units that are not individually reportable, reinsurance activities, including internal reinsurance activity with Aflac Re Bermuda Ltd. (Aflac Re), and other business activities not included in Aflac Japan or Aflac U.S., as well as intercompany eliminations, are included in Corporate and other. Basis of Presentation The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In these Notes to the Consolidated Financial Statements, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification TM (ASC). The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations. The most significant items on the Company's balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and income taxes. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, interest rates, mortality, morbidity, commission and other acquisition expenses and terminations by policyholders. As additional information becomes available, or actual amounts are determinable, the recorded estimates are revised and reflected in the consolidated financial statements. Although some variability is inherent in these estimates, the Company believes the amounts provided are reasonable and reflective of the best estimates of management. The unaudited consolidated financial statements include the accounts of the Parent Company, its subsidiaries and those entities required to be consolidated under applicable accounting standards. All material intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of March 31, 2024 and December 31, 2023, and the consolidated statements of earnings and comprehensive income (loss), shareholders' equity and cash flows for the three-month periods ended March 31, 2024 and 2023. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report). Reclassifications : Certain reclassifications have been made to prior-year amounts to conform to current-year reporting classifications. These reclassifications had no impact on net earnings or total shareholders' equity. For the three-month period ended March 31, 2023, immaterial reclassifications were made to the consolidated statement of cash flows related to investments in limited partnerships and the impact of foreign currency on policy liabilities. The impact of the reclassification related to investments in limited partnerships resulted in an increase to net cash flows provided by operating activities of $ 182 million with a corresponding decrease to net cash flows provided by investing activities. There was no impact to net cash flows provided by operating activities as a result of the reclassification related 6 to the impact of foreign currency on policy liabilities between the increase in policy liabilities and other, net line items within operating activities. New Accounting Pronouncements Accounting Pronouncements Pending Adoption Accounting Standards Update (ASU) 2023-09 Income Taxes (Topic 740) – Improvements to Income Tax Disclosures In December 2023, the FASB issued amendments that require enhanced income tax disclosures including (1) disclosure of specific categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance has no impact on the Company’s financial position or results of operations. The Company is evaluating the impact of adoption on its disclosures. ASU 2023-07 Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures In November 2023, the FASB issued amendments that will add certain segment disclosures related to significant segment expenses and require that a public entity disclose the title and position of the Chief Operating Decision Maker (CODM) and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance has no impact on the Company’s financial position or results of operations. The Company is evaluating the impact of adoption on its disclosures. Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company's business. For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position, results of operations or disclosures, see Note 1 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 2. BUSINESS SEGMENT INFORMATION The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. In addition, the Parent Company, other operating business units that are not individually reportable, reinsurance activities, including internal reinsurance activity with Aflac Re, and other business activities not included in Aflac Japan or Aflac U.S., as well as intercompany eliminations, are included in Corporate and other. The Company does not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, the Company evaluates and manages its business segments using a financial performance measure called pretax adjusted earnings. • Pretax adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that are outside management’s control because they tend to be driven by general economic conditions and events or are related to infrequent activities not directly associated with insurance operations. The Company excludes income taxes related to operations to arrive at pretax adjusted earnings. ◦ Adjusted revenues are U.S. GAAP total revenues excluding net investment gains and losses, except for amortized hedge costs/income related to foreign currency exposure management strategies and net interest income/expense from derivatives associated with certain investment strategies, which are reclassified from net investment gains (losses) and included in adjusted earnings as a component of adjusted net investment income when analyzing operations. 7 ◦ Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest from derivatives associated with notes payable but excluding any non-recurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect the Company’s underlying business performance. Aflac Japan's adjusted revenues accounted for 56 % and 61 % of the Company's total adjusted revenues in the three-month periods ended March 31, 2024 and 2023, respectively. The percentage of the Company's total assets attributable to Aflac Japan was 79 % at March 31, 2024, compared with 80 % at December 31, 2023. Information regarding operations by reportable segment and Corporate and other, follows: Three Months Ended March 31, (In millions) 2024 2023 Revenues: Aflac Japan: Net earned premiums $ 1,816 $ 2,170 Adjusted net investment income 648 611 Other income 9 9 Total adjusted revenue Aflac Japan 2,473 2,790 Aflac U.S.: Net earned premiums 1,475 1,428 Adjusted net investment income 206 197 Other income 18 35 Total adjusted revenue Aflac U.S. 1,699 1,660 Corporate and other (1) 247 129 Total adjusted revenues 4,419 4,579 Net investment gains (losses) 951 123 Reconciling items: Amortized hedge costs 6 58 Amortized hedge income ( 28 ) ( 29 ) Net interest (income) expense from derivatives associated with certain investment strategies 88 69 Total revenues $ 5,436 $ 4,800 (1) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 32 and $ 51 for the three-month periods ended March 31, 2024, and 2023, respectively, is included as a reduction to net investment income. Tax credits on these investments of $ 33 and $ 52 for the three-month periods ended March 31, 2024, and 2023, respectively, have been recorded as an income tax benefit in the consolidated statements of earnings. See Note 3 for additional information on these investments. 8 Three Months Ended March 31, (In millions) 2024 2023 Pretax earnings: Aflac Japan $ 810 $ 788 Aflac U.S. 356 352 Corporate and other (1) ( 3 ) ( 7 ) Pretax adjusted earnings 1,163 1,133 Other income (loss) ( 2 ) 0 Net investment gains (losses) 951 123 Reconciling items: Amortized hedge costs 6 58 Amortized hedge income ( 28 ) ( 29 ) Net interest (income) expense from derivatives associated with certain investment strategies 88 69 Impact of interest from derivatives associated with notes payable ( 8 ) ( 12 ) Total earnings before income taxes $ 2,170 $ 1,342 Income taxes applicable to pretax adjusted earnings $ 202 $ 180 Effect of foreign currency translation on after-tax adjusted earnings ( 44 ) ( 41 ) (1) The change in value of federal historic rehabilitation and solar investments in partnerships of $ 32 and $ 51 for the three-month periods ended March 31, 2024, and 2023, respectively, is included as a reduction to net investment income. Tax credits on these investments of $ 33 and $ 52 for the three-month periods ended March 31, 2024, and 2023, respectively, have been recorded as an income tax benefit in the consolidated statements of earnings. See Note 3 for additional information on these investments. Assets were as follows: (In millions) March 31, 2024 December 31, 2023 Assets: Aflac Japan $ 98,189 $ 101,541 Aflac U.S. 21,850 21,861 Corporate and other 4,703 3,322 Total assets $ 124,742 $ 126,724 9 3. INVESTMENTS Investment Holdings The amortized cost and allowance for credit losses for the Company's investments in fixed maturity securities and the fair values of these investments as well as the fair value of the Company's investments in equity securities are shown in the following tables. March 31, 2024 (In millions) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available-for-sale, carried at fair value through other comprehensive income: Fixed maturity securities: Yen-denominated: Japan government and agencies $ 21,577 $ 0 $ 874 $ 1,811 $ 20,640 Municipalities 907 0 102 59 950 Mortgage- and asset-backed securities 201 0 6 12 195 Public utilities 3,281 0 262 77 3,466 Sovereign and supranational 349 0 24 7 366 Banks/financial institutions 5,546 0 323 285 5,584 Other corporate 5,532 0 663 245 5,950 Total yen-denominated 37,393 0 2,254 2,496 37,151 U.S. dollar-denominated: U.S. government and agencies 177 0 1 4 174 Municipalities 1,237 0 72 49 1,260 Mortgage- and asset-backed securities 2,968 0 270 48 3,190 Public utilities 3,595 0 388 136 3,847 Sovereign and supranational 95 0 33 4 124 Banks/financial institutions 2,971 0 385 41 3,315 Other corporate 19,158 0 2,635 724 21,069 Total U.S. dollar-denominated 30,201 0 3,784 1,006 32,979 Total securities available-for-sale $ 67,594 $ 0 $ 6,038 $ 3,502 $ 70,130 10 December 31, 2023 (In millions) Amortized Cost Allowance for Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities available-for-sale, carried at fair value through other comprehensive income: Fixed maturity securities: Yen-denominated: Japan government and agencies $ 23,067 $ 0 $ 1,040 $ 1,696 $ 22,411 Municipalities 968 0 115 58 1,025 Mortgage- and asset-backed securities 215 0 6 11 210 Public utilities 3,757 0 325 82 4,000 Sovereign and supranational 373 0 24 7 390 Banks/financial institutions 5,896 0 320 365 5,851 Other corporate 5,898 0 699 294 6,303 Total yen-denominated 40,174 0 2,529 2,513 40,190 U.S. dollar-denominated: U.S. government and agencies 191 0 2 4 189 Municipalities 1,246 0 65 38 1,273 Mortgage- and asset-backed securities 2,748 0 184 56 2,876 Public utilities 3,346 0 360 114 3,592 Sovereign and supranational 122 0 33 8 147 Banks/financial institutions 2,676 0 359 51 2,984 Other corporate 20,186 0 2,518 665 22,039 Total U.S. dollar-denominated 30,515 0 3,521 936 33,100 Total securities available-for-sale $ 70,689 $ 0 $ 6,050 $ 3,449 $ 73,290 March 31, 2024 (In millions) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Yen-denominated: Japan government and agencies $ 16,002 $ 2 $ 16,000 $ 1,474 $ 0 $ 17,474 Municipalities 248 0 248 37 0 285 Public utilities 33 0 33 3 0 36 Sovereign and supranational 394 3 391 40 0 431 Other corporate 17 0 17 2 0 19 Total yen-denominated 16,694 5 16,689 1,556 0 18,245 Total securities held-to-maturity $ 16,694 $ 5 $ 16,689 $ 1,556 $ 0 $ 18,245 11 December 31, 2023 (In millions) Amortized Cost Allowance for Credit Losses Net Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Yen-denominated: Japan government and agencies $ 17,085 $ 2 $ 17,083 $ 1,746 $ 0 $ 18,829 Municipalities 266 0 266 41 0 307 Public utilities 34 0 34 4 0 38 Sovereign and supranational 421 3 418 44 0 462 Other corporate 18 0 18 3 0 21 Total yen-denominated 17,824 5 17,819 1,838 0 19,657 Total securities held-to-maturity $ 17,824 $ 5 $ 17,819 $ 1,838 $ 0 $ 19,657 March 31, 2024 December 31, 2023 (In millions) Fair Value Fair Value Equity securities, carried at fair value through net earnings: Equity securities: Yen-denominated $ 522 $ 751 U.S. dollar-denominated 240 252 Other currencies 0 85 Total equity securities $ 762 $ 1,088 The methods of determining the fair values of the Company's investments in fixed maturity securities and equity securities are described in Note 5. During the first three months of 2024 and 2023, respectively, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category. 12 Contractual and Economic Maturities The contractual and economic maturities of the Company's investments in fixed maturity securities at March 31, 2024, were as follows: (In millions) Amortized Cost (1) Fair Value Available-for-sale: Due in one year or less $ 1,272 $ 1,292 Due after one year through five years 6,659 7,480 Due after five years through 10 years 17,904 19,556 Due after 10 years 38,590 38,417 Mortgage- and asset-backed securities 3,169 3,385 Total fixed maturity securities available-for-sale $ 67,594 $ 70,130 Held-to-maturity: Due in one year or less $ 0 $ 0 Due after one year through five years 35 36 Due after five years through 10 years 8,901 9,714 Due after 10 years 7,753 8,495 Total fixed maturity securities held-to-maturity $ 16,689 $ 18,245 (1) Net of allowance for credit losses Economic maturities are used for certain debt instruments with no stated maturity where the expected maturity date is based on the combination of features in the financial instrument such as the right to call or prepay obligations or changes in coupon rates. Investment Concentrations The Company's process for investing in credit-related investments begins with an independent approach to underwriting each issuer's fundamental credit quality. The Company evaluates independently those factors that it believes could influence an issuer's ability to make payments under the contractual terms of the Company's instruments. This includes a thorough analysis of a variety of items including the issuer's country of domicile (including political, legal, and financial considerations); the industry in which the issuer competes (with an analysis of industry structure, end-market dynamics, and regulation); company specific issues (such as management, assets, earnings, cash generation, and capital needs); and contractual provisions of the instrument (such as financial covenants and position in the capital structure). The Company further evaluates the investment considering broad business and portfolio management objectives, including asset/liability needs, portfolio diversification, and expected income. Investment exposures that individually exceeded 10% of shareholders' equity were as follows: March 31, 2024 December 31, 2023 (In millions) Credit Rating Amortized Cost Fair Value Credit Rating Amortized Cost Fair Value Japan National Government (1) A+ $ 36,641 $ 37,170 A+ $ 39,151 $ 40,222 (1) Japan Government Bonds (JGBs) or JGB-backed securities 13 Net Investment Gains and Losses Information regarding pretax net gains and losses from investments is as follows: Three Months Ended March 31, (In millions) 2024 2023 Net investment gains (losses): Sales and redemptions: Fixed maturity securities available-for-sale: Gross gains from sales $ 34 $ 1 Gross losses from sales ( 282 ) ( 3 ) Foreign currency gains (losses) 416 59 Other investments: Gross gains (losses) from sales and redemptions 5 0 Total sales and redemptions 173 57 Equity securities 76 ( 3 ) Credit losses: Fixed maturity securities held-to-maturity 0 1 Commercial mortgage and other loans ( 7 ) ( 31 ) Impairment losses 0 0 Loan commitments 1 3 Reinsurance recoverables and other 5 ( 3 ) Total credit losses ( 1 ) ( 30 ) Derivatives and other: Derivative gains (losses) ( 215 ) 17 Foreign currency gains (losses) 918 82 Total derivatives and other 703 99 Total net investment gains (losses) $ 951 $ 123 The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the three-month period ended March 31, 2024 that relate to equity securities held at the March 31, 2024 reporting date were $ 71 million. The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the three-month period ended March 31, 2023 that relate to equity securities held at the March 31, 2023 reporting date were $ 5 million. Unrealized Investment Gains and Losses Effect on Shareholders’ Equity The net effect on shareholders’ equity of unrealized gains and losses from fixed maturity securities was as follows: (In millions) March 31, 2024 December 31, 2023 Unrealized gains (losses) on securities available-for-sale $ 2,536 $ 2,601 Deferred income taxes ( 1,444 ) ( 1,462 ) Shareholders’ equity, unrealized gains (losses) on fixed maturity securities $ 1,092 $ 1,139 Gross Unrealized Loss Aging The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended March 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position. 14 March 31, 2024 Total Less than 12 months 12 months or longer (In millions) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fixed maturity securities available- for-sale: U.S. government and agencies: U.S. dollar-denominated $ 141 $ 4 $ 59 $ 1 $ 82 $ 3 Japan government and agencies: Yen-denominated 7,828 1,811 1,628 395 6,200 1,416 Municipalities: U.S. dollar-denominated 662 49 9 0 653 49 Yen-denominated 277 59 31 1 246 58 Mortgage- and asset- backed securities: U.S. dollar-denominated 754 48 304 4 450 44 Yen-denominated 54 12 1 0 53 12 Public utilities: U.S. dollar-denominated 1,383 136 391 9 992 127 Yen-denominated 915 77 351 13 564 64 Sovereign and supranational: U.S. dollar-denominated 14 4 0 0 14 4 Yen-denominated 55 7 0 0 55 7 Banks/financial institutions: U.S. dollar-denominated 628 41 228 2 400 39 Yen-denominated 2,973 285 62 1 2,911 284 Other corporate: U.S. dollar-denominated 6,196 724 1,254 36 4,942 688 Yen-denominated 1,747 245 355 9 1,392 236 Total $ 23,627 $ 3,502 $ 4,673 $ 471 $ 18,954 $ 3,031 15 December 31, 2023 Total Less than 12 months 12 months or longer (In millions) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fixed maturity securities available- for-sale: U.S. government and agencies: U.S. dollar-denominated $ 123 $ 4 $ 53 $ 1 $ 70 $ 3 Japan government and agencies: Yen-denominated 8,393 1,696 1,657 303 6,736 1,393 Municipalities: U.S. dollar-denominated 703 38 31 1 672 37 Yen-denominated 301 58 34 0 267 58 Mortgage- and asset- backed securities: U.S. dollar-denominated 925 56 340 6 585 50 Yen-denominated 58 11 0 0 58 11 Public utilities: U.S. dollar-denominated 1,120 114 228 4 892 110 Yen-denominated 1,028 82 444 13 584 69 Sovereign and supranational: U.S. dollar-denominated 35 8 0 0 35 8 Yen-denominated 60 7 0 0 60 7 Banks/financial institutions: U.S. dollar-denominated 655 51 159 4 496 47 Yen-denominated 3,673 365 186 4 3,487 361 Other corporate: U.S. dollar-denominated 6,380 665 799 19 5,581 646 Yen-denominated 1,948 294 308 9 1,640 285 Total $ 25,402 $ 3,449 $ 4,239 $ 364 $ 21,163 $ 3,085 Analysis of Securities in Unrealized Loss Positions The unrealized losses on the Company's available-for-sale securities have been primarily related to general market changes in interest rates, foreign exchange rates, and/or the levels of credit spreads rather than specific concerns with the issuer's ability to pay interest and repay principal. For any available-for-sale securities with significant declines in fair value, the Company performs detailed analyses to identify whether the drivers of the declines are due to general market drivers, such as the recent rise in interest rates, or due to credit-related factors. Identifying the drivers of the declines in fair value helps to align and allocate the Company‘s resources to securities with real credit-related concerns that could impact ultimate collection of principal and interest. For any significant declines in fair value determined to be non-interest rate or market related, the Company performs a more focused review of the related issuers' specific credit profile. For corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, the Company analyzes all sources of credit support, including issuer-specific factors. The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer's capital structure, covenant protections, or other relevant features. From these reviews, the Company evaluates the issuers' continued ability to service the Company's investment through payment of interest and principal. 16 Assuming no credit-related factors develop, unrealized gains and losses on available-for-sale securities are expected to diminish as investments near maturity. Based on its credit analysis, the Company believes that the issuers of its available-for-sale investments in the sectors shown in the table above have the ability to service their obligations to the Company. Further, the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. However, from time to time the Company identifies certain available-for-sale securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit-related factors and as a result, a credit loss allowance will be estimated. Based on an evaluation of its securities currently in an unrealized loss position, the Company has determined that those securities should not have a credit loss allowance as of March 31, 2024 . Refer to the Allowance for Credit Losses section below for additional information. As of March 31, 2024 and December 31, 2023, the Company had an immaterial amount of fixed maturity securities on nonaccrual status. Commercial Mortgage and Other Loans The Company classifies its transitional real estate loans (TREs), commercial mortgage loans (CMLs), middle market loans (MMLs), and other loans as held-for-investment and includes them in the commercial mortgage and other loans line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for credit losses. The following table reflects the composition of the carrying value for commercial mortgage and other loans by property type as of the periods presented. (In millions) March 31, 2024 December 31, 2023 Amortized Cost % of Total Amortized Cost % of Total Commercial Mortgage and other loans: Transitional real estate loans: Office $ 1,768 14.0 % $ 1,807 14.1 % Retail 335 2.7 473 3.7 Apartments/Multi-Family 2,550 20.3 2,608 20.4 Industrial 152 1.2 157 1.2 Hospitality 818 6.5 814 6.4 Other 455 3.7 255 2.0 Total transitional real estate loans 6,078 48.4 6,114 47.8 Commercial mortgage loans: Office 356 2.8 359 2.8 Retail 254 2.0 301 2.4 Apartments/Multi-Family 583 4.6 586 4.6 Industrial 445 3.5 463 3.6 Other 15 .1 0 0.0 Total commercial mortgage loans 1,653 13.0 1,709 13.4 Middle market loans 4,586 36.4 4,677 36.5 Other loans 275 2.2 301 2.3 Total commercial mortgage and other loans $ 12,592 100.0 % $ 12,801 100.0 % Allowance for credit losses ( 232 ) ( 274 ) Total net commercial mortgage and other loans $ 12,360 $ 12,527 CMLs and TREs were secured by properties entirely within the U.S. (with the largest concentrations in California ( 20 %), Texas ( 15 %) and Florida ( 12 %)). MMLs are issued only to companies domiciled within the U.S. and Canada. 17 Transitional Real Estate Loans TREs are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date. As of March 31, 2024, the Company had $ 442 million in outstanding commitments to fund TREs. These commitments are contingent on the final underwriting and due diligence to be performed. Commercial Mortgage Loans CMLs are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans. Middle Market Loans MMLs are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for MMLs included $ 24 million for a short-term credit facility that is reflected in other liabilities on the consolidated balance sheets at both March 31, 2024 and December 31, 2023. As of March 31, 2024, the Company had commitments of approximately $ 787 million to fund future MMLs. These commitments are contingent upon the availability of MMLs that meet the Company's underwriting criteria. Other Loans Other loans are primarily infrastructure loans. Infrastructure loans are typically senior secured, financing operating portfolios of contracted solar and wind assets generating cash flow for loan repayment. The infrastructure loan portfolio weighted average rating is investment grade. As of March 31, 2024, the Company had commitments of approximately $ 5 million to fund future other loans. These commitments are contingent upon the availability of other loans that meet the Company's underwriting criteria. Credit Quality Indicators For TREs, the Company’s key credit quality indicators include performance of the loan and loan-to-value (LTV), which is calculated by dividing the current outstanding loan balance by the estimated property value, primarily using values at origination. Given that TREs involve properties undergoing a repositioning of their commercial profile, LTV provides the most insight into the credit risk of the loan. The Company monitors the performance of the loans periodically, but not less frequently than quarterly. The monitoring process also focuses on higher risk loans, which include those that are delinquent or for which foreclosure or deed in lieu of foreclosure is anticipated. For CMLs, the Company’s key credit quality indicators include LTV and debt service coverage ratios (DSCR). DSCR is the most recently available net operating income of the underlying property compared to the required debt service of the loan. For MMLs and held-to-maturity fixed maturity securities, the Company’s key credit quality indicator is credit ratings. The Company’s held-to-maturity portfolio is composed of investment grade securities that are senior unsecured instruments, while its MMLs generally have below-investment-grade ratings but are typically senior secured instruments. The Company monitors the credit ratings periodically, but not less frequently than quarterly. For other loans, the Company's key credit quality indicator is credit ratings. The Company monitors these credit ratings periodically, but not less frequently than quarterly. 18 The following tables present as of March 31, 2024 the amortized cost basis of TREs, CMLs, MMLs, and other loans by year of origination and credit quality indicator. Transitional Real Estate Loans (In millions) 2024 2023 2022 2021 2020 Prior Total Loan-to-Value Ratio: 0%-59.99% $ 131 $ 86 $ 609 $ 507 $ 36 $ 125 $ 1,494 60%-69.99% 34 126 496 637 18 552 1,863 70%-79.99% 0 14 883 900 83 47 1,927 80% or greater 0 0 218 251 80 245 794 Total $ 165 $ 226 $ 2,206 $ 2,295 $ 217 $ 969 $ 6,078 Current-period gross writeoffs: $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Commercial Mortgage Loans (In millions) 2024 2023 2022 2021 2020 Prior Total Weighted-Average DSCR Loan-to-Value Ratio: 0%-59.99% $ 0 $ 33 $ 0 $ 309 $ 45 $ 983 $ 1,370 2.57 60%-69.99% 0 0 0 0 0 30 30 1.73 70%-79.99% 0 0 0 0 0 120 120 1.26 80% or greater 0 0 0 0 0 133 133 0.52 Total $ 0 $ 33 $ 0 $ 309 $ 45 $ 1,266 $ 1,653 2.30 Weighted Average DSCR 0.00 2.58 0.00 2.92 2.26 2.14 Current-period gross writeoffs: $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Middle Market Loans (In millions) 2024 2023 2022 2021 2020 Prior Revolving Loans Total Credit Ratings: BBB $ 0 $ 17 $ 45 $ 123 $ 54 $ 64 $ 77 $ 380 BB 18 60 308 408 251 287 446 1,778 B 48 53 218 547 302 633 290 2,091 CCC 0 0 20 50 51 136 48 305 CC 0 0 0 0 0 10 0 10 C and lower 0 0 0 0 0 6 16 22 Total $ 66 $ 130 $ 591 $ 1,128 $ 658 $ 1,136 $ 877 $ 4,586 Current-period gross writeoffs: $ 0 $ 0 $ 0 $ 27 $ 0 $ 23 $ 0 $ 50 19 Other Loans (In millions) 2024 2023 2022 2021 2020 Prior Revolving Loans Total Credit Ratings: A $ 0 $ 22 $ 94 $ 0 $ 0 $ 0 $ 0 $ 116 AA 0 0 5 5 0 0 0 10 BBB 5 68 0 0 0 0 0 73 BB 0 0 76 0 0 0 0 76 Total $ 5 $ 90 $ 175 $ 5 $ 0 $ 0 $ 0 $ 275 Current-period gross writeoffs: $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Loan Modifications to Borrowers Experiencing Financial Difficulties The Company granted certain loan modifications to borrowers experiencing financial difficulty during the first three months of 2024 and 2023. The amount, timing, and extent of modifications granted are considered in determining any credit loss allowance recorded. For the three-month period ended March 31, 2024, 3 % of TREs with an amortized cost of $ 210 million were modified in the form of interest rate reductions and other-than-insignificant payment delays. The modifications resulted in a reduction in the weighted-average contractual interest rate from 8.3 % to 6.9 %. Loan modifications for the three-month period ended March 31, 2023 were immaterial. Past Due and Nonaccrual Loans The following tables present an aging of past due and nonaccrual loans at amortized cost, before allowance for credit losses, as of the periods presented. March 31, 2024 (In millions) Current Less Than 90 Days Past Due 90 Days or More Past Due (1) Total Past Due Total Loans Nonaccrual Status Transitional real estate loans $ 5,152 $ 97 $ 829 $ 926 $ 6,078 $ 829 Commercial mortgage loans 1,598 0 55 55 1,653 55 Middle market loans 4,560 0 26 26 4,586 26 Other loans 275 0 0 0 275 0 Total $ 11,585 $ 97 $ 910 $ 1,007 $ 12,592 $ 910 (1) As of March 31, 2024, there were no loans that were 90 days or more past due that continued to accrue interest. December 31, 2023 (In millions) Current Less Than 90 Days Past Due 90 Days or More Past Due (1) Total Past Due Total Loans Nonaccrual Status Transitional real estate loans $ 5,481 $ 108 $ 525 $ 633 $ 6,114 $ 633 Commercial mortgage loans 1,676 33 0 33 1,709 0 Middle market loans 4,592 0 85 85 4,677 85 Other loans 301 0 0 0 301 0 Total $ 12,050 $ 141 $ 610 $ 751 $ 12,801 $ 718 (1) As of December 31, 2023, there were no loans that were 90 days or more past due that continued to accrue interest. For the three-month periods ended March 31, 2024 and March 31, 2023, the Company recognized no interest income for TREs, CMLs, MMLs, or other loans on nonaccrual status. Of these loans, TREs with an amortized cost of $ 383 million had no credit loss allowance as of March 31, 2024 because these loans are collateral dependent assets for which the estimated fair values of the collateral are in excess of amortized cost. As of March 31, 2024 and December 31, 2023, there were no MMLs on nonaccrual status without an allowance for credit losses. 20 Allowance for Credit Losses The Company calculates its allowance for credit losses for held-to-maturity securities, loan receivables, loan commitments and reinsurance recoverable by grouping assets with similar risk characteristics when there is not a specific expectation of a loss for an individual asset. For held-to-maturity securities, MMLs, and MML commitments, the Company groups assets by credit ratings, industry, and country. The Company groups CMLs and TREs and respective loan commitments by property type, property location and the property’s LTV and DSCR. On a quarterly basis, CMLs and TREs within a portfolio segment that share similar risk characteristics are pooled for calculation of credit loss allowance. On an ongoing basis, TREs, CMLs and other loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), such as collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is probable), are evaluated individually for credit loss. For example, the credit loss allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of the collateral dependent loans, which are evaluated individually for credit loss, is recorded as a change in the credit loss allowance as a component of net investment gains (losses) in the consolidated statements of earnings. The credit allowance for held-to-maturity fixed maturity securities and loan receivables is estimated using a probability-of-default (PD) / loss-given-default (LGD) method, discounted for the time value of money. For held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities and loan receivables, the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses. The Company’s methodology for estimating credit losses utilizes the contractual maturity date of the financial asset, adjusted when necessary to reflect the expected timing of repayment (such as prepayment options, renewal options, call options, or extension options). The Company applies reasonable and supportable forecasts of macroeconomic variables that impact the determination of PD / LGD over a two-year period for held-to-maturity fixed maturity securities and MMLs. The Company reverts to historical loss information over one year, following the two-year forecast period. For the CML and TRE portfolio, the Company applies reasonable and supportable forecasts of macroeconomic variables as well as national and local real-estate market factors to estimate future credit losses where the market factors revert back to historical levels over time with the period being dependent on current market conditions, projected market conditions and difference in the current and historical market levels for each factor. The Company continuously monitors the estimation methodology, due to changes in portfolio composition, changes in underwriting practices and significant events or conditions and makes adjustments as necessary. The Company’s held-to-maturity portfolio includes Japan Government and Agency securities of $ 15.9 billion amortized cost as of March 31, 2024 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement. An investment in an available-for-sale security may be impaired if the fair value falls below amortized cost. The Company regularly reviews its available-for-sale portfolio for declines in fair value. The Company's available-for-sale impairment model focuses on the ultimate collection of the cash flows from its investments and whether the Company has the intent to sell or if it is more likely than not the Company would be required to sell the security prior to recovery of its amortized cost. The determination of the amount of impairments under this model is based upon the Company's periodic evaluation and assessment of known and inherent risks associated with the respective securities. Such evaluations and assessments are revised as conditions change and new information becomes available. When determining the Company's intention to sell a security prior to recovery of its fair value to amortized cost, the Company evaluates facts and circumstances such as, but not limited to, future cash flow needs, decisions to reposition its security portfolio, and risk profile of individual investment holdings. The Company performs ongoing analyses of its liquidity needs, which includes cash flow testing of its policy liabilities, debt maturities, projected dividend payments, and other cash flow and liquidity needs. The Company’s methodology for estimating credit losses for available-for-sale securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as industry analysis and credit ratings of the securities. In addition, the Company evaluates the specific issuer’s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and/or security of other debt holders in the issuer when developing management’s best estimate of expected cash flows. 21 The following table presents the roll forward of the allowance for credit losses by portfolio segment for loans and by accounting classification for securities. (In millions) Transitional Real Estate Loans Commercial Mortgage Loans Middle Market Loans Other Loans and Loan Commitments Held-to-Maturity Securities Available-for-Sale Securities Total Three Months Ended March 31, 2024: Balance at December 31, 2023 $ ( 112 ) $ ( 16 ) $ ( 146 ) $ ( 16 ) $ ( 5 ) $ 0 $ ( 295 ) (Addition to) release of allowance for credit losses ( 2 ) ( 3 ) ( 3 ) 1 0 0 ( 7 ) Writeoffs, net of recoveries 0 0 50 0 0 0 50 Change in foreign exchange 0 0 0 0 0 0 0 Balance at March 31, 2024 $ ( 114 ) $ ( 19 ) $ ( 99 ) $ ( 15 ) $ ( 5 ) $ 0 $ ( 252 ) Three Months Ended March 31, 2023: Balance at December 31, 2022 $ ( 54 ) $ ( 9 ) $ ( 129 ) $ ( 24 ) $ ( 7 ) $ 0 $ ( 223 ) (Addition to) release of allowance for credit losses ( 11 ) 0 ( 20 ) 3 1 0 ( 27 ) Writeoffs, net of recoveries 0 0 0 0 0 0 0 Change in foreign exchange 0 0 0 0 0 0 0 Balance at March 31, 2023 $ ( 65 ) $ ( 9 ) $ ( 149 ) $ ( 21 ) $ ( 6 ) $ 0 $ ( 250 ) For the three-month period ended March 31, 2024, the Company completed foreclosure or deed in lieu of foreclosure on TREs collateralized with commercial real estate properties with an amortized cost of $ 31 million. As a result of the excess of amortized cost over the estimated fair value of the collateral of the TREs, upon consummating the foreclosures or deed in lieu of foreclosure transactions, the Company recognized a net gain of $ 4 million for the three-month period ended March 31, 2024 in net investment gains (losses). The Company did not complete any foreclosure or deed in lieu of foreclosure transactions in the three-month period ended March 31, 2023. Refer to the Other Investments section below for additional information. As of March 31, 2024, the Company identified additional TREs with an amortized cost of $ 601 million in anticipation of potential foreclosure or deed in lieu of foreclosure transactions. As of March 31, 2024, the Company established a credit allowance of $ 60 million for $ 598 million of loans for which the fair value of the collateral was below the amortized cost of the loans. Other Investments The table below reflects the composition of the carrying value for other investments as of the periods presented. (In millions) March 31, 2024 December 31, 2023 Other investments: Policy loans $ 203 $ 214 Short-term investments (1) 3,341 1,304 Limited partnerships (2) 2,838 2,750 Real estate owned 253 227 Other 42 35 Total other investments $ 6,677 $ 4,530 (1) Includes securities lending collateral (2) Includes tax credit investments and asset classes such as private equity and real estate funds 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 sheets. The change in value of each investment is recorded as a reduction to net investment income. Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statements of earnings. 22 Real estate owned (REO) consists of office buildings or other commercial properties obtained through foreclosure or deed in lieu of foreclosure of certain of the Company’s TREs. As of March 31, 2024, all REO was classified as held-and-used for the production of income and is carried at cost less accumulated depreciation. As of December 31, 2023, $ 210 million of REO was classified as held-and-used with the remaining $ 17 million classified as held-for-sale, which is carried at the lower of depreciated cost or fair value less cost to sell and is not further depreciated once classified as such. Depreciation expense was $ 1 million for the three-month period ended March 31, 2024. Additionally, as of March 31, 2024 and December 31, 2023, accumulated depreciation was $ 2 million and an immaterial amount, respectively. As of March 31, 2024, the Company had $ 2.2 billion in outstanding commitments to fund investments in limited partnerships. Variable Interest Entities (VIEs) In the normal course of its activities, the Company invests in legal entities that are VIEs. The Company's debt or ownership interest in VIEs is limited to holding the equity interests and obligations issued by them. With the exception of commitments to limited partnerships and to certain loan investments made in the normal course of business, the Company has not provided any direct or contingent obligations to fund the limited activities of these VIEs or support related to the limited activities of these VIE and does not have any intention to do so in the future, nor does it have any direct or indirect financial guarantees. The Company's risk of loss related to its interests in any of its VIEs is limited to the carrying value of the related investments, and in certain cases, to any unfunded commitments held in the VIE. For those VIEs other than certain unit trust structures, the Company's involvement is passive in nature. VIEs - Consolidated The Company is the primary beneficiary of a VIE if it has • the power to direct the activities of the VIE that most significantly impact the economic performance of the entity and • the obligation to absorb losses of or the right to receive benefits from the entity that could be potentially significant to the VIE. If the Company determines that it is the VIE’s primary beneficiary, it consolidates the VIE. Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company except to the extent of the unfunded commitments referenced above, as the Company’s obligation to each VIE is limited to the amount of its committed investment. The following table presents carrying value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported. Investments in Consolidated Variable Interest Entities (In millions) March 31, 2024 December 31, 2023 Assets: Fixed maturity securities, available-for-sale $ 3,678 $ 3,712 Commercial mortgage and other loans 9,947 10,150 Other investments (1) 2,443 2,381 Other assets (2) 57 55 Total assets of consolidated VIEs $ 16,125 $ 16,298 Liabilities: Other liabilities (2) $ 583 $ 507 Total liabilities of consolidated VIEs $ 583 $ 507 (1) Consists entirely of alternative investments in limited partnerships (2) Consists entirely of derivatives 23 The Company is the sole investor in the consolidated VIEs listed in the table above. The Company invests in fixed maturity securities issued by VIEs that in turn hold U.S. dollar-denominated fixed maturity securities coupled with foreign currency swap agreements. The weighted-average lives of the Company's investments in these VIEs are very similar to the underlying collateral held by these VIEs. The activities of these VIEs are limited to holding invested assets and foreign currency swaps and utilizing the cash flows from these securities to service the VIEs' debt. Neither the Company nor any of its creditors are able to obtain the underlying collateral of these VIEs unless there is an event of default or other specified event. The Company is not a direct counterparty to the foreign currency swap contracts and has no control over them. The Company's loss exposure to these VIEs is limited to its original investment. These consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and foreign currency swap contracts, if applicable. The underlying collateral assets and funding of these consolidated VIEs are generally static in nature. The Company also utilizes unit trust structures in its Aflac Japan segment to invest in various asset classes, which include CMLs, MMLs, TREs, other loans and limited partnerships. The limited partnership investments are comprised of private equity and real estate funds. The Company’s loss exposure to these VIEs is limited to its original investments, together with any unfunded portion of the Company’s commitments made in the normal course of business to fund certain loan investments and limited partnership investments, as described in the Commercial Mortgage and Other Loans and Other Investments sections of this note. Excluding these commitments, the Company does not provide financial or other support to consolidated VIEs. VIEs - Not Consolidated The table below reflects the carrying value and balance sheet caption in which the Company's investments in VIEs that are not consolidated are reported. Investments in Variable Interest Entities Not Consolidated (In millions) March 31, 2024 December 31, 2023 Assets: Fixed maturity securities, available-for-sale $ 6,486 $ 6,424 Other investments (1) 395 369 Total investments in VIEs not consolidated $ 6,881 $ 6,793 (1) Consists entirely of alternative investments in limited partnerships Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations issued by the VIEs. These fixed maturity securities include structured securities, primarily asset-backed securities. The Company's involvement in the related VIEs is limited to that of a passive investor in asset-backed securities issued by the VIEs. The Company also invests in VIEs that are the primary financing vehicles used by their corporate sponsors to raise financing in the capital markets. The variable interests created by these VIEs are principally or solely a result of the debt instruments issued by them. The Company does not have the power to direct the activities that most significantly impact the entity's economic performance, nor does it have the obligation to absorb losses of the VIE entity or the right to receive benefits from the entity that could be significant to the entity. As such, the Company is not the primary beneficiary of these VIEs and therefore is not required to consolidate them. The Company's maximum exposure to loss on these investments is limited to the amount of the Company's investment. The Company also holds equity investments in limited partnerships that have been determined to be VIEs. These partnerships primarily invest in private equity and real estate funds. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment and any unfunded commitments. As described in the Other Investments section of this note, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to unconsolidated VIEs. The Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them. The Company classifies these investments as other investments in the consolidated balance sheets. Securities Lending and Pledged Securities The Company lends fixed maturity securities and, from time to time, public equity securities to financial institutions in short-term securities lending transactions. These short-term securities lending arrangements increase investment income 24 with minimal risk. The Company receives cash or other securities as collateral for such loans. The Company's securities lending policy requires that the fair value of the securities received as collateral be 102 % or more of the fair value of the loaned securities and that unrestricted cash received as collateral be 100 % or more of the fair value of the loaned securities. The securities loaned continue to be carried as investment assets on the Company's balance sheet during the terms of the loans and are not reported as sales. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral. For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge, the collateral is not reflected on the consolidated financial statements. Details of collateral by loaned security type and remaining maturity of the agreements were as follows: Securities Lending Transactions Accounted for as Secured Borrowings Remaining Contractual Maturity of the Agreements March 31, 2024 December 31, 2023 (In millions) Overnight and Continuous (1) Up to 30 days Total Overnight and Continuous (1) Up to 30 days Total Securities lending transactions: Fixed maturity securities: Japan government and agencies $ 0 $ 2,542 $ 2,542 $ 0 $ 737 $ 737 Public utilities 33 0 33 19 0 19 Banks/financial institutions 148 0 148 72 0 72 Other corporate 643 0 643 675 0 675 Total borrowings $ 824 $ 2,542 $ 3,366 $ 766 $ 737 $ 1,503 Gross amount of recognized liabilities for securities lending transactions $ 3,366 $ 1,503 (1) The related loaned security, under the Company's U.S. securities lending program, can be returned to the Company at the transferee's discretion; therefore, they are classified as Overnight and Continuous. In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $ 4.5 billion and $ 4.3 billion at March 31, 2024 and December 31, 2023, respectively, which may not be sold or re-pledged, unless the counterparty is in default. Such securities collateral is not reflected on the consolidated financial statements. The Company did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of March 31, 2024, and December 31, 2023, respectively. Certain fixed maturity securities can be pledged as collateral as part of derivative transactions, or pledged to support state deposit requirements on certain investment programs. For additional information regarding pledged securities related to derivative transactions, see Note 4. 25 4. DERIVATIVE INSTRUMENTS The Company's freestanding derivative financial instruments include: • foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio, with options used on a standalone basis and/or in a collar strategy; • foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen; • cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures; • foreign currency swaps that are associated with variable interest entity (VIE) bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary; • interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments; • interest rate swaptions used to hedge changes in the fair value associated with interest rate fluctuations for certain U.S. dollar-denominated available-for-sale fixed-maturity securities; and • bond purchase commitments at the inception of investments in consolidated VIEs. Some of the Company's derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting or the Company elects not to designate them as accounting hedges. Derivative Types Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held. In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged, the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. The Company also uses one-sided foreign currency put options to mitigate the settlement risk on U.S. dollar-denominated assets related to extreme foreign currency rate changes. From time to time, Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options. In the purchased put transactions, Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. In the sold call transactions, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S. dollars at a specified future date. The combination of purchasing the put option and selling the call option results in no net premium being paid (i.e. a costless or zero-cost collar). From time to time, the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, the Company agrees with another party to buy a fixed amount of U.S. dollars and sell a corresponding amount of yen at a specified price at a specified future date. In the option transactions, the Company may use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options (options that protect against a weakening yen) and selling yen call options (options that limit participation in a strengthening yen). The combination of these two actions create a zero-cost collar. Additionally, the Company enters into purchased options to hedge cash flows from the net investment in Aflac Japan. The Company enters into foreign currency swaps pursuant to which it exchanges an initial principal amount in one currency for an initial principal amount of another currency, with an agreement to re-exchange the principal amounts at a future date. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in the Company's Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. The Company also uses foreign currency swaps to economically convert certain of its U.S. dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations. 26 In order to reduce investment income volatility from its variable-rate investments, the Company enters into receive–fixed, pay–floating interest rate swaps. These derivatives are cleared and settled through a central clearinghouse. Swaptions are used to mitigate the adverse impact resulting from significant changes in the fair value of U.S. dollar-denominated available-for-sale securities due to fluctuation in interest rates. In a payer swaption, the Company pays a premium to obtain the right, but not the obligation, to enter into a swap contract where it will pay a fixed rate and receive a floating rate. Interest rate swaption collars are combinations of two swaption positions. In order to maximize the efficiency of the collars while minimizing cost, a collar strategy is used whereby the Company purchases a long payer swaption (the Company purchases an option that allows it to enter into a swap where the Company will pay the fixed rate and receive the floating rate of the swap) and sells a short receiver swaption (the Company sells an option that provides the counterparty with the right to enter into a swap where the Company will receive the fixed rate and pay the floating rate of the swap). The combination of purchasing the long payer swaption and selling the short receiver swaption results in no net premium being paid (i.e. a costless or zero-cost collar). Bond purchase commitments result from repackaged bond structures that are consolidated VIEs whereby there is a delay in the trade date and settlement date of the bond within the structure to ensure completion of all necessary legal agreements to support the consolidated VIE that issues the repackaged bond. Since the Company has a commitment to purchase the underlying bond at a specified price, the agreement meets the definition of a derivative where the value is derived based on the current market value of the bond compared to the fixed purchase price to be paid on the settlement date. Derivative Balance Sheet Classification The table below summarizes the balance sheet classification of the Company's derivative fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals. Derivative assets are included in other assets, while derivative liabilities are included in other liabilities within the Company’s consolidated balance sheets. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk. March 31, 2024 December 31, 2023 (In millions) Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives Hedge Designation/ Derivative Type Notional Amount Fair Value Fair Value Notional Amount Fair Value Fair Value Cash flow hedges: Foreign currency swaps - VIE $ 18 $ 0 $ 5 $ 18 $ 0 $ 4 Total cash flow hedges 18 0 5 18 0 4 Fair value hedges: Foreign currency options 0 0 0 2,158 0 0 Total fair value hedges 0 0 0 2,158 0 0 Net investment hedge: Foreign currency forwards 2,339 202 0 2,611 179 27 Foreign currency options 0 0 0 456 0 0 Total net investment hedge 2,339 202 0 3,067 179 27 Non-qualifying strategies: Foreign currency swaps 1,200 24 0 1,200 31 0 Foreign currency swaps - VIE 3,417 57 578 3,417 55 503 Foreign currency forwards 0 0 0 7,402 59 477 Foreign currency options 28,715 38 69 22,557 2 0 Interest rate swaps 17,230 0 483 17,230 11 419 Total non-qualifying strategies 50,562 119 1,130 51,806 158 1,399 Total derivatives $ 52,919 $ 321 $ 1,135 $ 57,049 $ 337 $ 1,430 27 Cash Flow Hedges For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the U.S. Dollar (USD) variable rate interest and principal payments to fixed rate Japanese Yen (JPY) interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is approximately three years . The derivatives in the Company's consolidated VIEs that are not designated as accounting hedges are discussed in the Non-qualifying Strategies section of this note. Fair Value Hedges The Company designates and accounts for certain foreign currency forwards, options, and interest rate swaptions as fair value hedges when they meet the requirements for hedge accounting. The Company recognizes gains and losses on these derivatives as well as the offsetting gain or loss on the related hedged items in current earnings. Foreign currency forwards and options hedge the foreign currency exposure of certain U.S. dollar-denominated available-for-sale fixed-maturity investments held in Aflac Japan. The change in the fair value of the foreign currency forwards related to the changes in the difference between the spot rate and the forward price is excluded from the assessment of hedge effectiveness. The change in fair value of the foreign currency option related to the time value of the option is recognized in current earnings and is excluded from the assessment of hedge effectiveness. Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment income. The change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term. The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges. The Company had no fair value hedges during the three-month period ending March 31, 2024. Fair Value Hedging Relationships (In millions) Hedging Derivatives Hedged Items Hedging Derivatives Hedged Items Total Gains (Losses) Gains (Losses) Excluded from Effectiveness Testing (1) Gains (Losses) Included in Effectiveness Testing (2) Gains (Losses) (2) Net Investment Gains (Losses) Recognized for Fair Value Hedge Three Months Ended March 31, 2023: Foreign currency options Fixed maturity securities $ ( 39 ) $ ( 39 ) $ 0 $ 0 $ 0 Total gains (losses) $ ( 39 ) $ ( 39 ) $ 0 $ 0 $ 0 (1) Gains (losses) excluded from effectiveness testing includes the forward point on foreign currency forwards and time value change on foreign currency options which are reported in the consolidated statements of earnings as net investment gains (losses). It also includes the change in the fair value of the interest rate swaptions related to the time value of the swaptions which is recognized as a component of other comprehensive income (loss). (2) Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statements of earnings as net investment gains (losses). For interest rate swaptions and related hedged items, gains and losses included in the hedge assessment, premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income. The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains (losses) consistent with the impact of the hedged item. For the three-month period ended March 31, 2023, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial. 28 The following table shows the carrying amounts of assets designated and qualifying as hedged items in fair value hedges of interest rate risk and the related cumulative hedge adjustment included in the carrying amount. The Company had no fair value hedges of interest rate risk as of March 31, 2024 and December 31, 2023; therefore, the amounts presented in the table below are related to previous fair value hedges of interest rate risk that were discontinued. (In millions) Carrying Amount of the Hedged Assets/(Liabilities) (1) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Fixed maturity securities $ 1,597 $ 1,692 $ 161 $ 164 (1) The balance includes hedging adjustment on discontinued hedging relationships of $ 161 in 2024 and $ 164 in 2023. Net Investment Hedge The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 9) have been designated as non-derivative hedges and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan. The Company's net investment hedge was effective during the three-month periods ended March 31, 2024 and 2023, respectively. Non-qualifying Strategies For the Company's derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within n et i nvestment gains (losses). The amount of gain or loss recognized in earnings for the Company's VIEs is attributable to the derivatives in those investment structures. While the change in value of the swaps is recorded in current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded in other comprehensive income. As of March 31, 2024, the Parent Company had $ 1.2 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S. dollar to Japanese yen. Changes in the values of these swaps are recorded in current period earnings. The Company uses foreign currency forwards and options to economically mitigate the currency risk of some of its U.S. dollar-denominated loan receivables and U.S. government fixed maturity securities held within the Aflac Japan segment. These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and substantially offsets gains and losses from foreign currency forwards within net investment gains (losses). The Company also has certain foreign currency forwards on U.S. dollar-denominated available-for-sale securities where hedge accounting is not being applied. The Company uses interest rate swaps to economically convert the variable rate investment income to a fixed rate on certain variable-rate investments. 29 Impact of Derivatives and Hedging Instruments The following table summarizes the impact to earnings and other comprehensive income (loss) from all derivatives and hedging instruments. Three Months Ended March 31, 2024 2023 (In millions) Net Investment Income (1) Net Investment Gains (Losses) Other Comprehensive Income (Loss) (2) Net Investment Income (1) Net Investment Gains (Losses) Other Comprehensive Income (Loss) (2) Qualifying hedges: Cash flow hedges: Foreign currency swaps - VIE $ 0 $ ( 1 ) $ 0 $ 0 $ ( 1 ) $ 1 Total cash flow hedges 0 ( 1 ) (3) 0 0 ( 1 ) (3) 1 Fair value hedges: Foreign currency options 0 ( 39 ) Total fair value hedges 0 ( 39 ) Net investment hedge: Non-derivative hedging instruments 0 236 0 25 Foreign currency forwards 44 145 90 29 Foreign currency options 0 0 ( 3 ) 0 Total net investment hedge 44 381 87 54 Non-qualifying strategies: Foreign currency swaps 1 1 Foreign currency swaps - VIE ( 88 ) ( 27 ) Foreign currency forwards 17 ( 51 ) Foreign currency options ( 41 ) ( 19 ) Interest rate swaps ( 147 ) 69 Forward bond purchase commitment - VIE 0 ( 3 ) Total non-qualifying strategies ( 258 ) ( 30 ) Total $ 0 $ ( 215 ) $ 381 $ 0 $ 17 $ 55 (1) Interest expense/income on cash flow hedges are recorded in net investment income. For interest rate swaptions classified as fair value hedges, the change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into net investment income over its legal term. If the swaption is early terminated but the hedge item is still outstanding, the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items. (2) Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses). Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statements of comprehensive income (loss). (3) Impact of cash flow hedges reported as net investment gains (losses) includes $ 1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended March 31, 2024, and $ 1 of losses during the three-month period ended March 31, 2023. As of March 31, 2024, $ 5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months. Credit Risk Assumed through Derivatives For the foreign currency swaps associated with the Company's VIE investments for which it is the primary beneficiary, the Company bears the risk of loss due to counterparty default even though it is not a direct counterparty to those contracts. The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; and foreign currency options, and therefore the Company is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for the Company's foreign currency swaps, certain foreign currency forwards, and foreign currency options is mitigated by collateral posting requirements that counterparties to those transactions must meet. As of March 31, 2024, all of the Company's derivative agreement counterparties were investment grade. 30 The Company engages in over-the-counter (OTC) bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annexes (CSAs) provisions, which generally provide for two-way collateral postings at the first dollar of exposure. The Company mitigates the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction. In addition, a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of the Company's financial strength rating. The actual amount of payments that the Company could be required to make depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade. The Company also engages in OTC cleared derivative transactions through regulated central clearing counterparties. These positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to these derivatives. Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $ 1.0 billion and $ 1.2 billion as of March 31, 2024, and December 31, 2023, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2024, the Company estimates that it would be required to post a maximum of $ 447 million of additional collateral to these derivative counterparties. The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights. See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates. Offsetting of Financial Instruments and Derivatives Most of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Parent Company or its subsidiaries and the respective counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements with the master netting arrangements generally provide that the Company will receive or pledge financial collateral at the first dollar of exposure. The Company has securities lending agreements with unaffiliated financial institutions that post collateral to the Company in return for the use of its fixed maturity and public equity securities (see Note 3). When the Company has entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off allows the Company to keep and apply collateral received if the counterparty failed to return the securities borrowed from the Company as contractually agreed. The tables below summarize the Company's derivatives and securities lending transactions, and as reflected in the tables, in accordance with U.S. GAAP, the Company's policy is to not offset these financial instruments in the consolidated balance sheets. 31 Offsetting of Financial Assets and Derivative Assets March 31, 2024 Gross Amounts Not Offset in Balance Sheet (In millions) Gross Amount of Recognized Assets Gross Amount Offset in Balance Sheet Net Amount of Assets Presented in Balance Sheet Financial Instruments Securities Collateral Cash Collateral Received Net Amount Derivative assets: Derivative assets subject to a master netting agreement or offsetting arrangement OTC - bilateral $ 264 $ 0 $ 264 $ ( 38 ) $ ( 78 ) $ ( 148 ) $ 0 Total derivative assets subject to a master netting agreement or offsetting arrangement 264 0 264 ( 38 ) ( 78 ) ( 148 ) 0 Derivative assets not subject to a master netting agreement or offsetting arrangement OTC - bilateral 57 57 57 Total derivative assets not subject to a master netting agreement or offsetting arrangement 57 57 57 Total derivative assets 321 0 321 ( 38 ) ( 78 ) ( 148 ) 57 Securities lending and similar arrangements 3,334 0 3,334 0 0 ( 3,334 ) 0 Total $ 3,655 $ 0 $ 3,655 $ ( 38 ) $ ( 78 ) $ ( 3,482 ) $ 57 32 December 31, 2023 Gross Amounts Not Offset in Balance Sheet (In millions) Gross Amount of Recognized Assets Gross Amount Offset in Balance Sheet Net Amount of Assets Presented in Balance Sheet Financial Instruments Securities Collateral Cash Collateral Received Net Amount Derivative assets: Derivative assets subject to a master netting agreement or offsetting arrangement OTC - bilateral $ 271 $ 0 $ 271 $ ( 85 ) $ ( 53 ) $ ( 130 ) $ 3 OTC - cleared 11 0 11 ( 11 ) 0 0 0 Total derivative assets subject to a master netting agreement or offsetting arrangement 282 0 282 ( 96 ) ( 53 ) ( 130 ) 3 Derivative assets not subject to a master netting agreement or offsetting arrangement OTC - bilateral 55 55 55 Total derivative assets not subject to a master netting agreement or offsetting arrangement 55 55 55 Total derivative assets 337 0 337 ( 96 ) ( 53 ) ( 130 ) 58 Securities lending and similar arrangements 1,480 0 1,480 0 0 ( 1,480 ) 0 Total $ 1,817 $ 0 $ 1,817 $ ( 96 ) $ ( 53 ) $ ( 1,610 ) $ 58 33 Offsetting of Financial Liabilities and Derivative Liabilities March 31, 2024 Gross Amounts Not Offset in Balance Sheet (In millions) Gross Amount of Recognized Liabilities Gross Amount Offset in Balance Sheet Net Amount of Liabilities Presented in Balance Sheet Financial Instruments Securities Collateral Cash Collateral Pledged Net Amount Derivative liabilities: Derivative liabilities subject to a master netting agreement or offsetting arrangement OTC - bilateral $ 69 $ 0 $ 69 $ ( 38 ) $ ( 31 ) $ 0 $ 0 OTC - cleared 483 0 483 0 ( 27 ) ( 456 ) 0 Total derivative liabilities subject to a master netting agreement or offsetting arrangement 552 0 552 ( 38 ) ( 58 ) ( 456 ) 0 Derivative liabilities not subject to a master netting agreement or offsetting arrangement OTC - bilateral 583 583 583 Total derivative liabilities not subject to a master netting agreement or offsetting arrangement 583 583 583 Total derivative liabilities 1,135 0 1,135 ( 38 ) ( 58 ) ( 456 ) 583 Securities lending and similar arrangements 3,366 0 3,366 ( 3,334 ) 0 0 32 Total $ 4,501 $ 0 $ 4,501 $ ( 3,372 ) $ ( 58 ) $ ( 456 ) $ 615 34 December 31, 2023 Gross Amounts Not Offset in Balance Sheet (In millions) Gross Amount of Recognized Liabilities Gross Amount Offset in Balance Sheet Net Amount of Liabilities Presented in Balance Sheet Financial Instruments Securities Collateral Cash Collateral Pledged Net Amount Derivative liabilities: Derivative liabilities subject to a master netting agreement or offsetting arrangement OTC - bilateral $ 504 $ 0 $ 504 $ ( 85 ) $ ( 381 ) $ ( 37 ) $ 1 OTC - cleared 419 0 419 ( 11 ) ( 19 ) ( 389 ) 0 Total derivative liabilities subject to a master netting agreement or offsetting arrangement 923 0 923 ( 96 ) ( 400 ) ( 426 ) 1 Derivative liabilities not subject to a master netting agreement or offsetting arrangement OTC - bilateral 507 507 507 Total derivative liabilities not subject to a master netting agreement or offsetting arrangement 507 507 507 Total derivative liabilities 1,430 0 1,430 ( 96 ) ( 400 ) ( 426 ) 508 Securities lending and similar arrangements 1,503 0 1,503 ( 1,480 ) 0 0 23 Total $ 2,933 $ 0 $ 2,933 $ ( 1,576 ) $ ( 400 ) $ ( 426 ) $ 531 For additional information on the Company's financial instruments, see the accompanying Notes 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 5. FAIR VALUE MEASUREMENTS Fair Value Hierarchy U.S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs create three valuation hierarchy levels, as follows: • Level 1 valuations reflect quoted market prices for identical assets or liabilities in active markets. • Level 2 valuations reflect quoted market prices for similar assets or liabilities in an active market, quoted market prices for identical or similar assets or liabilities in non-active markets or model-derived valuations in which all significant valuation inputs are observable in active markets. • Level 3 valuations reflect valuations in which one or more of the significant inputs are not observable in an active market. 35 The following tables present the fair value hierarchy levels of the Company's assets and liabilities that are measured and carried at fair value on a recurring basis. March 31, 2024 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets: Securities available-for-sale, carried at fair value: Fixed maturity securities: Government and agencies $ 19,976 $ 838 $ 0 $ 20,814 Municipalities 0 2,210 0 2,210 Mortgage- and asset-backed securities 0 2,526 859 3,385 Public utilities 0 6,806 507 7,313 Sovereign and supranational 0 462 28 490 Banks/financial institutions 0 8,825 74 8,899 Other corporate 0 26,569 450 27,019 Total fixed maturity securities 19,976 48,236 1,918 70,130 Equity securities 603 0 159 762 Other investments 3,341 0 0 3,341 Cash and cash equivalents 5,098 0 0 5,098 Other assets: Foreign currency swaps 0 81 0 81 Foreign currency forwards 0 202 0 202 Foreign currency options 0 38 0 38 Total other assets 0 321 0 321 Total assets $ 29,018 $ 48,557 $ 2,077 $ 79,652 Liabilities: Other liabilities: Foreign currency swaps $ 0 $ 583 $ 0 $ 583 Foreign currency options 0 69 0 69 Interest rate swaps 0 483 0 483 Total liabilities $ 0 $ 1,135 $ 0 $ 1,135 36 December 31, 2023 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets: Securities available-for-sale, carried at fair value: Fixed maturity securities: Government and agencies $ 21,700 $ 900 $ 0 $ 22,600 Municipalities 0 2,298 0 2,298 Mortgage- and asset-backed securities 0 2,314 772 3,086 Public utilities 0 7,339 253 7,592 Sovereign and supranational 0 507 30 537 Banks/financial institutions 0 8,757 78 8,835 Other corporate 0 27,694 648 28,342 Total fixed maturity securities 21,700 49,809 1,781 73,290 Equity securities 840 0 248 1,088 Other investments 1,304 0 0 1,304 Cash and cash equivalents 4,306 0 0 4,306 Other assets: Foreign currency swaps 0 86 0 86 Foreign currency forwards 0 238 0 238 Foreign currency options 0 2 0 2 Interest rate swaps 0 11 0 11 Total other assets 0 337 0 337 Total assets $ 28,150 $ 50,146 $ 2,029 $ 80,325 Liabilities: Other liabilities: Foreign currency swaps $ 0 $ 507 $ 0 $ 507 Foreign currency forwards 0 504 0 504 Interest rate swaps 0 419 0 419 Total liabilities $ 0 $ 1,430 $ 0 $ 1,430 37 The following tables present the carrying amount and fair value categorized by fair value hierarchy level for the Company's financial instruments that are not carried at fair value. March 31, 2024 (In millions) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets: Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Government and agencies $ 16,000 $ 17,319 $ 155 $ 0 $ 17,474 Municipalities 248 0 285 0 285 Public utilities 33 0 36 0 36 Sovereign and supranational 391 0 431 0 431 Other corporate 17 0 19 0 19 Commercial mortgage and other loans 12,360 0 0 12,017 12,017 Other investments (1) 42 0 42 0 42 Total assets $ 29,091 $ 17,319 $ 968 $ 12,017 $ 30,304 Liabilities: Other policyholders’ funds $ 5,831 $ 0 $ 0 $ 5,750 $ 5,750 Notes payable (excluding leases) 7,799 0 6,762 704 7,466 Total liabilities $ 13,630 $ 0 $ 6,762 $ 6,454 $ 13,216 (1) Excludes policy loans of $ 203 , equity method investments of $ 2,838 , and REO of $ 253 , at carrying valu e. 38 December 31, 2023 (In millions) Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Assets: Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Government and agencies $ 17,083 $ 18,662 $ 167 $ 0 $ 18,829 Municipalities 266 0 307 0 307 Public utilities 34 0 38 0 38 Sovereign and supranational 418 0 462 0 462 Other corporate 18 0 21 0 21 Commercial mortgage and other loans 12,527 0 0 12,217 12,217 Other investments (1) 35 0 35 0 35 Total assets $ 30,381 $ 18,662 $ 1,030 $ 12,217 $ 31,909 Liabilities: Other policyholders’ funds $ 6,169 $ 0 $ 0 $ 6,080 $ 6,080 Notes payable (excluding leases) 7,240 0 6,178 752 6,930 Total liabilities $ 13,409 $ 0 $ 6,178 $ 6,832 $ 13,010 (1) Excludes policy loans of $ 214 , equity method investments of $ 2,750 , and REO of $ 227 , at carrying value. Fair Value of Financial Instruments Fixed maturity and equity securities The fair values of the Company’s public fixed maturity securities are generally based on prices provided by third-party pricing vendors. The Company utilizes internally generated valuations or broker quotes for privately issued fixed maturity securities or fixed maturity securities where there is no price available from a third-party pricing vendor. The fair values of the Company's public equity securities are generally based on price quotes, including quoted market prices readily available from independent public exchange markets or established security dealer associations. The Company determines the fair values of privately issued equity securities using the following approaches or techniques: price quotes and valuations from third-party pricing vendors, in-house valuations and non-binding price quotes the Company obtains from outside brokers. The pricing data and market quotes the Company obtains from outside sources, including third-party pricing services, are reviewed internally for reasonableness. If a fair value appears unreasonable, the Company will re-examine the inputs and assess the reasonableness of the pricing data with the provider. Additionally, the Company may compare the inputs to relevant market indices and other performance measurements. Based on management's analysis, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data. The Company has performed verification of the inputs and calculations in any valuation models, including independent validations and back testing, to confirm that the valuations represent reasonable estimates of fair value. For the periods presented, the Company has not adjusted the quotes or prices it obtains from the pricing services and brokers it uses. For internally generated valuations, the Company utilizes valuation models developed by a third-party pricing vendor. The models and associated processes and controls are executed by Company personnel. 39 These models are discounted cash flow (DCF) valuation models but also use information from related markets, specifically public bond markets and the credit default swap (CDS) market, to estimate expected cash flows. The models take into consideration any unique characteristics of the securities and make various adjustments to arrive at an appropriate issuer-specific loss adjusted credit curve using the most appropriate comparable security(ies) of the issuer and issuer-specific CDS spreads. This credit curve is then used with the relevant recovery rates to estimate expected cash flows and modeling of additional features, including illiquidity adjustments, if necessary, to price the security by discounting those loss adjusted cash flows. In cases where a credit curve cannot be developed from market information for the specific issuer, the valuation methodology takes into consideration other market observable inputs, including: • the most appropriate comparable security(ies) of a guarantor and/or parent • CDS spreads of a guarantor and/or parent • bonds of comparable issuers with similar characteristics such as rating, geography, or sector • CDS spreads of an appropriate index or of comparable issuers with similar characteristics such as rating, geography, or sector • bond indices that are comparative in rating, industry, maturity, and region. 40 The following tables present the pricing sources for the fair values of the Company's fixed maturity and equity securities. March 31, 2024 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Securities available-for-sale, carried at fair value: Fixed maturity securities: Government and agencies: Third-party pricing vendor $ 19,976 $ 505 $ 0 $ 20,481 Internal 0 333 0 333 Total government and agencies 19,976 838 0 20,814 Municipalities: Third-party pricing vendor 0 1,943 0 1,943 Internal 0 267 0 267 Total municipalities 0 2,210 0 2,210 Mortgage- and asset-backed securities: Third-party pricing vendor 0 2,420 0 2,420 Internal 0 27 40 67 Broker/other 0 79 819 898 Total mortgage- and asset-backed securities 0 2,526 859 3,385 Public utilities: Third-party pricing vendor 0 3,680 0 3,680 Internal 0 3,126 0 3,126 Broker/other 0 0 507 507 Total public utilities 0 6,806 507 7,313 Sovereign and supranational: Third-party pricing vendor 0 125 0 125 Internal 0 337 0 337 Broker/other 0 0 28 28 Total sovereign and supranational 0 462 28 490 Banks/financial institutions: Third-party pricing vendor 0 4,703 0 4,703 Internal 0 4,122 65 4,187 Broker/other 0 0 9 9 Total banks/financial institutions 0 8,825 74 8,899 Other corporate: Third-party pricing vendor 0 21,282 0 21,282 Internal 0 5,277 249 5,526 Broker/other 0 10 201 211 Total other corporate 0 26,569 450 27,019 Total securities available-for-sale $ 19,976 $ 48,236 $ 1,918 $ 70,130 Equity securities, carried at fair value: Third-party pricing vendor $ 603 $ 0 $ 0 $ 603 Broker/other 0 0 159 159 Total equity securities $ 603 $ 0 $ 159 $ 762 41 March 31, 2024 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Government and agencies: Third-party pricing vendor $ 17,319 $ 155 $ 0 $ 17,474 Total government and agencies 17,319 155 0 17,474 Municipalities: Third-party pricing vendor 0 285 0 285 Total municipalities 0 285 0 285 Public utilities: Third-party pricing vendor 0 36 0 36 Total public utilities 0 36 0 36 Sovereign and supranational: Third-party pricing vendor 0 213 0 213 Internal 0 218 0 218 Total sovereign and supranational 0 431 0 431 Other corporate: Third-party pricing vendor 0 19 0 19 Total other corporate 0 19 0 19 Total securities held-to-maturity $ 17,319 $ 926 $ 0 $ 18,245 42 December 31, 2023 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Securities available-for-sale, carried at fair value: Fixed maturity securities: Government and agencies: Third-party pricing vendor $ 21,692 $ 808 $ 0 $ 22,500 Internal 0 60 0 60 Broker/other 8 32 0 40 Total government and agencies 21,700 900 0 22,600 Municipalities: Third-party pricing vendor 0 1,426 0 1,426 Internal 0 256 0 256 Broker/other 0 616 0 616 Total municipalities 0 2,298 0 2,298 Mortgage- and asset-backed securities: Third-party pricing vendor 0 2,277 0 2,277 Internal 0 27 105 132 Broker/other 0 10 667 677 Total mortgage- and asset-backed securities 0 2,314 772 3,086 Public utilities: Third-party pricing vendor 0 4,570 0 4,570 Internal 0 2,677 0 2,677 Broker/other 0 92 253 345 Total public utilities 0 7,339 253 7,592 Sovereign and supranational: Third-party pricing vendor 0 118 0 118 Internal 0 330 0 330 Broker/other 0 59 30 89 Total sovereign and supranational 0 507 30 537 Banks/financial institutions: Third-party pricing vendor 0 5,085 0 5,085 Internal 0 3,008 69 3,077 Broker/other 0 664 9 673 Total banks/financial institutions 0 8,757 78 8,835 Other corporate: Third-party pricing vendor 0 18,088 4 18,092 Internal 0 4,210 230 4,440 Broker/other 0 5,396 414 5,810 Total other corporate 0 27,694 648 28,342 Total securities available-for-sale $ 21,700 $ 49,809 $ 1,781 $ 73,290 Equity securities, carried at fair value: Third-party pricing vendor $ 800 $ 0 $ 0 $ 800 Internal 0 0 216 216 Broker/other 40 0 32 72 Total equity securities $ 840 $ 0 $ 248 $ 1,088 43 December 31, 2023 (In millions) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Securities held-to-maturity, carried at amortized cost: Fixed maturity securities: Government and agencies: Third-party pricing vendor $ 18,662 $ 167 $ 0 $ 18,829 Total government and agencies 18,662 167 0 18,829 Municipalities: Third-party pricing vendor 0 307 0 307 Total municipalities 0 307 0 307 Public utilities: Third-party pricing vendor 0 38 0 38 Total public utilities 0 38 0 38 Sovereign and supranational: Third-party pricing vendor 0 226 0 226 Internal 0 236 0 236 Total sovereign and supranational 0 462 0 462 Other corporate: Third-party pricing vendor 0 21 0 21 Total other corporate 0 21 0 21 Total securities held-to-maturity $ 18,662 $ 995 $ 0 $ 19,657 The following is a discussion of the determination of fair value of the Company's remaining financial instruments. Derivatives The Company uses derivative instruments to manage the risk associated with certain assets. However, the derivative instrument may not be classified in the same fair value hierarchy level as the associated asset. The significant inputs to pricing derivatives are generally observable in the market or can be derived by observable market data. When these inputs are observable, the derivatives are classified as Level 2. The Company uses present value techniques to value non-option based derivatives. It also uses option pricing models to value option based derivatives. Key inputs are as follows: Instrument Type Level 2 Interest rate derivatives Swap yield curves Basis curves Interest rate volatility (1) Foreign currency exchange rate derivatives - Non-VIEs (forwards, swaps and options) Foreign currency forward rates Swap yield curves Basis curves Foreign currency spot rates Cross foreign currency basis curves Foreign currency volatility (1) Foreign currency exchange rate derivatives - VIEs (swaps) Foreign currency spot rates Swap yield curves Credit default swap curves Basis curves Recovery rates Foreign currency forward rates Foreign cross-currency basis curves (1) Option-based only 44 The fair values of the foreign currency forwards and options are based on observable market inputs, therefore they are classified as Level 2. The Parent Company has cross-currency swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S. dollar to Japanese yen. Their fair values are based on observable market inputs, therefore they are classified as Level 2. To determine the fair value of its interest rate derivatives, the Company uses inputs that are generally observable in the market or can be derived from observable market data. Interest rate swaps are cleared trades. In a cleared swap contract, the clearinghouse provides benefits to the counterparties similar to contracts listed for investment traded on an exchange since it maintains a daily margin to mitigate counterparties' credit risk. These derivatives are priced using observable inputs, accordingly, they are classified as Level 2. For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. Nevertheless, the Company has full transparency into the contracts to properly value the swaps for reporting purposes. For these derivatives, the Company utilizes valuation models developed by independent valuation analytics providers. The models are market standard DCF models and all associated processes and controls are executed by Company personnel. These models take into consideration any unique characteristics of the derivatives in determining the appropriate valuation methodology to estimate expected cash flows. The fair values of these swaps are based on observable market inputs and are classified as Level 2 within the fair value hierarchy. For forward bond purchase commitments with VIEs, the fair value of the derivative is based on the difference in the fixed purchase price and the current market value of the related bond prior to the settlement date. Since the bond is typically a public bond with readily available pricing, the derivatives associated with the forward purchase commitment are classified as Level 2 within the fair value hierarchy. Commercial mortgage and other loans Commercial mortgage and other loans include TREs, CMLs, MMLs and other loans. The Company's loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U.S. Treasury or floating-rate benchmark yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments are classified as Level 3 within the fair value hierarchy. Other investments Other investments includes short-term investments that are measured at fair value where amortized cost approximates fair value. Other policyholders' funds The largest component of the other policyholders' funds liability is the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. For this product, the Company estimates the fair value to be equal to the cash surrender value. This is analogous to the value paid to policyholders on the valuation date if they were to surrender their policy. The Company periodically checks the cash value against discounted cash flow projections for reasonableness. The Company considers its inputs for this valuation to be unobservable and have accordingly classified this valuation as Level 3. Notes payable The fair values of the Company's publicly issued notes payable are determined by utilizing available sources of observable inputs from third-party pricing vendors and are classified as Level 2. The fair values of the Company's yen-denominated loans approximate their carrying values and are classified as Level 3. 45 Transfers between Hierarchy Levels and Level 3 Rollforward Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable. The following tables present the changes in fair value of the Company's investments carried at fair value classified as Level 3. Three Months Ended March 31, 2024 Fixed Maturity Securities Equity Securities (In millions) Mortgage- and Asset- Backed Securities Public Utilities Sovereign and Supranational Banks/ Financial Institutions Other Corporate Total Balance, beginning of period $ 772 $ 253 $ 30 $ 78 $ 648 $ 248 $ 2,029 Net investment gains (losses) included in earnings 1 0 0 0 0 ( 5 ) ( 4 ) Unrealized gains (losses) included in other comprehensive income (loss) ( 4 ) ( 10 ) ( 2 ) ( 4 ) 1 0 ( 19 ) Purchases, issuances, sales and settlements: Purchases 118 60 0 5 37 0 220 Issuances 0 0 0 0 0 0 0 Sales 0 0 0 0 0 0 0 Settlements ( 28 ) ( 22 ) 0 ( 5 ) ( 3 ) ( 84 ) ( 142 ) Transfers into Level 3 0 226 0 0 0 0 226 Transfers out of Level 3 0 0 0 0 ( 233 ) 0 ( 233 ) Balance, end of period $ 859 $ 507 $ 28 $ 74 $ 450 $ 159 $ 2,077 Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings $ 1 $ 0 $ 0 $ 0 $ 0 $ ( 3 ) $ ( 2 ) Three Months Ended March 31, 2023 Fixed Maturity Securities Equity Securities (In millions) Mortgage- and Asset- Backed Securities Public Utilities Sovereign and Supranational Banks/ Financial Institutions Other Corporate Total Balance, beginning of period $ 343 $ 497 $ 37 $ 159 $ 742 $ 209 $ 1,987 Net investment gains (losses) included in earnings 0 0 0 0 0 2 2 Unrealized gains (losses) included in other comprehensive income (loss) 3 10 0 2 30 0 45 Purchases, issuances, sales and settlements: Purchases 192 0 0 0 75 10 277 Issuances 0 0 0 0 0 0 0 Sales 0 0 0 0 0 0 0 Settlements ( 120 ) ( 7 ) 0 0 ( 2 ) 0 ( 129 ) Transfers into Level 3 0 18 0 0 0 0 18 Transfers out of Level 3 0 ( 168 ) 0 0 ( 92 ) 0 ( 260 ) Balance, end of period $ 418 $ 350 $ 37 $ 161 $ 753 $ 221 $ 1,940 Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings $ 0 $ 0 $ 0 $ 0 $ 0 $ 3 $ 3 46 Fair Value Sensitivity Level 3 Significant Unobservable Input Sensitivity The following tables summarize the significant unobservable inputs used in the valuation of the Company's Level 3 investments carried at fair value. Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments. March 31, 2024 (In millions) Fair Value Valuation Technique(s) Unobservable Input Range Weighted Average Assets: Securities available-for-sale, carried at fair value: Fixed maturity securities: Mortgage- and asset-backed securities $ 859 Consensus pricing Offered quotes 85.28 - 105.35 (a) 99.24 Public utilities 507 Discounted cash flow Credit spreads 175 bps - 225 bps (c) 208 bps Sovereign and supranational 28 Consensus pricing Offered quotes N/A (b) N/A Banks/financial institutions 74 Discounted cash flow Credit spreads N/A (b) N/A Other corporate 450 Discounted cash flow Credit spreads 69 bps - 388 bps (c) 183 bps Equity securities 159 Adjusted cost Private financials N/A (d) N/A Total assets $ 2,077 (a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques. (b) Category represents a single security; range not applicable. (c) Actual or equivalent credit spreads in basis points. (d) Prices do not utilize credit spreads; therefore, range is not applicable. December 31, 2023 (In millions) Fair Value Valuation Technique(s) Unobservable Input Range Weighted Average Assets: Securities available-for-sale, carried at fair value: Fixed maturity securities: Mortgage- and asset-backed securities $ 772 Consensus pricing Offered quotes 84.81 - 105.89 (a) 99.39 Public utilities 253 Consensus pricing Offered quotes 94.34 - 102.99 (a) 96.46 Sovereign and supranational 30 Consensus pricing Offered quotes N/A (b) N/A Banks/financial institutions 78 Discounted cash flow Credit spreads N/A (b) N/A Other corporate 648 Discounted cash flow Credit spreads 69 bps - 423 bps (c) 206 bps Equity securities 248 Adjusted cost Private financials N/A (d) N/A Total assets $ 2,029 (a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques. (b) Category represents a single security; range not applicable. (c) Actual or equivalent credit spreads in basis points. (d) Prices do not utilize credit spreads; therefore, range is not applicable 47 The following is a discussion of the significant unobservable inputs or valuation techniques used in determining the fair value of securities classified as Level 3. Credit Spreads The Company holds certain assets that are of a unique, specialized, and/or securitized nature that do not trade on a regular basis in an active market, which makes their fair values difficult to estimate. Most of these assets are managed by external asset managers and the Company utilizes these managers for their expertise when evaluating various inputs used to determine the fair values for these assets, including identifying the appropriate credit or risk spread over risk-free interest rates that incorporates the unique nature or structure of the asset in the valuations. For those assets of a similar nature but not managed by external asset managers, the Company internally estimates the spreads and risk adjustments over risk-free interest rates that reflect the unique nature or structure of the asset as well as the current pricing environment and market conditions for comparable or related investments. Credit or risk spreads are an important input needed to complete the discounted cash flow analyses used to estimate an investment’s fair value. Credit or risk spreads underlying these fair values are a significant, unobservable input whose derivation is based on the Company’s evaluation of a combination of the external manager’s expertise and knowledge, the current pricing environment, and market conditions for the specific asset. Offered Quotes In circumstances where the Company's valuation model price is overridden because it implies a value that is not consistent with current market conditions, the Company will solicit bids from a limited number of brokers. The Company also receives unadjusted prices from brokers for certain of its mortgage and asset-backed securities. These quotes are non-binding but are reflective of valuation best estimates at that particular point in time. Offered quotes are an unobservable input in the determination of fair value of mortgage- and asset-backed securities, certain banks/financial institutions, certain other corporate, and equity securities investments. Private Financials The Company invests in the debt and equity securities of private companies operating in the cancer, healthtech, insurtech, finance, internet of things, big data and analytics sectors. Due to their private and often small, startup nature, these companies rely on capital provided by institutional and private equity investors for their ongoing operations. They do not have public securities that trade on a regular basis in an active market, which makes their fair values difficult to estimate. The Company values these investments on a cost basis with appropriate adjustments made based on monitoring private financial information provided by these companies. Adjustments to valuations are generally made as new funding tranches are executed or if the financial information provided significantly changes indicating the need for impairment. This private financial information is unobservable and is a significant determinant in the fair value of these corporate venture investments. For additional information on the Company's investments and financial instruments, see the accompanying Notes 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 6. DEFERRED POLICY ACQUISITION COSTS The following tables present a rollforward of deferred policy acquisition costs by reporting segment and disaggregated by product type. 48 March 31, 2024 Aflac Japan Aflac U.S. (In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Total Deferred policy acquisition costs: Balance at December 31, 2023 $ 2,971 $ 2,041 $ 491 $ 56 $ 917 $ 625 $ 1,336 $ 436 $ 86 $ 172 $ 1 $ 9,132 Capitalization 72 29 9 0 32 29 39 19 4 19 2 254 Amortization expense ( 49 ) ( 25 ) ( 8 ) ( 1 ) ( 36 ) ( 29 ) ( 38 ) ( 18 ) ( 4 ) ( 7 ) 0 ( 215 ) Foreign currency translation and other ( 189 ) ( 129 ) ( 32 ) ( 2 ) 0 0 0 0 0 0 0 ( 352 ) Balance at March 31, 2024 $ 2,805 $ 1,916 $ 460 $ 53 $ 913 $ 625 $ 1,337 $ 437 $ 86 $ 184 $ 3 $ 8,819 December 31, 2023 Aflac Japan Aflac U.S. (In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Total Deferred policy acquisition costs: Balance at December 31, 2022 $ 3,035 $ 2,161 $ 525 $ 55 $ 904 $ 613 $ 1,304 $ 418 $ 88 $ 135 $ 1 $ 9,239 Capitalization 317 123 33 8 151 125 173 84 10 61 1 1,086 Amortization expense ( 184 ) ( 105 ) ( 34 ) ( 3 ) ( 138 ) ( 113 ) ( 141 ) ( 66 ) ( 12 ) ( 24 ) 4 ( 816 ) Foreign currency translation and other ( 197 ) ( 138 ) ( 33 ) ( 4 ) 0 0 0 0 0 0 ( 5 ) ( 377 ) Balance at December 31, 2023 $ 2,971 $ 2,041 $ 491 $ 56 $ 917 $ 625 $ 1,336 $ 436 $ 86 $ 172 $ 1 $ 9,132 The Company uses the following constant level bases to amortize deferred policy acquisition costs: Policy Type Constant-level Basis Life Products (U.S.) Face Amount Health Products (U.S.) Number of Policies in Force Health & Life Products (Japan) Units in Force Face amount is the stated dollar amount that the policy’s beneficiaries receive upon the death of the insured. For life and health products issued in Japan, the constant-level basis used is units in force, which is a proxy for face amount and insurance in force, respectively. Future DAC amortization is impacted by persistency. There were no changes to the inputs, judgments, assumptions and methods used to determine amortization amounts during the three-month periods ended March 31, 2024 and 2023. For additional information on deferred policy acquisition costs, see Notes 1 and 6 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 49 7. POLICY LIABILITIES Future Policy Benefits The liability for future policy benefits is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company's insurance contracts. Future net premiums receivable are future gross premiums receivable under the contract multiplied by the net premium ratio (NPR). The following tables present the changes in the present value of expected future net premiums and the present value of expected future policy benefits by reporting segment and disaggregated by product type. The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of internal and external ceded reinsurance. 50 March 31, 2024 Aflac Japan Aflac U.S. (In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Present value of expected future net premiums: Balance at December 31, 2023 $ 17,509 $ 14,697 $ 6,488 $ 1,088 $ 2,488 $ 1,652 $ 4,074 $ 1,107 $ 206 $ 853 $ 277 Beginning balance at original discount rate 16,452 14,040 6,258 1,069 2,630 1,738 4,416 1,193 217 909 272 Effect of changes in cash flow assumptions 0 0 0 0 0 0 0 0 0 0 0 Effect of actual variances from expected experience ( 46 ) ( 52 ) ( 19 ) ( 5 ) ( 18 ) ( 10 ) ( 48 ) ( 14 ) ( 4 ) ( 8 ) 2 Adjusted beginning of period balance 16,406 13,988 6,239 1,064 2,612 1,728 4,368 1,179 213 901 274 Issuances 229 103 58 5 111 121 221 95 18 66 147 Interest accrual 97 77 28 4 26 16 43 11 2 9 3 Net premiums collected (1) ( 369 ) ( 290 ) ( 226 ) ( 26 ) ( 117 ) ( 99 ) ( 139 ) ( 58 ) ( 10 ) ( 37 ) ( 8 ) Foreign currency translation ( 1,041 ) ( 888 ) ( 392 ) ( 66 ) 0 0 0 0 0 0 0 Other 0 0 0 0 0 ( 1 ) 0 ( 1 ) ( 1 ) 1 ( 1 ) Ending balance at original discount rate 15,322 12,990 5,707 981 2,632 1,765 4,493 1,226 222 940 415 Effect of changes in discount rate assumptions 895 535 194 14 ( 173 ) ( 99 ) ( 412 ) ( 99 ) ( 14 ) ( 66 ) 6 Balance at March 31, 2024 $ 16,217 $ 13,525 $ 5,901 $ 995 $ 2,459 $ 1,666 $ 4,081 $ 1,127 $ 208 $ 874 $ 421 Present value of expected future policy benefits: Balance at December 31, 2023 $ 50,161 $ 25,257 $ 29,731 $ 5,178 $ 3,109 $ 2,422 $ 11,290 $ 1,943 $ 478 $ 1,764 $ 798 Beginning balance at original discount rate 43,626 25,023 30,256 5,444 3,302 2,541 12,120 2,076 506 1,971 769 Effect of changes in cash flow assumptions 0 0 0 0 0 0 0 0 0 0 0 Effect of actual variances from expected experience ( 62 ) ( 59 ) ( 20 ) ( 8 ) ( 21 ) ( 17 ) ( 60 ) ( 18 ) ( 5 ) ( 11 ) 2 Adjusted beginning of period balance 43,564 24,964 30,236 5,436 3,281 2,524 12,060 2,058 501 1,960 771 Issuances 232 105 59 7 115 128 233 99 16 70 151 Interest accrual 343 142 146 23 32 24 128 20 5 19 10 Benefit payments ( 682 ) ( 246 ) ( 516 ) ( 55 ) ( 125 ) ( 112 ) ( 228 ) ( 76 ) ( 14 ) ( 29 ) ( 17 ) Foreign currency translation ( 2,757 ) ( 1,582 ) ( 1,909 ) ( 345 ) 0 0 0 0 0 0 0 Other 0 0 0 0 0 0 1 0 1 1 0 Ending balance at original discount rate 40,700 23,383 28,016 5,066 3,303 2,564 12,194 2,101 509 2,021 915 Effect of changes in discount rate assumptions 5,689 ( 52 ) ( 767 ) ( 294 ) ( 233 ) ( 141 ) ( 1,092 ) ( 163 ) ( 35 ) ( 246 ) 15 Balance at March 31, 2024 46,389 23,331 27,249 4,772 3,070 2,423 11,102 1,938 474 1,775 930 Net liability for future policy benefits 30,172 9,806 21,348 3,777 611 757 7,021 811 266 901 509 Less: reinsurance recoverable 3,829 1,407 0 0 0 0 0 0 0 15 2 Net liability for future policy benefits after reinsurance recoverable $ 26,343 $ 8,399 $ 21,348 $ 3,777 $ 611 $ 757 $ 7,021 $ 811 $ 266 $ 886 $ 507 (1) Net premiums collected represent the portion of gross premiums collected from policyholders that is used to fund expected future benefit payments. 51 December 31, 2023 Aflac Japan Aflac U.S. (In millions) Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Present value of expected future net premiums: Balance at December 31, 2022 $ 19,298 $ 16,714 $ 7,485 $ 1,256 $ 2,534 $ 1,635 $ 4,486 $ 1,220 $ 211 $ 724 $ 110 Beginning balance at original discount rate 18,221 16,195 7,284 1,242 2,760 1,775 5,050 1,365 231 799 118 Effect of changes in cash flow assumptions ( 165 ) ( 470 ) 43 ( 12 ) ( 16 ) ( 51 ) ( 494 ) ( 142 ) ( 9 ) 61 ( 9 ) Effect of actual variances from expected experience ( 315 ) ( 137 ) ( 42 ) ( 15 ) ( 58 ) ( 29 ) ( 223 ) ( 73 ) ( 17 ) ( 25 ) ( 2 ) Adjusted beginning of period balance 17,741 15,588 7,285 1,215 2,686 1,695 4,333 1,150 205 835 107 Issuances 1,034 418 335 26 323 376 493 249 44 181 169 Interest accrual 412 334 124 20 102 62 179 45 8 31 6 Net premiums collected (1) ( 1,564 ) ( 1,261 ) ( 1,017 ) ( 112 ) ( 473 ) ( 390 ) ( 580 ) ( 247 ) ( 39 ) ( 137 ) ( 17 ) Foreign currency translation ( 1,170 ) ( 1,038 ) ( 469 ) ( 80 ) 0 0 0 0 0 0 0 Other ( 1 ) ( 1 ) 0 0 ( 8 ) ( 5 ) ( 9 ) ( 4 ) ( 1 ) ( 1 ) 7 Ending balance at original discount rate 16,452 14,040 6,258 1,069 2,630 1,738 4,416 1,193 217 909 272 Effect of changes in discount rate assumptions 1,057 657 230 19 ( 142 ) ( 86 ) ( 342 ) ( 86 ) ( 11 ) ( 56 ) 5 Balance at December 31, 2023 $ 17,509 $ 14,697 $ 6,488 $ 1,088 $ 2,488 $ 1,652 $ 4,074 $ 1,107 $ 206 $ 853 $ 277 Present value of expected future policy benefits: Balance at December 31, 2022 $ 54,766 $ 27,419 $ 31,954 $ 5,582 $ 3,098 $ 2,445 $ 11,489 $ 2,074 $ 488 $ 1,526 $ 622 Beginning balance at original discount rate 47,677 27,566 32,800 5,940 3,391 2,636 12,846 2,300 532 1,778 624 Effect of changes in cash flow assumptions ( 147 ) ( 507 ) 65 ( 27 ) ( 11 ) ( 59 ) ( 592 ) ( 194 ) ( 14 ) 72 ( 13 ) Effect of actual variances from expected experience ( 385 ) ( 154 ) ( 51 ) ( 15 ) ( 75 ) ( 59 ) ( 271 ) ( 99 ) ( 22 ) ( 32 ) ( 4 ) Adjusted beginning of period balance 47,145 26,905 32,814 5,898 3,305 2,518 11,983 2,007 496 1,818 607 Issuances 1,059 432 341 32 331 392 505 258 46 185 169 Interest accrual 1,473 608 625 100 127 96 524 84 21 68 33 Benefit payments ( 2,987 ) ( 1,153 ) ( 1,415 ) ( 206 ) ( 464 ) ( 465 ) ( 893 ) ( 274 ) ( 59 ) ( 105 ) ( 48 ) Foreign currency translation ( 3,064 ) ( 1,769 ) ( 2,109 ) ( 380 ) 0 0 0 0 0 0 0 Other 0 0 0 0 3 0 1 1 2 5 8 Ending balance at original discount rate 43,626 25,023 30,256 5,444 3,302 2,541 12,120 2,076 506 1,971 769 Effect of changes in discount rate assumptions 6,535 234 ( 525 ) ( 266 ) ( 193 ) ( 119 ) ( 830 ) ( 133 ) ( 28 ) ( 207 ) 29 Balance at December 31, 2023 50,161 25,257 29,731 5,178 3,109 2,422 11,290 1,943 478 1,764 798 Net liability for future policy benefits 32,652 10,560 23,243 4,090 621 770 7,216 836 272 911 521 Less: reinsurance recoverable 4,135 1,521 0 0 0 0 0 0 0 15 0 Net liability for future policy benefits after reinsurance recoverable $ 28,517 $ 9,039 $ 23,243 $ 4,090 $ 621 $ 770 $ 7,216 $ 836 $ 272 $ 896 $ 521 (1) Net premiums collected represent the portion of gross premiums collected from policyholders that is used to fund expected future benefit payments. 52 The following tables present the weighted-average interest rates and weighted-average liability duration (calculated using the original discount rate) by reporting segment and disaggregated by product type. March 31, 2024 Aflac Japan Aflac U.S. Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Weighted-average interest, original discount rate (1) 3.9 % 2.5 % 2.1 % 1.8 % 3.9 % 4.3 % 4.6 % 4.5 % 4.3 % 3.8 % 5.4 % Weighted-average interest, current discount rate (1) 2.0 % 2.5 % 1.9 % 2.3 % 5.3 % 5.2 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % Weighted-average liability duration (years) 13.0 24.7 16.3 17.1 8.0 5.6 11.2 9.3 7.9 13.8 9.2 (1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information. December 31, 2023 Aflac Japan Aflac U.S. Cancer Medical and Other Health Life Insurance Other Accident Disability Critical Care Hospital Indemnity Dental/Vision Life Insurance Other Weighted-average interest, original discount rate (1) 3.9 % 2.6 % 2.1 % 1.8 % 3.9 % 4.2 % 4.6 % 4.4 % 4.3 % 3.7 % 5.4 % Weighted-average interest, current discount rate (1) 1.8 % 2.3 % 1.7 % 2.1 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % 5.3 % Weighted-average liability duration (years) 13.1 24.9 16.3 17.3 8.1 5.6 11.3 9.3 7.9 13.6 9.4 (1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information. 53 The following table presents a reconciliation of the disaggregated rollforwards above to the ending future policy benefits presented in the consolidated balance sheets. The deferred profit liability for limited-payment contracts and the deferred reinsurance gain liability are presented together with the liability for future policy benefits in the consolidated balance sheets and have been included as reconciling items in the table below. (In millions) March 31, 2024 December 31, 2023 Balances included in future policy benefits rollforward: Aflac Japan Cancer $ 30,172 $ 32,652 Medical and other health 9,806 10,560 Life insurance 21,348 23,243 Other 3,777 4,090 Aflac U.S. Accident 611 621 Disability 757 770 Critical care 7,021 7,216 Hospital indemnity 811 836 Dental/vision 266 272 Life insurance 901 911 Other 509 521 Corporate and other 3,842 4,225 Deferred profit liability 1,734 1,806 Deferred reinsurance gain liability 910 1,012 Intercompany eliminations (1) ( 4,598 ) ( 5,017 ) Total $ 77,867 $ 83,718 (1) Elimination entry necessary due to the internal reinsurance transactions with Aflac Re and to recapture a portion of policy liabilities ceded externally as a result of the reinsurance retrocession transaction. See Note 8 for additional details. Discount rates are determined using upper-medium grade (low-credit-risk) fixed-income instrument yields that reflect the duration characteristics of the liability. Locked-in discount rates are determined separately for each issue-year cohort as a single discount rate, calculated as the weighted-average of monthly upper-medium grade (low-credit-risk) fixed-income instrument forward curves in the calendar year, where the weights are the annualized premiums issued for each month of the cohort. The single discount rate for each issue-year cohort is determined by solving for a rate that produces an equivalent NPR to the forward curve and will remain unchanged after the calendar year of issue. Discount rates are updated each reporting period and require estimation techniques (e.g., interpolation, extrapolation) for determination of points on the curve for which there is limited or no observable market data. The Company constructs a current discount rate curve separately for discounting cash flows used to calculate each of the Japan and U.S. liabilities for future policy benefits, reflective of the characteristics of the corresponding insurance liabilities, such as currency and tenor. In the Aflac Japan segment, all long-duration insurance policies are denominated in yen. A significant portion of policies are characterized by tenors exceeding the availability of liquid market data in Japan for single-A rated (as a proxy for upper-medium grade) corporate yen-denominated debt. The discount rate curve is designed to prioritize the observable inputs where available, while past the last liquid point, the data is derived based on estimation techniques consistent with the fair value guidance in ASC 820. The Aflac Japan segment curve utilizes liquid market indices tracking publicly traded yen-denominated single-A corporate debt for the initial 10-year tenor. For the bonds within these market indices where only local ratings are available, the Company prioritizes the bonds with local ratings that are equivalent to a single-A rating based on international rating standards. For the discount rates applicable to tenors for which the Japan single-A debt market is not liquid but there is sufficient observable market data and/or the observable market data is available for similar instruments (between 10 and 30 years), the Company estimates tenor-specific single-A credit spreads and applies them to risk-free government rates. Lastly, for the tenors where there is limited or no observable single-A or similar market data or risk-free government rates (beyond 30 54 years), the discount curve is derived by extrapolation of risk free rates beyond their last liquid point following the Smith-Wilson method and grading of the estimated forward credit spread anchored by the ultimate forward rate. The ultimate forward rate is based on the economic value-based solvency regime, which is consistent with the International Association of Insurance Supervisors (IAIS) Insurance Capital Standards (ICS) (which is expected to be introduced in Japan in 2025), and is adjusted for credit and inflation components. For the Aflac U.S. segment where all long-duration insurance policies are denominated in U.S. dollar and substantially all have cash flow duration within 30 years, for which the U.S. upper-medium grade fixed-income market is liquid and observable, the Company uses data from a liquid fixed-income market index tracking single-A U.S. corporate debt. For the insignificant portion of the policies with cash flow tenors exceeding 30 years, the discount curve beyond that tenor is extrapolated following the Smith-Wilson method from year 30 to the same ultimate forward rate calculated for the Japan discount curve at year 60 and held constant thereafter. The use of the same ultimate rate for U.S. and Japan segments is based on the assumption of long-term global economic convergence. For the three-month periods ended March 31, 2024 and 2023, the Company recognized $ 1.1 billion and $( 2.8 ) billion in other comprehensive income (loss) net of tax, respectively, due to changes in the future policy benefits estimate from updating the discount rate assumptions. There were no changes to the methods used to determine the discount rates during the three-month periods ended March 31, 2024 and 2023. For the year ended December 31, 2023, the Company recognized approximately $( 460 ) million in other comprehensive income (loss) net of tax, due to changes in the future policy benefits estimate from updating the discount rate assumptions. There were no changes to the methods used to determine the discount rates during the year ended December 31, 2023. Mortality rate assumptions are based on industry tables and adjusted for the Company's actual or expected experience where credible or appropriate. These assumptions typically vary by age, gender, and other demographic characteristics such as smoking status. Morbidity assumptions are based on the Company's internal data and consider emerging experience. These assumptions are reflective of the coverage and benefits provided and generally vary by age, gender, duration, and any other material policyholder characteristics. In cases where a calendar-year trend is significant, future cash flow projections may include a trend adjustment. In Japan, separate lapse assumptions are set based on actual or expected experience. These lapse and total termination rate assumptions vary by line of business and with policyholder characteristics such as duration. In the U.S., the majority of the future cash flows are modeled using total termination rates (which include both lapse and mortality) and are adjusted for actual experience. Policy provisions, such as reaching premium paid-up status, are taken into account when setting assumptions. During the three-month periods ended March 31, 2024 and 2023, the variance of actual experience from expected experience was primarily due to favorable variances in morbidity assumptions as compared to actual experience. There were no changes to the inputs, judgments, assumptions and methods used in measuring the liability for future policy benefits during the three-month periods ended March 31, 2024 and 2023. In 2023, the Company's annual assumption review process resulted in favorable changes to its morbidity and termination assumptions, largely due to reflecting more recent favorable U.S. morbidity experience. 55 The following table summarizes the amount of net earned premiums recognized in the consolidated statements of earnings by reporting segment and disaggregated by product type. Three Months Ended March 31, (In millions) 2024 2023 Net earned premiums: Aflac Japan Cancer $ 878 $ 1,132 Medical and other health 605 689 Life insurance 339 399 Other 34 39 Aflac U.S. Accident 325 329 Disability 333 309 Critical care 444 443 Hospital indemnity 185 184 Dental/vision 59 53 Life insurance 138 115 Other 20 10 Corporate and other 165 90 Reinsurance ceded ( 69 ) ( 104 ) Total $ 3,456 $ 3,688 The following table summarizes the amount of interest expense related to insurance contracts recognized in total benefits and claims, net in the consolidated statements of earnings by reporting segment and disaggregated by product type. Three Months Ended March 31, (In millions) 2024 2023 Interest expense: Aflac Japan Cancer $ 246 $ 285 Medical and other health 65 71 Life insurance 118 133 Other 19 22 Aflac U.S. Accident 6 6 Disability 8 8 Critical care 85 87 Hospital indemnity 9 10 Dental/vision 3 3 Life insurance 10 9 Other 7 7 Total $ 576 $ 641 56 The following tables summarize the amount of undiscounted expected future gross premiums and expected future policy benefits and expenses and discounted (discounted at the current period discount rate) expected future gross premiums and expected future policy benefits and expenses by reporting segment and disaggregated by product type. These tables are presented gross of internal and external ceded reinsurance. Future gross premiums represent the expected amount of future premiums to be received. For limited-payment policies, the premiums are collected over a shorter period than the policy term over which benefits are provided. As a result, once the policy reaches premium paid-up status, the future gross premiums can be significantly less than the future benefit payments. Further, benefits and expenses are generally greater in the later years of a policy. These are the primary factors that result in future gross premiums lower than future benefit and expense payments for certain lines of business of the Company. March 31, 2024 December 31, 2023 (In millions) Gross Premiums Benefits and Expenses Gross Premiums Benefits and Expenses Undiscounted expected future gross premiums and expected future policy benefits and expenses: Aflac Japan Cancer $ 55,096 $ 61,876 $ 59,169 $ 66,427 Medical and other health 35,735 37,277 38,583 39,884 Life insurance 11,637 39,439 12,677 42,541 Other 1,646 6,923 1,781 7,448 Aflac U.S. Accident 9,097 4,551 9,095 4,548 Disability 5,819 3,210 5,776 3,177 Critical care 20,008 20,712 19,886 20,626 Hospital indemnity 4,985 3,058 4,922 3,025 Dental/vision 1,161 729 1,162 726 Life insurance 2,824 3,367 2,719 3,260 Other 1,077 1,634 724 1,396 Total $ 149,085 $ 182,776 $ 156,494 $ 193,058 March 31, 2024 December 31, 2023 (In millions) Gross Premiums Benefits and Expenses Gross Premiums Benefits and Expenses Discounted expected future gross premiums and expected future policy benefits and expenses: Aflac Japan Cancer $ 44,795 $ 46,389 $ 48,363 $ 50,161 Medical and other health 28,312 23,331 30,757 25,257 Life insurance 10,274 27,249 11,240 29,731 Other 1,391 4,772 1,512 5,178 Aflac U.S. Accident 6,293 3,070 6,369 3,109 Disability 4,476 2,423 4,488 2,422 Critical care 12,295 11,102 12,417 11,290 Hospital indemnity 3,425 1,938 3,419 1,943 Dental/vision 794 474 807 478 Life insurance 1,963 1,775 1,914 1,764 Other 673 930 467 798 Total $ 114,691 $ 123,453 $ 121,753 $ 132,131 Loss expense as a result of NPR capping for the three-month periods ended March 31, 2024 and 2023 was immaterial. 57 Other Policyholders' Funds As of March 31, 2024 and December 31, 2023, the largest component of the other policyholders' funds liability was the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. The following table presents the changes in other policyholders’ funds. (In millions) March 31, 2024 December 31, 2023 Other policyholders' funds: Fixed annuities account balance, beginning of period (1) $ 5,939 $ 6,423 Premiums received 29 126 Transfers from WAYS conversions 61 229 Surrenders and withdrawals ( 18 ) ( 59 ) Benefit payments ( 110 ) ( 419 ) Interest credited 13 53 Foreign currency translation and other ( 376 ) ( 414 ) Fixed annuities account balance, end of period 5,538 5,939 Other deposit type reserves 293 230 Total $ 5,831 $ 6,169 (1) Aflac Japan fixed annuities The following table presents other policyholders’ funds balances by range of guaranteed crediting rates. March 31, 2024 December 31, 2023 (In millions) Range of Guaranteed Minimum Crediting Rates (2) At Guaranteed Minimum Cash Surrender Value Range of Guaranteed Minimum Crediting Rates (2) At Guaranteed Minimum Cash Surrender Value Fixed annuities (1) 0.5 % - 2.2 % $ 5,538 $ 5,457 0.5 % - 2.3 % $ 5,939 $ 5,850 (1) Aflac Japan fixed annuities (2) Weighted-average crediting rate of 1.5 % at March 31, 2024 and December 31, 2023. Aflac Japan’s fixed annuities have guaranteed fixed crediting rates which results in the policyholders' funds balances being able to cover all guaranteed benefit amounts. The reserves are adequate to fully fund future benefits at any given time. For additional information on policy liabilities, see Notes 1 and 7 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 8. REINSURANCE The Company periodically enters into fixed quota-share coinsurance agreements in the normal course of business, primarily to provide additional capacity for future growth, optimize capital, limit losses, and minimize exposure to significant risks. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. For additional information on reinsurance, see Notes 1 and 8 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 58 The following table reconciles direct earned premiums, direct benefits and claims, excluding reserve remeasurement gains and losses, and reserve remeasurement gains and losses to net amounts after the effect of reinsurance. Three Months Ended March 31, (In millions) 2024 2023 Direct earned premiums $ 3,482 $ 3,738 Ceded to other companies: Ceded Aflac Japan closed blocks ( 34 ) ( 82 ) Other ( 35 ) ( 25 ) Assumed from other companies: Retrocession activities 29 34 Other 14 23 Net earned premiums $ 3,456 $ 3,688 Direct benefits and claims, excluding reserve remeasurement $ 2,082 $ 2,256 Ceded benefits and change in reserves for future benefits: Ceded Aflac Japan closed blocks ( 18 ) ( 77 ) Other ( 15 ) ( 27 ) Assumed from other companies: Retrocession activities 13 41 Other 4 10 Benefits and claims, excluding reserve remeasurement $ 2,066 $ 2,203 Direct reserve remeasurement (gains) losses $ ( 57 ) $ ( 53 ) Ceded reserve remeasurement gains (losses) 1 0 Assumed reserve remeasurement (gains) losses 0 0 Reserve remeasurement (gains) losses $ ( 56 ) $ ( 53 ) Total benefits and claims, net $ 2,010 $ 2,150 The Company has recorded a deferred reinsurance gain liability related to reinsurance transactions which represents ceded reserves in excess of consideration paid, or consideration received in excess of assumed reserves. The remaining deferred reinsurance gain liability of $ 161 million and $ 175 million as of March 31, 2024 and December 31, 2023, respectively, is included in future policy benefits in the consolidated balance sheets and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions. The reinsurance recoverable, which is included in other assets in the consolidated balance sheets, is reported net of allowance for credit losses and had a remaining balance of $ 178 million and $ 183 million as of March 31, 2024 and December 31, 2023, respectively. The allowance for credit losses related to the Company's reinsurance recoverable balance was $ 4 million and $ 10 million as of March 31, 2024 and December 31, 2023, respectively. The credit allowance for the reinsurance recoverable balance is estimated using a PD / LGD method and the key credit quality indicator is the credit rating of the Company’s reinsurance counterparty. The Company uses external credit ratings focused on the reinsurer’s financial strength and credit worthiness. As of March 31, 2024, the Company's reinsurance counterparties were rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly. These reinsurance transactions are indemnity reinsurance that do not relieve the Company from its obligations to policyholders. In the event that the reinsurer is unable to meet its obligations, the Company remains liable for the reinsured claims. Internal Reinsurance Transactions Aflac Re is a Bermuda domiciled insurer that reinsures certain policies issued by ALIJ. The inter-segment amounts associated with these internal reinsurance transactions are eliminated in consolidation. 59 9. NOTES PAYABLE AND LEASE OBLIGATIONS A summary of notes payable and lease obligations follows: (In millions) March 31, 2024 December 31, 2023 1.125 % senior sustainability notes due March 2026 $ 398 $ 398 2.875 % senior notes due October 2026 299 299 3.60 % senior notes due April 2030 993 993 6.90 % senior notes due December 2039 221 221 6.45 % senior notes due August 2040 254 254 4.00 % senior notes due October 2046 394 394 4.750 % senior notes due January 2049 542 542 Yen-denominated senior notes and subordinated debentures: .300 % senior notes due September 2025 (principal amount ¥ 12.4 billion) 82 87 .932 % senior notes due January 2027 (principal amount ¥ 60.0 billion) 395 422 1.048 % senior notes due March 2029 (principal amount ¥ 13.0 billion) 86 0 1.075 % senior notes due September 2029 (principal amount ¥ 33.4 billion) 220 234 .500 % senior notes due December 2029 (principal amount ¥ 12.6 billion) 83 88 .550 % senior notes due March 2030 (principal amount ¥ 13.3 billion) 87 93 1.159 % senior notes due October 2030 (principal amount ¥ 29.3 billion) 192 206 1.412 % senior notes due March 2031 (principal amount ¥ 27.9 billion) 184 0 .633 % senior notes due April 2031 (principal amount ¥ 30.0 billion) 197 211 .843 % senior notes due December 2031 (principal amount ¥ 9.3 billion) 61 65 .750 % senior notes due March 2032 (principal amount ¥ 20.7 billion) 136 145 1.320 % senior notes due December 2032 (principal amount ¥ 21.1 billion) 139 148 .844 % senior notes due April 2033 (principal amount ¥ 12.0 billion) 79 84 1.488 % senior notes due October 2033 (principal amount ¥ 15.2 billion) 100 106 1.682 % senior notes due March 2034 (principal amount ¥ 7.7 billion) 51 0 1.600 % senior notes due March 2034 (principal amount ¥ 18.3 billion) 122 0 .934 % senior notes due December 2034 (principal amount ¥ 9.8 billion) 64 69 .830 % senior notes due March 2035 (principal amount ¥ 10.6 billion) 69 74 1.740 % senior notes due March 2036 (principal amount ¥ 15.0 billion) 100 0 1.039 % senior notes due April 2036 (principal amount ¥ 10.0 billion) 65 70 1.594 % senior notes due September 2037 (principal amount ¥ 6.5 billion) 43 45 1.750 % senior notes due October 2038 (principal amount ¥ 8.9 billion) 58 62 1.920 % senior notes due March 2039 (principal amount ¥ 16.5 billion) 110 0 1.122 % senior notes due December 2039 (principal amount ¥ 6.3 billion) 41 44 1.264 % senior notes due April 2041 (principal amount ¥ 10.0 billion) 65 70 2.160 % senior notes due March 2044 (principal amount ¥ 5.7 billion) 38 0 2.108 % subordinated debentures due October 2047 (principal amount ¥ 60.0 billion) 392 419 .963 % subordinated bonds due April 2049 (principal amount ¥ 30.0 billion) (1) 198 211 1.560 % senior notes due April 2051 (principal amount ¥ 20.0 billion) 131 140 2.144 % senior notes due September 2052 (principal amount ¥ 12.0 billion) 79 84 1.958 % subordinated bonds due December 2053 (principal amount ¥ 30.0 billion) 197 210 2.400 % senior notes due March 2054 (principal amount ¥ 19.5 billion) 130 0 Yen-denominated loans: Variable interest rate loan due August 2027 ( .38 % in 2024 and .35 % in 2023, principal amount ¥ 11.7 billion) 77 82 Variable interest rate loan due August 2029 ( .48 % in 2024 and .45 % in 2023, principal amount ¥ 25.3 billion) 166 178 Variable interest rate loan due August 2032 ( .63 % in 2024 and .60 % in 2023, principal amount ¥ 70.0 billion) 461 492 Finance lease obligations payable through 2030 6 6 Operating lease obligations payable through 2049 107 118 Total notes payable and lease obligations $ 7,912 $ 7,364 (1) Redeemed in April 2024 Amounts in the table above are reported net of debt issuance costs and issuance premiums or discounts, if applicable, that are being amortized over the life of the notes. 60 I n March 2024, the Parent Company issued five series of senior notes totaling ¥ 75.0 billion through a private placement. The first series, which totaled ¥ 18.3 billion, bears interest at a fixed rate of 1.600 % per annum, payable semi-annually, and will mature in March 2034. The second series, which totaled ¥ 15.0 billion, bears interest at a fixed rate of 1.740 % per annum, payable semi-annually, and will mature in March 2036. The third series, which totaled ¥ 16.5 billion, bears interest at a fixed rate of 1.920 % per annum, payable semi-annually, and will mature in March 2039. The fourth series, which totaled ¥ 5.7 billion, bears interest at a fixed rate of 2.160 % per annum, payable semi-annually, and will mature in March 2044. The fifth series, which totaled ¥ 19.5 billion, bears interest at a fixed rate of 2.400 % per annum, payable semi-annually, and will mature in March 2054. These notes are redeemable at the Parent Company's option (i) in whole at any time or (ii) in part from time to time in an amount not less than 5% of the aggregate principal amount then outstanding of the notes to be redeemed. In March 2024, the Parent Company issued three series of senior notes totaling ¥ 48.6 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥ 13.0 billion, bears interest at a fixed rate of 1.048 % per annum, payable semi-annually, and will mature in March 2029. The second series, which totaled ¥ 27.9 billion, bears interest at a fixed rate of 1.412 % per annum, payable semi-annually, and will mature in March 2031. The third series, which totaled ¥ 7.7 billion, bears interest at a fixed rate of 1.682 % per annum, payable semi-annually, and will mature in March 2034. 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 March 2029, March 2031 and March 2034 are redeemable at the Parent Company's option, in whole or in part from time to time, on or after December 21, 2028, December 31, 2030 and September 21, 2033, 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. Interest expense related to the Company's notes payable, which is included in interest expense in the consolidated statements of earnings, was $ 46 million and $ 47 million for the three-month periods ended March 31, 2024 and 2023, respectively. 61 A summary of the Company's lines of credit as of March 31, 2024 follows: Borrower(s) Type Term Expiration Date Capacity Amount Outstanding Interest Rate on Borrowed Amount Maturity Period Commitment Fee Business Purpose Aflac Incorporated and Aflac uncommitted bilateral 364 days December 6, 2024 $ 100 million $ 0 million The rate quoted by the bank and agreed upon at the time of borrowing Up to 3 months None General corporate purposes Aflac Incorporated unsecured revolving 5 years May 9, 2027, or the date commitments are terminated pursuant to an event of default ¥ 100.0 billion ¥ 0.0 billion A rate per annum equal to (a) Tokyo Interbank Market Rate (TIBOR) plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period No later than May 10, 2027 .28 % to .45 %, depending on the Parent Company's debt ratings as of the date of determination General corporate purposes, including a capital contingency plan for the operations of the Parent Company Aflac Incorporated and Aflac unsecured revolving 5 years November 15, 2027, or the date commitments are terminated pursuant to an event of default $ 1.0 billion $ 0.0 billion A rate per annum equal to, at the Company's option, either, (a) Secured Overnight Financing Rate (SOFR) for U.S. dollar denominated borrowings or TIBOR for Japanese yen denominated borrowings, in either case adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by the agent as its prime rate, or (3) SOFR for an interest period of one month plus 1.00%, in each case plus an applicable margin No later than November 15, 2027 .08 % to .20 %, depending on the Parent Company's debt ratings as of the date of determination General corporate purposes, including a capital contingency plan for the operations of the Parent Company Aflac Incorporated and Aflac uncommitted bilateral None specified None specified $ 50 million $ 0 million A rate per annum equal to, at the Parent Company's option, either (a) a rate determined by reference to SOFR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the highest of (1) the lender's USD short-term commercial loan rate and (2) the federal funds rate plus 1/2 of 1% Up to 3 months None General corporate purposes Aflac (1) uncommitted revolving 364 days December 2, 2024 $ 250 million $ 50 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum No later than December 3, 2024 None General corporate purposes Aflac Incorporated (1) (Tranche 1) uncommitted revolving 364 days November 25, 2024 ¥ 50.0 billion ¥ 0.0 billion Three-month yen TIBOR plus 75 basis points per annum No later than November 26, 2024 None General corporate purposes Aflac Incorporated (1) (Tranche 2) uncommitted revolving 364 days November 25, 2024 ¥ 50.0 billion ¥ 0.0 billion Three-month yen TIBOR plus 75 basis points per annum No later than November 26, 2024 None General corporate purposes Aflac New York (1),(2) uncommitted revolving 364 days April 8, 2024 $ 25 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum No later than April 9, 2024 None General corporate purposes CAIC (1) uncommitted revolving 364 days March 21, 2025 $ 15 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum No later than March 24, 2025 None General corporate purposes (1) Intercompany credit agreement (2) Renewed in April 2024 with an expiration date of April 8, 2025 (continued) 62 Borrower(s) Type Term Expiration Date Capacity Amount Outstanding Interest Rate on Borrowed Amount Maturity Period Commitment Fee Business Purpose TOIC (1) uncommitted revolving 364 days March 21, 2025 $ 0.3 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum No later than March 24, 2025 None General corporate purposes Hatch Healthcare K.K. (1) uncommitted revolving 364 days January 2, 2025 ¥ 900 million ¥ 0 million A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period No later than January 3, 2025 None General corporate purposes Aflac Digital Services Co., Ltd. (1) uncommitted revolving 364 days January 2, 2025 ¥ 600 million ¥ 0 million A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period No later than January 3, 2025 None General corporate purposes Aflac GI Holdings LLC (1) uncommitted revolving 364 days July 16, 2024 $ 30 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum No later than July 17, 2024 None General corporate purposes Aflac Incorporated (1) uncommitted revolving 364 days January 2, 2025 $ 400 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 97 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 97 basis points per annum for Japanese yen-denominated borrowings No later than January 3, 2025 None General corporate purposes Aflac Re (1) uncommitted revolving 364 days January 2, 2025 $ 400 million $ 0 million Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 68 basis points per annum for Japanese yen-denominated borrowings No later than January 3, 2025 None General corporate purposes (1) Intercompany credit agreement The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2024. No events of default or defaults occurred during the three-month period ended March 31, 2024. For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 63 10. SHAREHOLDERS’ EQUITY The following table is a reconciliation of the number of shares of the Company's common stock for the three-month periods ended March 31. (In thousands of shares) 2024 2023 Common stock - issued: Balance, beginning of period 1,355,398 1,354,079 Exercise of stock options and issuance of restricted shares 1,082 933 Balance, end of period 1,356,480 1,355,012 Treasury stock: Balance, beginning of period 776,919 738,823 Purchases of treasury stock: Share repurchase program 9,276 10,348 Other 457 347 Dispositions of treasury stock: Shares issued to AFL Stock Plan ( 212 ) ( 239 ) Exercise of stock options ( 55 ) ( 48 ) Other ( 183 ) ( 171 ) Balance, end of period 786,202 749,060 Shares outstanding, end of period 570,278 605,952 Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic earnings per share (EPS). The following table presents the approximate number of share-based awards to purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted EPS for the following periods. Three Months Ended March 31, (In thousands) 2024 2023 Anti-dilutive share-based awards 69 164 Share Repurchase Program During the first three months of 2024, the Company repurchased 9.3 million shares of its common stock for $ 750 million as part of its share repurchase program. During the first three months of 2023, the Company repurchased 10.3 million shares of its common stock for $ 700 million as part of its share repurchase program. As of March 31, 2024, a remaining balance of 68.5 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors. 64 Reclassifications from Accumulated Other Comprehensive Income The tables below are reconciliations of accumulated other comprehensive income by component for the following periods. Changes in Accumulated Other Comprehensive Income Three Months Ended March 31, 2024 (In millions) Unrealized Foreign Currency Translation Gains (Losses) Unrealized Gains (Losses) on Fixed Maturity Securities Unrealized Gains (Losses) on Derivatives Effect of Changes in Discount Rate Assumptions Pension Liability Adjustment Total Balance at December 31, 2023 $ ( 4,069 ) $ 1,139 $ ( 22 ) $ ( 2,560 ) $ ( 8 ) $ ( 5,520 ) Other comprehensive income (loss) before reclassification ( 597 ) 86 ( 5 ) 1,065 1 550 Amounts reclassified from accumulated other comprehensive income (loss) 0 ( 133 ) 1 0 0 ( 132 ) Net current-period other comprehensive income (loss) ( 597 ) ( 47 ) ( 4 ) 1,065 1 418 Balance at March 31, 2024 $ ( 4,666 ) $ 1,092 $ ( 26 ) $ ( 1,495 ) $ ( 7 ) $ ( 5,102 ) All amounts in the table above are net of tax. Three Months Ended March 31, 2023 (In millions) Unrealized Foreign Currency Translation Gains (Losses) Unrealized Gains (Losses) on Fixed Maturity Securities Unrealized Gains (Losses) on Derivatives Effect of Changes in Discount Rate Assumptions Pension Liability Adjustment Total Balance at December 31, 2022 $ ( 3,564 ) $ ( 702 ) $ ( 27 ) $ ( 2,100 ) $ ( 36 ) $ ( 6,429 ) Other comprehensive income (loss) before reclassification ( 54 ) 2,036 0 ( 2,794 ) 7 ( 805 ) Amounts reclassified from accumulated other comprehensive income (loss) 0 ( 45 ) 1 0 0 ( 44 ) Net current-period other comprehensive income (loss) ( 54 ) 1,991 1 ( 2,794 ) 7 ( 849 ) Balance at March 31, 2023 $ ( 3,618 ) $ 1,289 $ ( 26 ) $ ( 4,894 ) $ ( 29 ) $ ( 7,278 ) All amounts in the table above are net of tax. 65 The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income into net earnings for the following periods. Reclassifications Out of Accumulated Other Comprehensive Income (In millions) Three Months Ended March 31, 2024 Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Statements of Earnings Unrealized gains (losses) on available-for-sale securities $ 168 Net investment gains (losses) ( 35 ) Tax (expense) or benefit (1) $ 133 Net of tax Unrealized gains (losses) on derivatives $ ( 1 ) Net investment gains (losses) 0 Tax (expense) or benefit (1) $ ( 1 ) Net of tax Total reclassifications for the period $ 132 Net of tax (1) Based on 21 % tax rate (In millions) Three Months Ended March 31, 2023 Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Statements of Earnings Unrealized gains (losses) on available-for-sale securities $ 57 Net investment gains (losses) ( 12 ) Tax (expense) or benefit (1) $ 45 Net of tax Unrealized gains (losses) on derivatives $ ( 1 ) Net investment gains (losses) 0 Tax (expense) or benefit (1) $ ( 1 ) Net of tax Total reclassifications for the period $ 44 Net of tax (1) Based on 21 % tax rate 11. SHARE-BASED COMPENSATION As of March 31, 2024, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017), as further amended on August 9, 2022 (the Plan). Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors. The Plan, allows for a maximum number of shares issuable over its term of 75 million shares including 38 million shares that may be awarded in respect of awards other than options or stock appreciation rights. If any awards granted under the Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture, then the shares underlying the awards will again be available under the Plan. The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. As of March 31, 2024, approximately 33.6 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years . Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of March 31, 2024, the only performance-based awards issued and outstanding were restricted stock awards and units. 66 Stock options and stock appreciation rights granted under the amended Plan have an exercise price of at least the fair market value of the underlying stock on the grant date and have an expiration date no later than 10 years from the grant date. Time-based restricted stock awards, restricted stock units and stock options generally vest on a ratable basis over three years . The Compensation Committee of the Board of Directors has the discretion to determine vesting schedules. Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares. The following table provides information on stock options outstanding and exercisable at March 31, 2024. Stock Option Shares (in thousands) Weighted-Average Remaining Term (in years) Aggregate Intrinsic Value (in millions) Weighted-Average Exercise Price Per Share Outstanding 856 2.2 $ 45 $ 33.37 Exercisable 856 2.2 45 33.37 The Company received cash from the exercise of stock options in the amount of $ 5 million and $ 4 million during the first three months of 2024 and 2023, respectively. The tax benefit realized as a result of stock option exercises and restricted stock releases was $ 24 million in the first three months of 2024, compared with $ 17 million in the first three months of 2023. As of March 31, 2024, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $ 74 million, of which $ 40 million ( 1.8 million shares) was related to restricted stock awards and units with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.9 years. There are no other contractual terms covering restricted stock awards once vested. The following table summarizes restricted stock activity during the three-month period ended March 31, 2024. (In thousands of shares) Shares Weighted-Average Grant-Date Fair Value Per Share Restricted stock at December 31, 2023 2,308 $ 62.96 Granted in 2024 1,213 79.75 Canceled in 2024 ( 7 ) 67.50 Vested in 2024 ( 1,337 ) 49.24 Restricted stock at March 31, 2024 2,177 $ 72.33 In February 2024, the Company granted 303 thousand performance-based stock awards and units, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company estimated the fair value of restricted stock awards and units with market-based conditions using a Monte Carlo simulation model. The model discounts the value of the stock at the assumed vesting date based on the risk-free interest rate. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage payout estimate will be updated each quarter. The Company uses third-party analyses to assist in developing the assumptions used in, as well as calibrating, a Monte Carlo simulation model. The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards. For additional information on the Company's long-term share-based compensation plans and the types of share-based awards, see Note 12 of the Notes to the Consolidated Financial Statements included in the 2023 Annual Report. 12. BENEFIT PLANS The Company has funded defined benefit plans in Japan and the U.S.; however, future benefits under the U.S. plan were frozen effective January 1, 2024. U.S. employees, including those that participated in the U.S. plan prior to the freeze, currently receive a nonelective 401(k) employer contribution. 67 The Company also maintains non-qualified, unfunded supplemental retirement plans that provide defined pension benefits in excess of limits imposed by federal tax law for certain Japanese, U.S. and former employees. However, future benefits under the Company's Supplemental Executive Retirement Plan and Retirement Plan for Senior Officers were frozen effective January 1, 2024, provided that actively employed participants may continue to accrue service toward eligibility for early retirement benefits or delayed early retirement benefits. The Company provides certain health care benefits for eligible U.S. retired employees, their beneficiaries and covered dependents (other postretirement benefits). The health care plan is contributory and unfunded. Effective January 1, 2014, employees eligible for benefits included the following: (1) active employees whose age plus service, in years, equaled or exceeded 80 (rule of 80 ); (2) active employees who were age 55 or older and have met the 15 years of service requirement; (3) active employees who would meet the rule of 80 in the next five years ; (4) active employees who were age 55 or older and who would meet the 15 years of service requirement within the next five years ; and (5) current retirees. For certain employees and former employees, additional coverage is provided for all medical expenses for life. Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $ 2 million for both the three-month periods ended March 31, 2024 and 2023. Total net periodic benefit cost includes the following components: Three Months Ended March 31, Pension Benefits Other Japan U.S. Postretirement Benefits (In millions) 2024 2023 2024 2023 2024 2023 Components of net periodic benefit cost: Service cost $ 4 $ 4 $ 0 $ 4 $ 0 $ 0 Interest cost 2 2 9 11 0 0 Expected return on plan assets ( 2 ) ( 2 ) ( 7 ) ( 9 ) 0 0 Amortization of net actuarial loss 0 0 0 0 0 0 Net periodic (benefit) cost $ 4 $ 4 $ 2 $ 6 $ 0 $ 0 During the three months ended March 31, 2024, Aflac Japan contributed approximately $ 6 million (using the weighted-average yen/dollar exchange rate for the three-month period ended March 31, 2024) to the Japanese funded defined benefit plan, and Aflac U.S. did not make a contribution to the U.S. funded defined benefit plan. For additional information regarding the Company's Japanese and U.S. benefit plans, see Note 14 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 13. COMMITMENTS AND CONTINGENT LIABILITIES The Company is a defendant in various lawsuits and receives various regulatory inquiries considered to be in the normal course of business. Members of the Company's senior legal and financial management teams review litigation and regulatory inquiries on a quarterly and annual basis. The final results of any litigation or regulatory inquiries cannot be predicted with certainty. Although some of this litigation is pending in states where large punitive damages, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, the Company believes the outcome of pending litigation will not have a material adverse effect on its financial position, results of operations, or cash flows. See Note 3 for details on certain investment commitments. 68 Guaranty Fund Assessments The U.S. insurance industry has a policyholder protection system that is monitored and regulated by state insurance departments. These life and health insurance guaranty associations are state entities (in all 50 states as well as Puerto Rico and the District of Columbia) created to protect policyholders of an insolvent insurance company. All insurance companies (with limited exceptions) licensed to sell life or health insurance in a state must be members of that state’s guaranty association. Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business. Guaranty fund assessments for the three-month periods ended March 31, 2024 and 2023 were immaterial. For additional information regarding commitments and contingent liabilities, see Note 15 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report. 69