AFLAC INC - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07434

Aflac Incorporated

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Georgia		58-1167100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1932 Wynnton Road, Columbus, Georgia		31999
(Address of principal executive offices)		(ZIP Code)

706.323.3431

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨
		Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		July 26, 2018
Common Stock, $.10 Par Value		767,800,258

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2018

Table of Contents



PART I.		FINANCIAL INFORMATION:	Page

	Item 1.	Financial Statements (Unaudited)

		Review by Independent Registered Public Accounting Firm	1

		Report of Independent Registered Public Accounting Firm	2

		Consolidated Statements of Earnings Three Months Ended June 30, 2018 and 2017 Six Months Ended June 30, 2018 and 2017	3

		Consolidated Statements of Comprehensive Income (Loss) Three Months Ended June 30, 2018 and 2017 Six Months Ended June 30, 2018 and 2017	4

		Consolidated Balance Sheets June 30, 2018, and December 31, 2017	5

		Consolidated Statements of Shareholders' Equity Six Months Ended June 30, 2018 and 2017	7

		Consolidated Statements of Cash Flows Six Months Ended June 30, 2018 and 2017	8

		Notes to the Consolidated Financial Statements	9

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	65

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94

	Item 4.	Controls and Procedures	95

PART II.		OTHER INFORMATION:

	Item 1.	Legal Proceedings	96

	Item 1A.	Risk Factors	96

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

	Item 6.	Exhibits	98

Items other than those listed above are omitted because they are not required or are not applicable.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Review by Independent Registered Public Accounting Firm

The June 30, 2018, and 2017, consolidated financial statements included in this filing have been reviewed by KPMG LLP, an independent registered public accounting firm, in accordance with established professional standards and procedures for such a review.

The report of KPMG LLP commenting upon its review is included on the following page.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Aflac Incorporated:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Aflac Incorporated and subsidiaries (the Company) as of June 30, 2018, the related consolidated statements of earnings, and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017, the related consolidated statements of shareholders' equity, and cash flows for the six-month periods ended June 30, 2018 and 2017, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Atlanta, Georgia

August 3, 2018

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings



	Three Months Ended June 30,								Six Months Ended June 30,
(In millions, except for share and per-share amounts - Unaudited)	2018				2017				2018				2017
Revenues:
Net premiums, principally supplemental health insurance		$	4,706			$	4,665			$	9,450			$	9,303
Net investment income		862				802				1,699				1,596
Realized investment gains (losses):
Other-than-temporary impairment losses realized		(5		)		(9		)		(12		)		(19		)
Other gains (losses) ⁽¹⁾		8				(47		)		(119		)		(177		)
Total realized investment gains (losses)		3				(56		)		(131		)		(196		)
Other income (loss)		18				17				36				34
Total revenues		5,589				5,428				11,054				10,737
Benefits and expenses:
Benefits and claims, net		3,031				3,039				6,073				6,091
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		303				283				617				577
Insurance commissions		338				335				676				664
Insurance and other expenses		732				665				1,463				1,339
Interest expense		54				61				111				122
Total acquisition and operating expenses		1,427				1,344				2,867				2,702
Total benefits and expenses		4,458				4,383				8,940				8,793
Earnings before income taxes		1,131				1,045				2,114				1,944
Income taxes		299				332				564				639
Net earnings		$	832			$	713			$	1,550			$	1,305
Net earnings per share:
Basic		$	1.08			$	.90			$	2.00			$	1.64
Diluted		1.07				.89				1.98				1.62
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		772,949				792,865				775,734				797,536
Diluted		777,807				798,695				780,814				803,391
Cash dividends per share		$	.26			$	.22			$	.52			$	.43

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended June 30,								Six Months Ended June 30,
(In millions - Unaudited)	2018				2017				2018					2017
Net earnings		$	832			$	713			$	1,550				$	1,305
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		(493		)		9				332					383
Unrealized gains (losses) on fixed maturity securities: ⁽¹⁾
Unrealized holding gains (losses) on fixed maturity securities during period		(506		)		1,075				(2,233		)	⁽²⁾		549
Reclassification adjustment for realized (gains) losses on fixed maturity securities included in net earnings		28				1				26					17
Unrealized gains (losses) on derivatives during period		(2		)		(2		)		4					1
Pension liability adjustment during period		2				0				0					(2		)
Total other comprehensive income (loss) before income taxes		(971		)		1,083				(1,871		)			948
Income tax expense (benefit) related to items of other comprehensive income (loss)		(138		)		314				(469		)	⁽²⁾		177
Other comprehensive income (loss), net of income taxes		(833		)		769				(1,402		)			771
Total comprehensive income (loss)		$	(1	)		$	1,482			$	148				$	2,076

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

⁽²⁾Amounts have been corrected to exclude the cumulative effects of changes in accounting principles for financial instruments and the tax effects from tax reform as identified in the rollforward of Accumulated Other Comprehensive Income within the Consolidated Statements of Shareholder’s Equity.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets



(In millions)	June 30, 2018 (Unaudited)			December 31, 2017
Assets:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturity securities (amortized cost $74,443 in 2018 and $70,594 in 2017) ⁽¹⁾		$	80,679		$	78,804
Fixed maturity securities - consolidated variable interest entities (amortized cost $4,492 in 2018 and $4,538 in 2017) ⁽¹⁾		5,202			5,509
Securities held to maturity, at amortized cost:
Fixed maturity securities (fair value $37,956 in 2018 and $38,072 in 2017)		31,259			31,430
Equity securities, at fair value:
Equity securities ⁽¹⁾		348			270
Equity securities - consolidated variable interest entities		755			753
Other investments ⁽²⁾		5,831			3,402
Cash and cash equivalents		3,847			3,491
Total investments and cash		127,921			123,659
Receivables		892			827
Accrued investment income		769			769
Deferred policy acquisition costs		9,740			9,505
Property and equipment, at cost less accumulated depreciation		448			434
Other ⁽³⁾		2,216			2,023
Total assets		$	141,986		$	137,217

⁽¹⁾Includes perpetual securities, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements

⁽²⁾Includes $4,586 in 2018 and $2,341 in 2017 of loan receivables and limited partnerships from consolidated variable interest entities

⁽³⁾Includes $202 in 2018 and $151 in 2017 of derivatives from consolidated variable interest entities

See the accompanying Notes to the Consolidated Financial Statements.

(continued)

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets (continued)



(In millions, except for share and per-share amounts)	June 30, 2018 (Unaudited)				December 31, 2017
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	85,046			$	81,857
Unpaid policy claims		4,524				4,392
Unearned premiums		5,600				5,959
Other policyholders’ funds		7,140				6,939
Total policy liabilities		102,310				99,147
Income taxes		4,069				4,745
Payables for return of cash collateral on loaned securities		3,712				606
Notes payable		5,315				5,289
Other ⁽⁴⁾		2,780				2,832
Total liabilities		118,186				112,619
Commitments and contingent liabilities (Note 13)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2018 and 2017; issued 1,347,061 shares in 2018 and 1,345,762 shares in 2017		135				135
Additional paid-in capital		2,117				2,052
Retained earnings		30,809				29,895
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,766		)		(1,750		)
Unrealized gains (losses) on fixed maturity securities ⁽⁵⁾		4,836				5,964
Unrealized gains (losses) on derivatives		(23		)		(23		)
Pension liability adjustment		(195		)		(163		)
Treasury stock, at average cost		(12,113		)		(11,512		)
Total shareholders’ equity		23,800				24,598
Total liabilities and shareholders’ equity		$	141,986			$	137,217

⁽⁴⁾Includes $92 in 2018 and $128 in 2017 of derivatives from consolidated variable interest entities

⁽⁵⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity



	Six Months Ended June 30,
(In millions - Unaudited)		2018			2017
Common stock:
Balance, beginning of period		$	135		$	135
Balance, end of period		135			135
Additional paid-in capital:
Balance, beginning of period		2,052			1,908
Exercise of stock options		21			28
Share-based compensation		25			24
Gain (loss) on treasury stock reissued		19			20
Balance, end of period		2,117			1,980
Retained earnings:
Balance, beginning of period		29,895			25,981
Cumulative effect of change in accounting principle - financial instruments, net of income taxes ⁽¹⁾		148			0
Cumulative effect of change in accounting principle - tax effects from tax reform ⁽¹⁾		(374		)	0
Net earnings		1,550			1,305
Dividends to shareholders		(410		)	(344		)
Balance, end of period		30,809			26,942
Accumulated other comprehensive income (loss):
Balance, beginning of period		4,028			2,630
Cumulative effect of change in accounting principle - financial instruments, net of income taxes ⁽¹⁾		(148		)	0
Cumulative effect of change in accounting principle - tax effects from tax reform ⁽¹⁾		374			0
Unrealized foreign currency translation gains (losses) during period, net of income taxes		309			403
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments ⁽¹⁾		(1,714		)	368
Unrealized gains (losses) on derivatives during period, net of income taxes		3			1
Pension liability adjustment during period, net of income taxes		0			(1		)
Balance, end of period		2,852			3,401
Treasury stock:
Balance, beginning of period		(11,512		)	(10,172		)
Purchases of treasury stock		(615		)	(813		)
Cost of shares issued		14			30
Balance, end of period		(12,113		)	(10,955		)
Total shareholders’ equity		$	23,800		$	21,503

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows



	Six Months Ended June 30,
(In millions - Unaudited)	2018				2017
Cash flows from operating activities:
Net earnings		$	1,550			$	1,305
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in receivables and advance premiums		(1		)		8
Capitalization of deferred policy acquisition costs		(716		)		(693		)
Amortization of deferred policy acquisition costs		617				577
Increase in policy liabilities		1,346				1,326
Change in income tax liabilities		(180		)		368
Realized investment (gains) losses		131				196
Other, net		60				78
Net cash provided (used) by operating activities		2,807				3,165
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		3,869				2,574
Equity securities		216				157
Held-to-maturity fixed maturity securities		878				1,311
Other investments - loan receivables		358				90
Costs of investments acquired:
Available-for-sale fixed maturity securities		(6,798		)		(5,662		)
Equity securities		(233		)		(178		)
Other investments - loan receivables		(2,705		)		(492		)
Other investments, excluding loan receivables, net		(175		)		(112		)
Settlement of derivatives, net		(36		)		(34		)
Cash received (pledged or returned) as collateral, net		3,110				(129		)
Other, net		73				(42		)
Net cash provided (used) by investing activities		(1,443		)		(2,517		)
Cash flows from financing activities:
Purchases of treasury stock		(601		)		(813		)
Proceeds from borrowings		0				524
Principal payments under debt obligations		0				(656		)
Dividends paid to shareholders		(396		)		(328		)
Change in investment-type contracts, net		9				23
Treasury stock reissued		12				17
Other, net		(12		)		2
Net cash provided (used) by financing activities		(988		)		(1,231		)
Effect of exchange rate changes on cash and cash equivalents		(20		)		(12		)
Net change in cash and cash equivalents		356				(595		)
Cash and cash equivalents, beginning of period		3,491				4,859
Cash and cash equivalents, end of period		$	3,847			$	4,264
Supplemental disclosures of cash flow information:
Income taxes paid		$	744			$	293
Interest paid		90				103
Noncash interest		21				19
Impairment losses included in realized investment losses		12				19
Noncash financing activities:
Capital lease obligations		10				3
Treasury stock issued for:
Associate stock bonus		5				16
Shareholder dividend reinvestment		8				16
Share-based compensation grants		2				1

See the accompanying Notes to the Consolidated Financial Statements.

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 the United States and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the United States (Aflac U.S.) and, effective April 1, 2018, through Aflac Life Insurance Japan Ltd. in Japan (Aflac Japan). Prior to April 1, 2018, the Company's insurance business was marketed in Japan as a branch of Aflac. American Family Life Assurance Company of New York (Aflac New York) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. Additionally, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. The Company's insurance operations in the United States and Japan service the two markets for the Company's insurance business. Aflac Japan's revenues, including realized gains and losses on its investment portfolio, accounted for 70% and 69% of the Company's total revenues in the six-month periods ended June 30, 2018 and 2017, respectively. The percentage of the Company's total assets attributable to Aflac Japan was 85% at June 30, 2018, compared with 83% at December 31, 2017.

Basis of Presentation

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (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 unpaid policy claims, and income taxes. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders. As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is inherent in these estimates, the Company believes the amounts provided are adequate.

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 June 30, 2018, and December 31, 2017, the consolidated statements of earnings and comprehensive income (loss) for the three- and six-month periods ended June 30, 2018 and 2017, and the consolidated statements of shareholders' equity and cash flows for the six-month periods ended June 30, 2018 and 2017. 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, 2017 (2017 Annual Report).

Stock split: On February 13, 2018, the Board of Directors of the Parent Company declared a two-for-one stock split of the Company’s common stock in the form of a 100% stock dividend payable on March 16, 2018 to shareholders of record at the close of business on March 2, 2018. The stock split was payable in the form of one additional common stock share for every share of common stock held. All equity and share-based data, including the number of shares outstanding and per share amounts, have been adjusted to reflect the stock split for all periods presented in this Quarterly Report on Form 10-Q.

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.

Perpetual securities have been reclassified in prior periods from a separate line item to fixed maturity securities to conform to current period reporting classifications. This reclassification had no impact on net earnings or total shareholder’s equity.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements



Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2018-03 Technical Corrections and Improvements to Financial Instruments - Overall	In February 2018, the FASB issued amendments to clarify certain aspects of the guidance issued in the original Financial Instruments - Overall - Recognition and Measurement pronouncement summarized below. Specifically, for entities who have chosen the measurement alternative approach for equity securities without readily determinable fair values, the amendments clarify that entities may change from a measurement alternative approach to a fair value method through an irrevocable election that would apply to a specific equity security and all identical or similar investments of the same issuer; entities should use an observable price at the date of the transaction rather than reporting date for the measurement alternative calculation; and insurance companies should use a prospective transition method when applying the measurement alternative. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. All entities may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, as long as they have adopted the Financial Instruments - Overall - Recognition and Measurement guidance discussed below.	Early adopted as of January 1, 2018	The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations, or disclosures.



Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
ASU 2018-02 Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	In February 2018, the FASB issued amendments which allow a reclassification from accumulated other comprehensive income (AOCI) to retained earnings of the effects of the change in the U.S. federal income tax rate resulting from the Tax Cuts and Jobs Act (Tax Act) on the gross deferred tax amounts and the corresponding valuation allowances related to items remaining in AOCI. The amendments eliminate the stranded tax effects resulting from the Tax Act and also require certain disclosures about the reclassified tax effects. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Public business entities may early adopt this guidance in any interim reporting period for which financial statements have not yet been issued. The amendments should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized.	Early adopted as of January 1, 2018	The amounts reclassified from AOCI to retained earnings include the income tax effects of the change in the federal corporate tax rate enacted by the Tax Act. The Company’s policy is to follow the portfolio approach for releasing income tax effects from AOCI. The adoption of this guidance resulted in an increase to beginning 2018 AOCI of $374 million with a corresponding decrease to beginning 2018 retained earnings as of January 1, 2018.
ASU 2017-09 Compensation - Stock Compensation: Scope of Modification Accounting	In May 2017, the FASB issued amendments to provide guidance clarifying when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. An entity should apply modification accounting if the fair value, vesting conditions or classification of the award (as an equity instrument or liability instrument) changes as a result of the change in terms or conditions of the award.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-07 Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	In March 2017, the FASB issued amendments requiring that an employer report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.



Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
ASU 2017-05 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	In February 2017, the FASB issued amendments that clarify the scope and accounting guidance for the derecognition of a nonfinancial asset or a financial asset that meets the definition of an "in substance nonfinancial asset." The amendments define an "in substance nonfinancial asset" and provide additional accounting guidance for partial sales of nonfinancial assets.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-01 Business Combinations: Clarifying the Definition of a Business	In January 2017, the FASB issued amendments clarifying when a set of assets and activities is a business. The amendments provide a screen to exclude transactions where substantially all the fair value of the transferred set is concentrated in a single asset, or group of similar assets, from being evaluated as a business.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-18 Statement of Cash Flows: Restricted Cash	In November 2016, the FASB issued amendments requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, statements of cash flows, or disclosures.
ASU 2016-16 Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory	In October 2016, the FASB issued amendments that require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-15 Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments	In August 2016, the FASB issued amendments that provide guidance on eight specific statement of cash flows classification issues.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, statements of cash flows, or disclosures.
ASU 2016-01 Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities	In January 2016, the FASB issued guidance to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions of this guidance require certain equity investments to be measured at fair value with changes in fair value recognized in net earnings; separate presentation in other comprehensive income for changes in fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk; and changes in disclosures associated with the fair value of financial instruments. The guidance also clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset (DTA) related to available-for-sale (AFS) securities in combination with the entity's other DTAs.	January 1, 2018	The Company recorded a cumulative effect adjustment with an increase to beginning 2018 retained earnings and a decrease to beginning 2018 AOCI of $148 million, net of taxes.



Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
ASU 2014-09 Revenue from Contracts with Customers	In May 2014, the FASB issued updated guidance that affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.	January 1, 2018	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.

Accounting Pronouncements Pending Adoption



Standard	Description	Effect on Financial Statements or Other Significant Matters
ASU 2018-10 Codification Improvements to Topic 842, Leases	In July 2018, the FASB issued guidance which clarifies, corrects errors in, or makes minor improvements to the Codification related to ASU 2016-02, Leases (Topic 842). The amendments in this ASU affect narrow aspects of the guidance issued in the amendments to ASU 2016-02, including but not limited to, Residual Value Guarantees, Rate Implicit in the Lease, Lessee Reassessment of Lease Classification and Variable Lease Payments that Depend on an Index or a Rate. Amendments within this ASU follow the effective dates of Topic 842, which are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.	The adoption of this guidance is not expected to have a significant impact on the Company’s financial position, results of operations, or disclosures.
ASU 2018-01 Leases: Land Easement Practical Expedient for Transition to Topic 842	In January 2018, the FASB issued guidance which provides an entity with the option to elect a transition practical expedient to not evaluate, under Topic 842, land easements that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. The amendments clarify that new or modified land easements should be evaluated under the new leases standard once an entity has adopted the new standard. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.	The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-12 Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities	In August 2017, the FASB issued guidance which improves and simplifies the accounting rules around hedge accounting and will create more transparency around how economic results are presented on financial statements. Issues addressed in this new guidance include: 1) risk component hedging, 2) accounting for the hedged item in fair value hedges of interest rate risk, 3) recognition and presentation of the effects of hedging instruments, and 4) amounts excluded from the assessment of hedge effectiveness. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the guidance.	The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.



Standard	Description	Effect on Financial Statements or Other Significant Matters
ASU 2017-08 Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities	In March 2017, the FASB issued amendments to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.	The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-04 Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment	In January 2017, the FASB issued amendments simplifying the subsequent measurement of goodwill. An entity, under this update, is no longer required to perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, the entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments are effective for public business entities that are SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests performed on testing dates after January 1, 2017.	The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments	In June 2016, the FASB issued amendments that require a financial asset (or a group of financial assets) measured on an amortized cost basis to be presented net of an allowance for credit losses in order to reflect the amount expected to be collected on the financial asset(s). The measurement of expected credit losses is amended by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform about a credit loss. Credit losses on available-for-sale debt securities will continue to be measured in a manner similar to current U.S. GAAP; however, the amendments require that credit losses be presented as an allowance rather than as a write-down. Other amendments include changes to the balance sheet presentation and interest income recognition of purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (PCD financial assets). The amendments are effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Companies may early adopt this guidance as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments will be adopted following a modified-retrospective approach resulting in a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption. Two exceptions to this adoption method are for PCD financial assets and debt securities for which other-than-temporary impairment (OTTI) will have been recognized before the effective date. Loans purchased with credit deterioration accounted for under current U.S. GAAP as "purchased credit impaired" (PCI) financial assets will be classified as PCD financial assets at transition and PCD guidance will be applied prospectively. Debt securities that have experienced OTTI before the effective date will follow a prospective adoption method which allows an entity to maintain the same amortized cost basis before and after the effective date.	The Company has identified certain financial instruments in scope of this guidance to include certain fixed maturity securities, loan and loan receivables and reinsurance recoverables (See Notes 3 and 7 for current balances of instruments in scope). The Company is continuing its progress towards updating its credit loss projection models and accounting systems in order to comply with the required changes in measurement of credit losses. The Company currently expects loans and loan receivables and held-to-maturity fixed maturity securities to be the asset classes most significantly impacted upon adoption of the guidance. The Company continues to evaluate the impact of adoption of this guidance on its financial position, results of operations, and disclosures.



Standard	Description	Effect on Financial Statements or Other Significant Matters
ASU 2016-02 Leases	In February 2016, the FASB issued updated guidance for accounting for leases. Per the amendments, lessees will be required to recognize all leases on the balance sheet with the exception of short-term leases. A lease liability will be recorded for the obligation of a lessee to make lease payments arising from a lease. A right-of-use asset will be recorded which represents the lessee’s right to control the use of a specified asset for a lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.	The Company has identified certain operating leases in scope of this guidance to include office space and equipment leases (See Note 15 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for current balances of leases in scope). The leases within scope of this guidance will increase the Company's right-of-use assets and lease liabilities recorded on its statement of financial position, however the Company estimates leases within scope of the guidance to represent less than 1% of its total assets as of June 30, 2018. The Company estimates that the adoption of this guidance will not have a significant impact on its financial position, results of operations, or disclosures.

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

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements in the 2017 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. Operating business segments that are not individually reportable and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S. are included in the "Corporate and other" category.

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. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding realized investment gains and losses, except for amortized hedge costs related to foreign currency denominated investments. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect Aflac’s underlying business performance. The Company excludes income taxes related to operations to arrive at pretax adjusted earnings. Information regarding operations by segment follows:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2018		2017			2018			2017
Revenues:
Aflac Japan:
Net earned premiums	$	3,227	$	3,222		$	6,490		$	6,416
Net investment income, less amortized hedge costs ⁽¹⁾	606		557			1,194			1,115
Other income	11		10			22			20
Total Aflac Japan	3,844		3,789			7,706			7,551
Aflac U.S.:
Net earned premiums	1,426		1,388			2,853			2,778
Net investment income	182		180			357			358
Other income	2		2			4			3
Total Aflac U.S.	1,610		1,570			3,214			3,139
Corporate and other ⁽²⁾	85		70			164			138
Total adjusted revenues	5,539		5,429			11,084			10,828
Realized investment gains (losses) ^(1),(2)	50		(1		)	(30		)	(91		)
Total revenues	$	5,589	$	5,428		$	11,054		$	10,737

⁽¹⁾Amortized hedge costs related to hedging U.S. dollar-denominated investments held in Aflac Japan were $55 and $56 for the three- month periods and $110 and $108 for the six-month periods ended June 30, 2018, and 2017, respectively, and have been reclassified from realized investment gains (losses) and reported as a deduction from net investment income when analyzing segment operations.

⁽²⁾ Amortized hedge costs in Aflac Japan were partially offset by derivatives entered into as part of corporate activities and resulted in a benefit of $7 for the three-month period and $9 for the six-month period ended June 30, 2018, respectively, which has been reclassified from realized investment gains (losses) and reported as an increase in net investment income when analyzing operations.



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2018			2017			2018			2017
Pretax earnings:
Aflac Japan ⁽¹⁾	$	836		$	791		$	1,654		$	1,560
Aflac U.S.	340			330			677			640
Corporate and other ⁽²⁾	(38		)	(48		)	(84		)	(100		)
Pretax adjusted earnings	1,138			1,073			2,247			2,100
Realized investment gains (losses) ^(1),(2),(3)	35			(19		)	(63		)	(128		)
Other income (loss)	(42		)	(9		)	(70		)	(28		)
Total earnings before income taxes	$	1,131		$	1,045		$	2,114		$	1,944
Income taxes applicable to pretax adjusted earnings	$	303		$	342		$	592		$	694
Effect of foreign currency translation on after-tax adjusted earnings	7			(9		)	29			(3		)

⁽¹⁾Amortizedhedge costs related to hedging U.S. dollar-denominated investments held in Aflac Japan were $55 and $56 for the three- month periods and $110 and $108 for the six-month periods ended June 30, 2018, and 2017, respectively, and have been reclassified from realized investment gains (losses) and reported as a deduction from pretax adjusted earnings when analyzing segment operations.

⁽²⁾ Amortized hedge costs in Aflac Japan were partially offset by derivatives entered into as part of corporate activities and resulted in a benefit of $7 for the three-month period and $9 for the six-month period ended June 30, 2018 which has been reclassified from realized investment gains (losses) and reported as an increase in pretax adjusted earnings when analyzing operations.

⁽³⁾Excluding a gain of $17 and $20 for the three-month periods and $33 and $41 for the six-month periods ended June 30, 2018, and 2017, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is included in adjusted earnings when analyzing segment operations

Assets were as follows:



(In millions)	June 30, 2018			December 31, 2017
Assets:
Aflac Japan		$	120,228		$	114,402
Aflac U.S.		19,588			19,893
Corporate and other		2,170			2,922
Total assets		$	141,986		$	137,217


3.	INVESTMENTS

Investment Holdings

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



	June 30, 2018
(In millions)	Cost or Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities: ⁽¹⁾
Yen-denominated:
Japan government and agencies		$	31,384			$	3,742		$	150		$	34,976
Municipalities		375				32			9			398
Mortgage- and asset-backed securities		156				22			0			178
Public utilities		1,663				313			3			1,973
Sovereign and supranational		1,263				188			30			1,421
Banks/financial institutions		5,399				651			126			5,924
Other corporate		4,298				688			6			4,980
Total yen-denominated		44,538				5,636			324			49,850
U.S. dollar-denominated:
U.S. government and agencies		133				8			1			140
Municipalities		1,396				135			1			1,530
Mortgage- and asset-backed securities		162				8			1			169
Public utilities		4,939				555			103			5,391
Sovereign and supranational		264				58			0			322
Banks/financial institutions		2,871				417			30			3,258
Other corporate		24,632				1,569			980			25,221
Total U.S. dollar-denominated		34,397				2,750			1,116			36,031
Total securities available for sale		$	78,935	⁽¹⁾		$	8,386		$	1,440		$	85,881	⁽¹⁾

⁽¹⁾Includes perpetual securities ($1,446 at amortized cost and $1,612 at fair value)



	June 30, 2018
(In millions)	Cost or Amortized Cost			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		$	21,808		$	5,409		$	0		$	27,217
Municipalities		363			111			0			474
Mortgage- and asset-backed securities		16			1			0			17
Public utilities		3,236			317			1			3,552
Sovereign and supranational		1,557			286			0			1,843
Banks/financial institutions		1,532			178			10			1,700
Other corporate		2,747			406			0			3,153
Total yen-denominated		31,259			6,708			11			37,956
Total securities held to maturity		$	31,259		$	6,708		$	11		$	37,956

June 30, 2018

(In millions)

Fair
Value

Equity securities, carried at fair value through

net earnings:

Equity securities: ⁽¹⁾

Yen-denominated

712

U.S. dollar-denominated

391

Total equity securities

1,103

⁽¹⁾

⁽¹⁾Includes perpetual securities ($69 at fair value)



	December 31, 2017
(In millions)	Cost or Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities: ⁽¹⁾
Yen-denominated:
Japan government and agencies		$	27,980			$	3,363		$	271		$	31,072
Municipalities		314				28			12			330
Mortgage- and asset-backed securities		242				29			0			271
Public utilities		1,635				352			6			1,981
Sovereign and supranational		1,380				190			1			1,569
Banks/financial institutions		4,742				811			53			5,500
Other corporate		4,085				809			7			4,887
Total yen-denominated		40,378				5,582			350			45,610
U.S dollar-denominated:
U.S. government and agencies		146				13			1			158
Municipalities		872				168			0			1,040
Mortgage- and asset-backed securities		161				12			0			173
Public utilities		5,116				884			27			5,973
Sovereign and supranational		267				73			0			340
Banks/financial institutions		2,808				633			8			3,433
Other corporate		25,384				2,620			418			27,586
Total U.S. dollar-denominated		34,754				4,403			454			38,703
Total securities available for sale		$	75,132	⁽¹⁾		$	9,985		$	804		$	84,313	⁽¹⁾

⁽¹⁾Includes perpetual securities ($1,462 at amortized cost and $1,789 at fair value)



	December 31, 2017
(In millions)	Cost or Amortized Cost			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		$	21,331		$	5,160		$	0		$	26,491
Municipalities		357			105			0			462
Mortgage- and asset-backed securities		26			1			0			27
Public utilities		3,300			398			0			3,698
Sovereign and supranational		1,523			312			0			1,835
Banks/financial institutions		2,206			190			9			2,387
Other corporate		2,687			485			0			3,172
Total yen-denominated		31,430			6,651			9			38,072
Total securities held to maturity		$	31,430		$	6,651		$	9		$	38,072

December 31, 2017

(In millions)

Fair
Value

Equity securities, carried at fair value:

Equity securities:

Yen-denominated

695

U.S. dollar-denominated

328

Total equity securities

1,023

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 and second quarters of 2018, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the second quarter of 2017, the Company reclassified three investments from the held-to-maturity category to the available-for-sale category as a result of the issuers' credit rating being downgraded to below investment grade. At the time of the transfer, the securities had an amortized cost of $773 million and an unrealized gain of $47 million. During the first quarter of 2017, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at June 30, 2018, were as follows:



(In millions)	Amortized Cost			Fair Value
Available for sale: ⁽¹⁾
Due in one year or less		$	348		$	359
Due after one year through five years		3,910			4,070
Due after five years through 10 years		11,813			11,912
Due after 10 years		62,547			69,193
Mortgage- and asset-backed securities		317			347
Total fixed maturity securities available for sale		$	78,935		$	85,881
Held to maturity:
Due in one year or less		$	498		$	505
Due after one year through five years		353			366
Due after five years through 10 years		1,585			1,715
Due after 10 years		28,807			35,353
Mortgage- and asset-backed securities		16			17
Total fixed maturity securities held to maturity		$	31,259		$	37,956

⁽¹⁾Includes perpetual securities, categorized in accordance with their respective economic maturities (the expected maturity date created by the combination of features in the financial instrument)

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

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:



	June 30, 2018			December 31, 2017
(In millions)	Credit Rating	Amortized Cost	Fair Value	Credit Rating	Amortized Cost	Fair Value
Japan National Government⁽¹⁾	A+	$51,881	$60,734	A	$48,399	$56,532

⁽¹⁾Japan Government Bonds (JGBs) or JGB-backed securities

Realized Investment Gains and Losses

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



	Three Months Ended June 30,							Six Months Ended June 30,
(In millions)	2018			2017				2018			2017
Realized investment gains (losses):
Fixed maturity securities: ⁽¹⁾
Available for sale:
Gross gains from sales	$	12		$	10			$	22		$	22
Gross losses from sales	(71		)	(8		)		(73		)	(19		)
Foreign exchange gains (losses)	29			(18		)		24			(50		)
Other-than-temporary impairment losses	(2		)	(1		)		(2		)	(4		)
Total fixed maturity securities	(32		)	(17		)		(29		)	(51		)
Equity securities^(1),(2)	18			15			⁽³⁾	(28		)	34			⁽³⁾
Loan loss reserves	(3		)	(2		)		(10		)	(3		)
Derivatives and other:
Derivative gains (losses)	(172		)	(51		)		(28		)	(103		)
Foreign currency gains (losses)	192			(1		)		(36		)	(73		)
Total derivatives and other	20			(52		)		(64		)	(176		)
Total realized investment gains (losses)	$	3		$	(56	)		$	(131	)	$	(196	)

⁽¹⁾Includes perpetual securities

⁽²⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

⁽³⁾Includes impairments of $6 for the three-month period and $12 for the six-month period ended June 30, 2017

The unrealized holding gains, net of losses, recorded as a component of realized investment gains and losses for the three-month period ended June 30, 2018, that relates to equity securities still held at the June 30, 2018, reporting date was $19 million. The unrealized holding losses, net of gains, recorded as a component of realized investment gains and losses for the six-month period ended June 30, 2018, that relates to equity securities still held at the June 30, 2018, reporting date was $24 million.

Unrealized Investment Gains and Losses

Effect on Shareholders’ Equity

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



(In millions)	June 30, 2018				December 31, 2017
Unrealized gains (losses) on securities available for sale		$	6,946			$	9,358
Deferred income taxes		(2,110		)		(3,394		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	4,836			$	5,964

See Note 1 for discussion of the accounting treatment of tax on amounts recorded in accumulated other comprehensive income pursuant to the Tax Act and for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale and held-to-maturity investments that were in an unrealized loss position, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.



	June 30, 2018
	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: ⁽¹⁾
U.S. government and agencies:
U.S. dollar-denominated		$	78		$	1		$	74		$	1		$	4		$	0
Japan government and agencies:
Yen-denominated		3,647			150			0			0			3,647			150
Municipalities:
U.S. dollar-denominated		261			1			261			1			0			0
Yen-denominated		137			9			13			0			124			9
Mortgage- and asset- backed securities:
U.S. dollar-denominated		86			1			71			1			15			0
Public utilities:
U.S. dollar-denominated		1,664			103			1,200			52			464			51
Yen-denominated		268			4			180			1			88			3
Sovereign and supranational:
U.S. dollar-denominated		13			0			13			0			0			0
Yen-denominated		286			30			286			30			0			0
Banks/financial institutions:
U.S. dollar-denominated		696			30			561			20			135			10
Yen-denominated		2,344			136			1,478			50			866			86
Other corporate:
U.S. dollar-denominated		13,044			980			8,391			362			4,653			618
Yen-denominated		409			6			294			4			115			2
Total		$	22,933		$	1,451		$	12,822		$	522		$	10,111		$	929

⁽¹⁾Includes perpetual securities



	December 31, 2017
	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: ⁽¹⁾
U.S. government and agencies:
U.S. dollar-denominated		$	74		$	1		$	74		$	1		$	0		$	0
Japan government and agencies:
Yen-denominated		5,255			271			1,264			9			3,991			262
Municipalities:
Yen-denominated		129			12			10			0			119			12
Public utilities:
U.S. dollar-denominated		785			27			221			3			564			24
Yen-denominated		83			6			0			0			83			6
Sovereign and supranational:
Yen-denominated		309			1			309			1			0			0
Banks/financial institutions:
U.S. dollar-denominated		362			8			316			5			46			3
Yen-denominated		1,507			62			394			4			1,113			58
Other corporate:
U.S. dollar-denominated		7,741			418			2,839			50			4,902			368
Yen-denominated		440			7			349			4			91			3
Total		$	16,685		$	813		$	5,776		$	77		$	10,909		$	736

⁽¹⁾Includes perpetual securities

Analysis of Securities in Unrealized Loss Positions

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

For any significant declines in fair value of its fixed maturity securities, the Company performs a more focused review of the related issuers' 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.

Assuming no credit-related factors develop, unrealized gains and losses on fixed maturity securities are expected to diminish as investments near maturity. Based on its credit analysis, the Company believes that the issuers of its fixed maturity investments in the sectors shown in the table above have the ability to service their obligations to the Company.

Other Investments

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



(In millions)	June 30, 2018			December 31, 2017
Other investments:
Transitional real estate loans		$	3,247		$	1,235
Commercial mortgage loans		966			908
Middle market loans		1,097			859
Policy loans		222			210
Short-term investments		1			57
Other		298			133
Total other investments		$	5,831		$	3,402

Loans and Loan Receivables

The Company classifies its transitional real estate loans (TREs), commercial mortgage loans (CMLs) and middle market loans (MMLs) as held-for-investment and includes them in the other investments line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for loan losses. The Company's allowance for loan losses is established using both general and specific allowances. The general allowance is used for loans grouped by similar risk characteristics where a loan-specific or market-specific risk has not been identified, but for which the Company estimates probable incurred losses. The specific allowance is used on an individual loan basis when it is probable that a loss has been incurred. As of June 30, 2018, and December 31, 2017, the Company's allowance for loan losses was $21 million and $11 million, respectively. As of June 30, 2018, and December 31, 2017, the Company had no loans that were past due in regards to principal and/or interest payments. Additionally, the Company held no loans that were on nonaccrual status or considered impaired as of June 30, 2018, and December 31, 2017. The Company had no troubled debt restructurings during the six months ended June 30, 2018 and 2017.

Transitional Real Estate Loans

Transitional real estate loans 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. As of June 30, 2018, the Company had $1.2 billion in outstanding commitments to fund transitional real estate loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

As of June 30, 2018, the Company had $79 million in outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

Middle market loans are generally considered to be below investment grade. The carrying value for middle market loans included an unfunded amount of $90 million and $109 million, as of June 30, 2018, and December 31, 2017, respectively, that is reflected in other liabilities on the consolidated balance sheets.

As of June 30, 2018, the Company had commitments of approximately $774 million to fund potential future loan originations related to this investment program. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

Other

Other investments primarily includes investments in limited partnerships. As of June 30, 2018, the Company had $1.1 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

As a condition of its involvement or investment in a VIE, the Company enters into certain protective rights and covenants that preclude changes in the structure of the VIE that would alter the creditworthiness of the Company's investment or its beneficial interest in the VIE.

For those VIEs other than certain unit trust structures, the Company's involvement is passive in nature. The Company has not, nor has it been, required to purchase any securities issued in the future by these VIEs.

The Company's ownership interest in VIEs is limited to holding the obligations issued by them. The Company has no direct or contingent obligations to fund the limited activities of these VIEs, nor does it have any direct or indirect financial guarantees related to the limited activities of these VIEs. The Company has not provided any assistance or any other type of financing support to any of the VIEs it invests in, nor does it have any intention to do so in the future. For those VIEs in which the Company holds debt obligations, the weighted-average lives of the Company's notes are very similar to the underlying collateral held by these VIEs where applicable.

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 held in the VIE.

VIEs - Consolidated

The following table presents the cost or amortized cost, fair value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported.

Investments in Consolidated Variable Interest Entities



	June 30, 2018						December 31, 2017
(In millions)	Cost or Amortized Cost			Fair Value			Cost or Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale ⁽¹⁾		$	4,492		$	5,202		$	4,538		$	5,509
Equity securities		755			755			606			753
Other investments ⁽²⁾		4,586			4,577			2,341			2,328
Other assets ⁽³⁾		202			202			151			151
Total assets of consolidated VIEs		$	10,035		$	10,736		$	7,636		$	8,741
Liabilities:
Other liabilities ⁽³⁾		$	92		$	92		$	128		$	128
Total liabilities of consolidated VIEs		$	92		$	92		$	128		$	128

⁽¹⁾ Includes perpetual securities

⁽²⁾ Consists of TREs, CMLs, MMLs, and alternative investments in limited partnerships

⁽³⁾ Consists entirely of derivatives

The Company is substantively the only investor in the consolidated VIEs listed in the table above. As the sole investor in these VIEs, the Company has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and is therefore considered to be the primary beneficiary of the VIEs that it consolidates. The Company also participates in substantially all of the variability created by these VIEs. The activities of these VIEs are limited to holding invested assets and foreign currency, and/or credit default swaps (CDS), as appropriate, and utilizing the cash flows from these securities to service its investment. Neither the Company nor any of its creditors are able to obtain the underlying collateral of the VIEs unless there is an event of default or other specified event. For those VIEs that contain a swap, the Company is not a direct counterparty to the swap contracts and has no control over them. The Company's loss exposure to these VIEs is limited to its original investment. The Company's consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and swap contracts, if applicable. With the exception of its investment in unit trust structures, the underlying collateral assets and funding of the Company's consolidated VIEs are generally static in nature and the underlying collateral and the reference corporate entities covered by any CDS contracts were all investment grade at the time of issuance.

Investments in Unit Trust Structures

The Company also utilizes unit trust structures in its Aflac Japan segment to invest in various asset classes. As the sole investor of these VIEs, the Company is required to consolidate these trusts under U.S. GAAP.

VIEs-Not Consolidated

The table below reflects the amortized cost, fair value and balance sheet caption in which the Company's investment in VIEs not consolidated are reported.

Investments in Variable Interest Entities Not Consolidated



	June 30, 2018						December 31, 2017
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale ⁽¹⁾		$	4,870		$	5,358		$	5,004		$	5,724
Fixed maturity securities, held to maturity		2,469			2,795			2,549			2,929
Other investments		106			106			55			55
Total investments in VIEs not consolidated		$	7,445		$	8,259		$	7,608		$	8,708

⁽¹⁾ Includes perpetual securities

The Company holds alternative investments in limited partnerships that have been determined to be VIEs. These partnerships invest in private equity and structured investments. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment. 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.

Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations from the VIEs that are irrevocably and unconditionally guaranteed by their corporate parents or sponsors. These VIEs 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 entity or the right to receive benefits from the entity. As such, the Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them.

Securities Lending and Pledged Securities

The Company lends fixed maturity and public equity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. The Company's security lending policy requires that the fair value of the securities and/or unrestricted cash received as collateral be 102% or more of the fair value of the loaned securities. These securities 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. The Company receives cash or other securities as collateral for such loans. 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.

Details of the Company's securities lending activities were as follows:



Securities Lending Transactions Accounted for as Secured Borrowings
June 30, 2018
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		30-90 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	2,942	353		$	3,295
Public utilities	13		0		0		13
Banks/financial institutions	60		0		0		60
Other corporate	335		0		0		335
Equity securities	9		0		0		9
Total borrowings	$	417	$	2,942	$	353	$	3,712
Gross amount of recognized liabilities for securities lending transactions							$	3,712
Amounts related to agreements not included in offsetting disclosure in Note 4							$	0

⁽¹⁾These securities are pledged as collateral under the Company's U.S. securities lending program and can be called at its discretion; therefore, they are classified as Overnight and Continuous.



Securities Lending Transactions Accounted for as Secured Borrowings
December 31, 2017
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	49	$	49
Public utilities	73		0		73
Banks/financial institutions	54		0		54
Other corporate	415		0		415
Equity securities	15		0		15
Total borrowings	$	557	$	49	$	606
Gross amount of recognized liabilities for securities lending transactions					$	606
Amounts related to agreements not included in offsetting disclosure in Note 4					$	0

⁽¹⁾These securities are pledged as collateral under the Company's U.S. securities lending program and can be called at its discretion; therefore, they are classified as Overnight and Continuous.

The Company did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of June 30, 2018, and December 31, 2017, respectively.

Certain fixed maturity securities can be pledged as collateral as part of derivative transactions, or pledged to support state deposit requirements or certain investment programs. For additional information regarding pledged securities related to derivative transactions, see Note 4.


4.	DERIVATIVE INSTRUMENTS

The Company's freestanding derivative financial instruments have historically consisted of: (1) foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio; (2) 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; (3) swaps associated with the Company's notes payable, consisting of cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and its subordinated debentures; and (4) foreign currency swaps and credit default swaps that are associated with investments in special-purpose entities, including VIEs where the Company is the primary beneficiary. The Company does not use derivative financial instruments for trading purposes, nor does it engage in leveraged derivative transactions. 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 are 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. Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase a fixed amount of U.S. dollar put options and sell U.S. dollar call options. The combination of these two actions results in no net premium being paid (i.e. a costless or zero-cost collar). The foreign currency forwards and options are used in fair value hedging relationships to mitigate the foreign exchange risk associated with U.S. dollar-denominated investments supporting yen-denominated liabilities.

Foreign currency forwards and options are also used to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, Aflac 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 uses 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.

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 currencies at a future date at an agreed upon exchange rate. 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.

The only CDS that the Company currently holds relates to components of an investment in a VIE and is used to assume credit risk related to an individual security. This CDS contract entitles the consolidated VIE to receive periodic fees in exchange for an obligation to compensate the derivative counterparties should the referenced security issuer experience a credit event, as defined in the contract.

Derivative Balance Sheet Classification

The tables below summarize 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. 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.



		June 30, 2018										December 31, 2017
(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		$	75		$	1		$	(4	)		$	75		$	0		$	(8	)
Total cash flow hedges		75			1			(4		)		75			0			(8		)
Fair value hedges:
Foreign currency forwards		3,310			17			(3		)		7,640			2			(221		)
Foreign currency options		9,225			0			(5		)		7,670			0			(2		)
Total fair value hedges		12,535			17			(8		)		15,310			2			(223		)
Net investment hedge:
Foreign currency forwards		0			0			0				5			0			0
Foreign currency options		0			0			0				434			12			(1		)
Total net investment hedge		0			0			0				439			12			(1		)
Non-qualifying strategies:
Foreign currency swaps		5,390			320			(223		)		5,386			296			(189		)
Foreign currency forwards		10,410			119			(132		)		3,683			20			(53		)
Foreign currency options		303			0			0				770			0			0
Credit default swaps		90			0			0				88			1			0
Total non-qualifying strategies		16,193			439			(355		)		9,927			317			(242		)
Total derivatives		$	28,803		$	457		$	(367	)		$	25,751		$	331		$	(474	)
Balance Sheet Location
Other assets		$	17,559		$	457		$	0			$	10,948		$	331		$	0
Other liabilities		11,244			0			(367		)		14,803			0			(474		)
Total derivatives		$	28,803		$	457		$	(367	)		$	25,751		$	331		$	(474	)

Cash Flow Hedges

Certain of the Company's consolidated VIEs have foreign currency swaps that qualify for hedge accounting treatment. For those that have qualified, the Company has designated the derivative 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 maximum length of time for which these cash flows are hedged is eight years. The remaining derivatives in the Company's consolidated VIEs that have not qualified for hedge accounting are included in “non-qualifying strategies.”

Fair Value Hedges

The Company designates and accounts for certain foreign currency forwards and options as fair value hedges when they meet the requirements for hedge accounting. These foreign currency forwards and options hedge the foreign currency exposure of certain U.S. dollar-denominated investments held in Aflac Japan. The Company recognizes gains and losses on these derivatives and the related hedged items in current earnings within other gains (losses). 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 excluded from the assessment of hedge effectiveness.

The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges.

Fair Value Hedging Relationships



(In millions)		Hedging Derivatives									Hedged Items
Hedging Derivatives	Hedged Items	Total Gains (Losses)			Gains (Losses) Excluded from Effectiveness Testing			Gains (Losses) Included in Effectiveness Testing			Gains (Losses)			Ineffectiveness Recognized for Fair Value Hedge
Three Months Ended June 30, 2018:
Foreign currency forwards	Fixed maturity securities	$	(215	)	$	(30	)	$	(185	)	$	186		$	1
Foreign currency options	Fixed maturity securities	(2		)	(2		)	0			0			0
Six Months Ended June 30, 2018:
Foreign currency forwards	Fixed maturity securities	$	199		$	(69	)	$	268		$	(278	)	$	(10	)
Foreign currency options	Fixed maturity securities	(3		)	(3		)	0			0			0
Three Months Ended June 30, 2017:
Foreign currency forwards	Fixed maturity and equity securities	$	(34	)	$	(50	)	$	16		$	(15	)	$	1
Foreign currency options	Fixed maturity securities	(7		)	(7		)	0			0			0
Six Months Ended June 30, 2017:
Foreign currency forwards	Fixed maturity and equity securities	$	307		$	(98	)	$	405		$	(387	)	$	18
Foreign currency options	Fixed maturity securities	17			6			11			(10		)	1

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 8) have been designated as non-derivative hedges and, prior to April 1, 2018, foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and six-month periods ended June 30, 2018 and 2017, 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 realized investment 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 through current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded through other comprehensive income.

As of June 30, 2018, the Parent Company had cross-currency interest rate swap agreements related to its $550 million senior notes due March 2020, $350 million senior notes due February 2022, $700 million senior notes due June 2023, $750 million senior notes due November 2024 and $450 million senior notes due March 2025. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 8 in this report and Note 9 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report.

The Company uses foreign exchange forwards and options to mitigate the currency risk of some of its U.S. dollar-denominated loan receivables held within the Aflac Japan segment. The Company has not elected to apply hedge

accounting for these loan receivables due to the change in fair value of the foreign exchange forwards and the foreign currency remeasurement of the loan receivables being recorded through current period earnings, and generally offsetting each other within realized investment gains (losses).

In order to economically mitigate currency risk of future yen dividends from Aflac Japan while lowering consolidated hedge costs associated with Aflac Japan's U.S. dollar investment hedging, starting in the first quarter of 2018, the Parent Company began entering into offsetting hedge positions using foreign exchange forwards. This activity is reported in the Corporate and other segment.

Impact of Derivatives and Hedging Instruments

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



	Three Months Ended June 30,																Six Months Ended June 30,
	2018								2017								2018								2017
(In millions)	Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps		$	0			$	(2	)		$	0			$	(2	)		$	1			$	4			$	0			$	1
Total cash flow hedges		0				(2		)		0				(2		)		1				4				0				1
Fair value hedges:
Foreign currency forwards⁽²⁾		(29		)						(49		)						(79		)						(80		)
Foreign currency options⁽²⁾		(2		)						(7		)						(3		)						7
Total fair value hedges		(31		)						(56		)						(82		)						(73		)
Net investment hedge:
Non- derivative hedging instruments		0				55				0				(1		)		0				(29		)		0				(18		)
Foreign currency forwards		0				0				0				(19		)		0				0				0				(28		)
Foreign currency options		0				0				0				31				0				(8		)		0				8
Total net investment hedge		0				55				0				11				0				(37		)		0				(38		)
Non-qualifying strategies:
Foreign currency swaps		14								34								28								26
Foreign currency forwards		(154		)						(29		)						25								(56		)
Foreign currency options		(1		)						0								0								0
Total non- qualifying strategies		(141		)						5								53								(30		)
Total		$	(172	)		$	53			$	(51	)		$	9			$	(28	)		$	(33	)		$	(103	)		$	(37	)

⁽¹⁾Cash flow hedge items are recorded as unrealized gains (losses) on derivatives and net investment hedge items are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

⁽²⁾ Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)

The Company reclassified an immaterial amount related to its cash flow hedges from accumulated other comprehensive income (loss) into earnings for the three- and six-month periods ended June 30, 2018 and 2017. There was no gain or loss reclassified from accumulated other comprehensive income (loss) into earnings related to the net investment hedge for the three- and six-month periods ended June 30, 2018 and 2017. As of June 30, 2018, deferred

gains and losses on derivative instruments recorded in accumulated other comprehensive income that are expected to be reclassified to earnings during the next twelve months were immaterial.

Credit Risk Assumed through Derivatives

For the foreign currency and credit default 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; foreign currency options; and interest rate swaptions, 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, foreign currency options and interest rate swaptions is mitigated by collateral posting requirements that counterparties to those transactions must meet.

As of June 30, 2018, there were 15 counterparties to the Company's derivative agreements, with four comprising 60% of the aggregate notional amount. The counterparties to these derivatives are financial institutions with the following credit ratings:



	June 30, 2018										December 31, 2017
(In millions)	Notional Amount of Derivatives			Asset Derivatives Fair Value			Liability Derivatives Fair Value				Notional Amount of Derivatives			Asset Derivatives Fair Value			Liability Derivatives Fair Value
Counterparties' credit rating:
AA		$	5,122		$	78		$	(12	)		$	4,708		$	52		$	(37	)
A		23,237			375			(302		)		20,604			271			(370		)
BBB		444			4			(53		)		439			8			(67		)
Total		$	28,803		$	457		$	(367	)		$	25,751		$	331		$	(474	)

The Company engages in 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 Aflac’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.

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 $160 million and $264 million as of June 30, 2018, and December 31, 2017, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2018, the Company estimates that it would be required to post a maximum of $36 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 Aflac and its 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.

Offsetting of Financial Assets and Derivative Asset



June 30, 2018
										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		$	255		$	0		$	255		$	(138	)	$	(32	)		$	(82	)		$	3
Derivative assets not subject to a master netting agreement or offsetting arrangement		202						202														202
Total derivative assets		457			0			457			(138		)	(32		)		(82		)		205
Securities lending and similar arrangements		3,638			0			3,638			0			0				(3,638		)		0
Total		$	4,095		$	0		$	4,095		$	(138	)	$	(32	)		$	(3,720	)		$	205



December 31, 2017
										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		$	180		$	0		$	180		$	(82	)	$	0		$	(98	)		$	0
Derivative assets not subject to a master netting agreement or offsetting arrangement		151						151													151
Total derivative assets		331			0			331			(82		)	0			(98		)		151
Securities lending and similar arrangements		592			0			592			0			0			(592		)		0
Total		$	923		$	0		$	923		$	(82	)	$	0		$	(690	)		$	151

Offsetting of Financial Liabilities and Derivative Liabilities



June 30, 2018
												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		$	(276	)		$	0		$	(276	)		$	138	$	73		$	51		$	(14	)
Derivative liabilities not subject to a master netting agreement or offsetting arrangement		(91		)					(91		)										(91		)
Total derivative liabilities		(367		)		0			(367		)		138		73			51			(105		)
Securities lending and similar arrangements		(3,712		)		0			(3,712		)		3,638		0			0			(74		)
Total		$	(4,079	)		$	0		$	(4,079	)		$	3,776	$	73		$	51		$	(179	)



December 31, 2017
												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		$	(346	)		$	0		$	(346	)		$	82	$	245		$	10		$	(9	)
Derivative liabilities not subject to a master netting agreement or offsetting arrangement		(128		)					(128		)										(128		)
Total derivative liabilities		(474		)		0			(474		)		82		245			10			(137		)
Securities lending and similar arrangements		(606		)		0			(606		)		592		0			0			(14		)
Total		$	(1,080	)		$	0		$	(1,080	)		$	674	$	245		$	10		$	(151	)

For additional information on the Company's financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in the 2017 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. 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.

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.



	June 30, 2018
(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:⁽¹⁾
Government and agencies		$	33,591		$	1,525		$	0		$	35,116
Municipalities		0			1,928			0			1,928
Mortgage- and asset-backed securities		0			169			178			347
Public utilities		0			7,258			106			7,364
Sovereign and supranational		0			1,743			0			1,743
Banks/financial institutions		0			9,159			23			9,182
Other corporate		0			30,005			196			30,201
Total fixed maturity securities		33,591			51,787			503			85,881		⁽¹⁾
Equity securities ⁽¹⁾		1,011			75			17			1,103		⁽¹⁾
Other investments		1			0			0			1
Cash and cash equivalents		3,847			0			0			3,847
Other assets:
Foreign currency swaps		0			119			202			321
Foreign currency forwards		0			136			0			136
Total other assets		0			255			202			457
Total assets		$	38,450		$	52,117		$	722		$	91,289
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	135		$	92		$	227
Foreign currency forwards		0			135			0			135
Foreign currency options		0			5			0			5
Total liabilities		$	0		$	275		$	92		$	367

⁽¹⁾Includes perpetual securities



	December 31, 2017
(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: ⁽¹⁾
Government and agencies		$	30,109		$	1,121		$	0		$	31,230
Municipalities		0			1,370			0			1,370
Mortgage- and asset-backed securities		0			269			175			444
Public utilities		0			7,886			68			7,954
Sovereign and supranational		0			1,909			0			1,909
Banks/financial institutions		0			8,908			25			8,933
Other corporate		0			32,327			146			32,473
Total fixed maturity securities		30,109			53,790			414			84,313		⁽¹⁾
Equity securities		1,001			6			16			1,023
Other investments		57			0			0			57
Cash and cash equivalents		3,491			0			0			3,491
Other assets:
Foreign currency swaps		0			146			150			296
Foreign currency forwards		0			22			0			22
Foreign currency options		0			12			0			12
Credit default swaps		0			0			1			1
Total other assets		0			180			151			331
Total assets		$	34,658		$	53,976		$	581		$	89,215
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	69		$	128		$	197
Foreign currency forwards		0			274			0			274
Foreign currency options		0			3			0			3
Total liabilities		$	0		$	346		$	128		$	474

⁽¹⁾Includes perpetual securities

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.



	June 30, 2018
(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		$	21,808		$	27,209		$	8		$	0		$	27,217
Municipalities		363			0			474			0			474
Mortgage and asset-backed securities		16			0			0			17			17
Public utilities		3,236			0			3,552			0			3,552
Sovereign and supranational		1,557			0			1,843			0			1,843
Banks/financial institutions		1,532			0			1,700			0			1,700
Other corporate		2,747			0			3,153			0			3,153
Other investments ⁽¹⁾		5,329			0			19			5,297			5,316
Total assets		$	36,588		$	27,209		$	10,749		$	5,314		$	43,272
Liabilities:
Other policyholders’ funds		$	7,140		$	0		$	0		$	7,060		$	7,060
Notes payable (excluding capital leases)		5,299			0			5,110			270			5,380
Total liabilities		$	12,439		$	0		$	5,110		$	7,330		$	12,440

⁽¹⁾ Excludes policy loans of $222 and equity method investments of $279, at carrying value



	December 31, 2017
(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		$	21,331		$	26,491		$	0		$	0		$	26,491
Municipalities		357			0			462			0			462
Mortgage and asset-backed securities		26			0			8			19			27
Public utilities		3,300			0			3,698			0			3,698
Sovereign and supranational		1,523			0			1,835			0			1,835
Banks/financial institutions		2,206			0			2,387			0			2,387
Other corporate		2,687			0			3,172			0			3,172
Other investments ⁽¹⁾		3,017			0			15			2,987			3,002
Total assets		$	34,447		$	26,491		$	11,577		$	3,006		$	41,074
Liabilities:
Other policyholders’ funds		$	6,939		$	0		$	0		$	6,841		$	6,841
Notes payable (excluding capital leases)		5,267			0			5,288			265			5,553
Total liabilities		$	12,206		$	0		$	5,288		$	7,106		$	12,394

⁽¹⁾ Excludes policy loans of $210 and equity method investments of $118, at carrying value

Fair Value of Financial Instruments

Fixed maturity and equity securities

The Company determines the fair values of fixed maturity securities and public and privately-issued equity securities using the following approaches or techniques: price quotes and valuations from third party pricing vendors (including quoted market prices readily available from public exchange markets) and non-binding price quotes the Company obtains from outside brokers.

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities to reflect the impact of the persistent economic environment and the changing regulatory framework. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the CDS market to estimate expected cash flows. These 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. 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 the specific security features, the valuation methodology takes into consideration other market observable inputs, including: 1) the most appropriate comparable security(ies) of the issuer; 2) issuer-specific CDS spreads; 3) bonds or CDS spreads of comparable issuers with similar characteristics such as rating, geography, or sector; or 4) bond indices that are comparative in rating, industry, maturity and region.

The pricing data and market quotes the Company obtains from outside sources, including third party pricing services, are reviewed internally for reasonableness. If a fair value appears unreasonable, the Company will re-examine the inputs and assess the reasonableness of the pricing data with the vendor. 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 to confirm that the valuations represent reasonable estimates of fair value.

The fixed maturity securities classified as Level 3 consist of securities with limited or no observable valuation inputs. For Level 3 securities, the Company estimates the fair value of these securities by obtaining non-binding broker quotes from a limited number of brokers. These brokers base their quotes on a combination of their knowledge of the current pricing environment and market conditions. The Company considers these inputs to be unobservable. The Company also considers a variety of significant valuation inputs in the valuation process, including forward exchange rates, yen swap rates, dollar swap rates, interest rate volatilities, credit spread data on specific issuers, assumed default and default recovery rates, and certain probability assumptions. In obtaining these valuation inputs, the Company has determined that certain pricing assumptions and data used by its pricing sources are difficult to validate or corroborate by the market and/or appear to be internally developed rather than observed in or corroborated by the market. The use of these unobservable valuation inputs causes more subjectivity in the valuation process for these securities.

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

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



	June 30, 2018
(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: ⁽¹⁾
Government and agencies:
Third party pricing vendor		$	33,591		$	1,525		$	0		$	35,116
Total government and agencies		33,591			1,525			0			35,116
Municipalities:
Third party pricing vendor		0			1,928			0			1,928
Total municipalities		0			1,928			0			1,928
Mortgage- and asset-backed securities:
Third party pricing vendor		0			169			0			169
Broker/other		0			0			178			178
Total mortgage- and asset-backed securities		0			169			178			347
Public utilities:
Third party pricing vendor		0			7,258			0			7,258
Broker/other		0			0			106			106
Total public utilities		0			7,258			106			7,364
Sovereign and supranational:
Third party pricing vendor		0			1,743			0			1,743
Total sovereign and supranational		0			1,743			0			1,743
Banks/financial institutions:
Third party pricing vendor		0			8,959			0			8,959
Broker/other		0			200			23			223
Total banks/financial institutions		0			9,159			23			9,182
Other corporate:
Third party pricing vendor		0			30,005			0			30,005
Broker/other		0			0			196			196
Total other corporate		0			30,005			196			30,201
Total securities available for sale		$	33,591		$	51,787		$	503		$	85,881	⁽¹⁾
Equity securities, carried at fair value: ⁽¹⁾
Third party pricing vendor		$	961		$	75		$	0		$	1,036
Broker/other		50			0			17			67
Total equity securities		$	1,011		$	75		$	17		$	1,103	⁽¹⁾

⁽¹⁾Includes perpetual securities



	June 30, 2018
(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		$	27,209		$	8		$	0		$	27,217
Total government and agencies		27,209			8			0			27,217
Municipalities:
Third party pricing vendor		0			474			0			474
Total municipalities		0			474			0			474
Mortgage- and asset-backed securities:
Broker/other		0			0			17			17
Total mortgage- and asset-backed securities		0			0			17			17
Public utilities:
Third party pricing vendor		0			3,552			0			3,552
Total public utilities		0			3,552			0			3,552
Sovereign and supranational:
Third party pricing vendor		0			1,843			0			1,843
Total sovereign and supranational		0			1,843			0			1,843
Banks/financial institutions:
Third party pricing vendor		0			1,700			0			1,700
Total banks/financial institutions		0			1,700			0			1,700
Other corporate:
Third party pricing vendor		0			3,153			0			3,153
Total other corporate		0			3,153			0			3,153
Total securities held to maturity		$	27,209		$	10,730		$	17		$	37,956



	December 31, 2017
(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: ⁽¹⁾
Government and agencies:
Third party pricing vendor		$	30,109		$	1,121		$	0		$	31,230
Total government and agencies		30,109			1,121			0			31,230
Municipalities:
Third party pricing vendor		0			1,370			0			1,370
Total municipalities		0			1,370			0			1,370
Mortgage- and asset-backed securities:
Third party pricing vendor		0			269			0			269
Broker/other		0			0			175			175
Total mortgage- and asset-backed securities		0			269			175			444
Public utilities:
Third party pricing vendor		0			7,886			0			7,886
Broker/other		0			0			68			68
Total public utilities		0			7,886			68			7,954
Sovereign and supranational:
Third party pricing vendor		0			1,807			0			1,807
Broker/other		0			102			0			102
Total sovereign and supranational		0			1,909			0			1,909
Banks/financial institutions:
Third party pricing vendor		0			8,908			0			8,908
Broker/other		0			0			25			25
Total banks/financial institutions		0			8,908			25			8,933
Other corporate:
Third party pricing vendor		0			32,327			0			32,327
Broker/other		0			0			146			146
Total other corporate		0			32,327			146			32,473
Total fixed maturity securities		30,109			53,790			414			84,313
Total securities available for sale		$	30,109		$	53,790		$	414		$	84,313	⁽¹⁾
Equity securities, carried at fair value:
Third party pricing vendor		$	1,001		$	6		$	0		$	1,007
Broker/other		0			0			16			16
Total equity securities		$	1,001		$	6		$	16		$	1,023

⁽¹⁾Includes perpetual securities



	December 31, 2017
(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		$	26,491		$	0		$	0		$	26,491
Total government and agencies		26,491			0			0			26,491
Municipalities:
Third party pricing vendor		0			462			0			462
Total municipalities		0			462			0			462
Mortgage- and asset-backed securities:
Third party pricing vendor		0			8			0			8
Broker/other		0			0			19			19
Total mortgage- and asset-backed securities		0			8			19			27
Public utilities:
Third party pricing vendor		0			3,698			0			3,698
Total public utilities		0			3,698			0			3,698
Sovereign and supranational:
Third party pricing vendor		0			1,835			0			1,835
Total sovereign and supranational		0			1,835			0			1,835
Banks/financial institutions:
Third party pricing vendor		0			2,387			0			2,387
Total banks/financial institutions		0			2,387			0			2,387
Other corporate:
Third party pricing vendor		0			3,172			0			3,172
Total other corporate		0			3,172			0			3,172
Total securities held to maturity		$	26,491		$	11,562		$	19		$	38,072

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. Inputs used to value derivatives include, but are not limited to, interest rates, credit spreads, foreign currency forward and spot rates, and interest volatility.

The fair values of the foreign currency forwards and options associated with certain investments; the foreign currency forwards and options used to hedge foreign exchange risk from the Company's net investment in Aflac Japan and economically hedge certain portions of forecasted cash flows denominated in yen; and the foreign currency swaps associated with certain senior notes and subordinated debentures are based on the amounts the Company would expect to receive or pay. The determination of the fair value of these derivatives is based on observable market inputs, therefore 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. As a result, the fair value measurements incorporate the credit risk of the collateral associated with the VIE. The Company receives valuations from a third party pricing vendor for these derivatives. Based on an analysis of these derivatives and a review of the methodology employed by the pricing vendor, the Company determined that due to the long duration of these swaps and the need to extrapolate from short-term observable data to derive and measure long-term inputs, certain inputs, assumptions and judgments are required to value future cash flows that cannot be corroborated by current inputs or current observable market data. As a result, the derivatives associated with the Company's consolidated VIEs are classified as Level 3 of the fair value hierarchy.

Other investments

Other investments where fair value is disclosed above include short-term investments and loan receivables. Loan receivables include transitional real estate loans, commercial mortgage loans and middle market 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 London Interbank Offered Rate (LIBOR) yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. These spreads are provided by the applicable asset managers based on their knowledge of the current loan pricing environment and market conditions. The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments have been assigned a Level 3 within the fair value hierarchy.

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.

Transfers between Hierarchy Levels and Level 3 Rollforward

During the three- and six-month periods ended June 30, 2018 and 2017, respectively, there were no transfers between Level 1 and 2 for assets and liabilities that are measured and carried at fair value on a recurring basis.

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



Three Months Ended June 30, 2018
	Fixed Maturities												Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities			Banks/ Financial Institutions			Other Corporate					Foreign Currency Swaps			Credit Default Swaps			Total
Balance, beginning of period	$	186		$	83		$	24		$	143		$	16	$	154		$	1		$	607
Realized investment gains (losses) included in earnings	0			0			0			0			0		(42		)	(1		)	(43		)
Unrealized gains (losses) included in other comprehensive income (loss)	(8		)	(1		)	(1		)	(1		)	0		(2		)	0			(13		)
Purchases, issuances, sales and settlements:
Purchases	0			24			0			56			1		0			0			81
Issuances	0			0			0			0			0		0			0			0
Sales	0			0			0			0			0		0			0			0
Settlements	0			0			0			(2		)	0		0			0			(2		)
Transfers into Level 3	0			0			0			0			0		0			0			0
Transfers out of Level 3	0			0			0			0			0		0			0			0
Balance, end of period	$	178		$	106		$	23		$	196		$	17	$	110		$	0		$	630
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0		$	0		$	0		$	0		$	0	$	(42	)	$	(1	)	$	(43	)

⁽¹⁾ Derivative assets and liabilities are presented net



Three Months Ended June 30, 2017
	Fixed Maturities									Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Banks/ Financial Institutions		Other Corporate					Foreign Currency Swaps			Credit Default Swaps		Total
Balance, beginning of period	$	195		$	16	$	24	$	35	$	4		$	19		$	2	$	295
Realized investment gains (losses) included in earnings	0			0		0		0		0			(10		)	0		(10		)
Unrealized gains (losses) included in other comprehensive income (loss)	0			0		1		2		0			(2		)	0		1
Purchases, issuances, sales and settlements:
Purchases	0			37		0		40		10			0			0		87
Issuances	0			0		0		0		0			0			0		0
Sales	0			0		0		0		0			0			0		0
Settlements	(7		)	0		0		0		0			0			0		(7		)
Transfers into Level 3	0			0		0		0		0			0			0		0
Transfers out of Level 3	0			0		0		0		0			0			0		0
Balance, end of period	$	188		$	53	$	25	$	77	$	14		$	7		$	2	$	366
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0		$	0	$	0	$	0	$	0		$	(10	)	$	0	$	(10	)

⁽¹⁾ Derivative assets and liabilities are presented net



Six Months Ended June 30, 2018
	Fixed Maturity Securities											Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities			Banks/ Financial Institutions			Other Corporate					Foreign Currency Swaps		Credit Default Swaps			Total
Balance, beginning of period	$	175	$	68		$	25		$	146		$	16	$	22	$	1		$	453
Realized investment gains (losses) included in earnings	0		0			0			0			0		84		(1		)	83
Unrealized gains (losses) included in other comprehensive income (loss)	3		(2		)	(2		)	(3		)	0		4		0			0
Purchases, issuances, sales and settlements:
Purchases	0		40			0			56			1		0		0			97
Issuances	0		0			0			0			0		0		0			0
Sales	0		0			0			0			0		0		0			0
Settlements	0		0			0			(3		)	0		0		0			(3		)
Transfers into Level 3	0		0			0			0			0		0		0			0
Transfers out of Level 3	0		0			0			0			0		0		0			0
Balance, end of period	$	178	$	106		$	23		$	196		$	17	$	110	$	0		$	630
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0	$	0		$	0		$	0		$	0	$	84	$	(1	)	$	83

⁽¹⁾ Derivative assets and liabilities are presented net



Six Months Ended June 30, 2017
	Fixed Maturity Securities									Equity Securities			Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Banks/ Financial Institutions		Other Corporate					Foreign Currency Swaps			Credit Default Swaps		Total
Balance, beginning of period	$	198		$	16	$	25	$	0	$	3		$	(21	)	$	2	$	223
Realized investment gains (losses) included in earnings	0			0		0		0		0			28			0		28
Unrealized gains (losses) included in other comprehensive income (loss)	6			0		0		2		0			0			0		8
Purchases, issuances, sales and settlements:
Purchases	0			37		0		75		12			0			0		124
Issuances	0			0		0		0		0			0			0		0
Sales	0			0		0		0		(1		)	0			0		(1		)
Settlements	(16		)	0		0		0		0			0			0		(16		)
Transfers into Level 3	0			0		0		0		0			0			0		0
Transfers out of Level 3	0			0		0		0		0			0			0		0
Balance, end of period	$	188		$	53	$	25	$	77	$	14		$	7		$	2	$	366
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0		$	0	$	0	$	0	$	0		$	28		$	0	$	28

⁽¹⁾ Derivative assets and liabilities are presented net

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 and derivatives 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.

June 30, 2018

(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

178

Consensus pricing

Offered quotes

N/A

^(c)

Public utilities

106

Discounted cash flow

Credit spreads

N/A

^(c)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(c)

Other corporate

196

Discounted cash flow

Credit spreads

N/A

^(c)

Equity securities

Net asset value

Offered quotes

N/A

^(c)

Other assets:

Foreign currency swaps

145

Discounted cash flow

Interest rates (USD)

2.92%

^(a)

Interest rates (JPY)

.25% - .75%

^(b)

CDS spreads

15 - 105 bps

Discounted cash flow

Interest rates (USD)

2.92%

^(a)

Interest rates (JPY)

.25% - .75%

^(b)

Total assets

722

Liabilities:

Other liabilities:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

2.92%

^(a)

Interest rates (JPY)

.25% - .75%

^(b)

CDS spreads

34 - 188 bps

Discounted cash flow

Interest rates (USD)

2.92%

^(a)

Interest rates (JPY)

.25% - .75%

^(b)

Total liabilities

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of the Company's swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of the Company's swaps

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

December 31, 2017

(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

175

Consensus pricing

Offered quotes

N/A

^(c)

Public utilities

Discounted cash flow

Credit spreads

N/A

^(c)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(c)

Other corporate

146

Discounted cash flow

Credit spreads

N/A

^(c)

Equity securities

Net asset value

Offered quotes

N/A

^(c)

Other assets:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

2.40% - 2.54%

^(a)

Interest rates (JPY)

.26% - .85%

^(b)

CDS spreads

9 - 90 bps

Discounted cash flow

Interest rates (USD)

2.40% - 2.54%

^(a)

Interest rates (JPY)

.26% - .85%

^(b)

Credit default swaps

Discounted cash flow

Base correlation

46.33% - 49.65%

^(d)

CDS spreads

25 bps

Recovery rate

37.24%

Total assets

581

Liabilities:

Other liabilities:

Foreign currency swaps

120

Discounted cash flow

Interest rates (USD)

2.40% - 2.54%

^(a)

Interest rates (JPY)

.26% - .85%

^(b)

CDS spreads

13 - 157 bps

Discounted cash flow

Interest rates (USD)

2.40% - 2.54%

^(a)

Interest rates (JPY)

.26% - .85%

^(b)

Total liabilities

128

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of the Company's swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of the Company's swaps

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

(d) Range of base correlation for the Company's bespoke tranche for attachment and detachment points corresponding to market indices

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

Net Asset Value

The Company holds certain unlisted equity securities whose fair value is derived based on the financial statements published by the investee. These securities do not trade on an active market and the valuations derived are dependent on the availability of timely financial reporting of the investee. Net asset value is an unobservable input in the determination of fair value of equity securities.

Offered Quotes

In circumstances where the Company's valuation model price is overridden because it implies a value that is not consistent with current market conditions, the Company will solicit bids from a limited number of brokers. The Company also receives unadjusted prices from brokers for its mortgage and asset-backed securities. These quotes are non-binding but are reflective of valuation best estimates at that particular point in time. Offered quotes are an unobservable input in the determination of fair value of mortgage- and asset-backed securities, certain banks/financial institutions, certain other corporate, and equity securities investments.

Interest Rates, CDS Spreads, Foreign Exchange Rates

The significant drivers of the valuation of the interest and foreign exchange swaps are interest rates, foreign exchange rates and CDS spreads. Some of the Company's swaps have long maturities that increase the sensitivity of the swaps to interest rate fluctuations. For the Company's foreign exchange or cross currency swaps that are in a net asset position, an increase in yen interest rates (all other factors held constant) will decrease the present value of the yen final settlement receivable (receive leg), thus decreasing the value of the swap as long as the derivative remains in a net asset position.

Foreign exchange swaps also have a lump-sum final settlement of foreign exchange principal amounts at the termination of the swap. Assuming all other factors are held constant, an increase in yen interest rates will decrease the receive leg and decrease the net value of the swap. Likewise, holding all other factors constant, an increase in U.S. dollar interest rates will increase the swap's net value due to the decrease in the present value of the dollar final settlement payable (pay leg).

A similar sensitivity pattern is observed for the foreign exchange rates. When the spot U.S. dollar/Japanese yen (USD/JPY) foreign exchange rate decreases and the swap is receiving a final exchange payment in JPY, the swap value will increase due to the appreciation of the JPY. Most of the Company's swaps are designed to receive payments in JPY at the termination and will thus be impacted by the USD/JPY foreign exchange rate in this way. In cases where there is no final foreign exchange receivable in JPY and the Company is paying JPY as interest payments and receiving USD, a decrease in the foreign exchange rate will lead to a decrease in the swap value.

The extinguisher feature in most of the Company's VIE swaps results in a cessation of cash flows and no further payments between the parties to the swap in the event of a default on the referenced or underlying collateral. To price this feature, the Company applies the survival probability of the referenced entity to the projected cash flows. The survival probability uses the CDS spreads and recovery rates to adjust the present value of the cash flows. For extinguisher swaps with positive values, an increase in CDS spreads decreases the likelihood of receiving the final exchange payments and reduces the value of the swap.

For additional information on the Company's investments and financial instruments, see the accompanying Notes 1, 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report.


6.	POLICY LIABILITIES

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



	Three Months Ended June 30,							Six Months Ended June 30,
(In millions)		2018			2017				2018			2017
Unpaid supplemental health claims, beginning of period		$	4,041		$	3,854			$	3,881		$	3,707
Less reinsurance recoverables		31			30				28			27
Net balance, beginning of period		4,010			3,824				3,853			3,680
Add claims incurred during the period related to:
Current year		1,779			1,772				3,621			3,520
Prior years		(133		)	(138		)		(325		)	(260		)
Total incurred		1,646			1,634				3,296			3,260
Less claims paid during the period on claims incurred during:
Current year		1,226			1,220				1,746			1,721
Prior years		426			400				1,540			1,461
Total paid		1,652			1,620				3,286			3,182
Effect of foreign exchange rate changes on unpaid claims		(91		)	4				50			84
Net balance, end of period		3,913			3,842				3,913			3,842
Add reinsurance recoverables		29			30				29			30
Unpaid supplemental health claims, end of period		3,942			3,872				3,942			3,872
Unpaid life claims, end of period		582			409				582			409
Total liability for unpaid policy claims		$	4,524		$	4,281			$	4,524		$	4,281

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $325 million for the six-month period ended June 30, 2018 comprises approximately $210 million from Japan, which represents approximately 65% of the total. Excluding the impact of foreign exchange of a loss of approximately $10 million from December 31, 2017 to June 30, 2018, the favorable claims development in Japan would have been approximately $200 million, representing approximately 62% of the total.

The Company has experienced continued favorable claim trends in 2018 for its core health products in Japan. The Company's experience in Japan related to the average length of stay in the hospital for cancer treatment has shown continued decline in the current period. In addition, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

The remainder of the favorable claims development related to prior years for the six-month period ended June 30, 2018, reflects Aflac U.S. favorable claims experience compared to previous estimates, primarily in the cancer and accident lines of business.


7.	REINSURANCE

The Company periodically enters into fixed quota-share coinsurance agreements with other companies in the normal course of business. 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. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $1.0 billion, as of June 30, 2018, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $935 million and $908 million as of June 30, 2018, and December 31, 2017, respectively. The increase in the reinsurance recoverable balance was driven by two aggregating factors: yen strengthening and the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate

strengthened by approximately 2.2% and ceded reserves increased approximately .7% from December 31, 2017, to June 30, 2018.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance.



	Three Months Ended June 30,								Six Months Ended June 30,
(In millions)	2018				2017				2018				2017
Direct premium income		$	4,793			$	4,752			$	9,626			$	9,476
Ceded to other companies:
Ceded Aflac Japan closed blocks		(126		)		(130		)		(256		)		(260		)
Other		(16		)		(13		)		(30		)		(25		)
Assumed from other companies:
Retrocession activities		53				55				107				109
Other		2				1				3				3
Net premium income		$	4,706			$	4,665			$	9,450			$	9,303

Direct benefits and claims		$	3,106			$	3,117			$	6,225			$	6,246
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(114		)		(119		)		(231		)		(241		)
Eliminations		11				13				23				26
Other		(12		)		(11		)		(23		)		(22		)
Assumed from other companies:
Retrocession activities		49				52				101				106
Eliminations		(11		)		(13		)		(23		)		(26		)
Other		2				0				1				2
Benefits and claims, net		$	3,031			$	3,039			$	6,073			$	6,091

These reinsurance transactions are indemnity reinsurance that do not relieve the Company from its obligations to policyholders. In the event that the reinsurer is unable to meet their obligations, the Company remains liable for the reinsured claims.

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015 in the amount of approximately 110 billion yen. This reinsurance facility agreement was renewed in 2017 and is effective until December 31, 2018. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac‘s Standard and Poor's (S&P) rating drops below BBB-. As of June 30, 2018, the Company has not executed a reinsurance treaty under this committed reinsurance facility.


8.	NOTES PAYABLE

A summary of notes payable follows:



(In millions)	June 30, 2018			December 31, 2017
2.40% senior notes due March 2020		$	549		$	548
4.00% senior notes due February 2022		348			348
3.625% senior notes due June 2023		697			697
3.625% senior notes due November 2024		746			745
3.25% senior notes due March 2025		446			446
2.875% senior notes due October 2026		297			297
6.90% senior notes due December 2039		220			220
6.45% senior notes due August 2040		254			254
4.00% senior notes due October 2046		394			394
Yen-denominated senior notes and subordinated debentures:
.932% senior notes due January 2027 (principal amount 60.0 billion yen)		540			528
2.108% subordinated debentures due October 2047 (principal amount 60.0 billion yen)		538			526
Yen-denominated loans:
Variable interest rate loan due September 2021 (.32% in 2018 and 2017, principal amount 5.0 billion yen)		45			44
Variable interest rate loan due September 2023 (.47% in 2018 and 2017, principal amount 25.0 billion yen)		225			220
Capitalized lease obligations payable through 2025		16			22
Total notes payable		$	5,315		$	5,289

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.

A summary of the Company's lines of credit as of June 30, 2018 follows:



Borrower	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	November 30, 2018	$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	3 years	March 31, 2019, or the date commitments are terminated pursuant to an event of default	100.0 billion yen	0.0 billion yen	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 March 31, 2019	.30% to .50%, 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	April 4, 2023, or the date commitments are terminated pursuant to an event of default⁽¹⁾	55.0 billion yen, or the equivalent amount in U.S. dollars	0.0 billion yen	A rate per annum equal to, at the Company's option, either, (a) London Interbank Offered Rate (LIBOR) adjusted for certain costs or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin	No later than April 4, 2023	.085% to .225%, 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 eurocurrency rate determined by reference to the agent's LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the greater of (i) the prime rate as determined by the agent, and (ii) the sum of 0.50% and the federal funds rate for such day	Up to 3 months	None	General corporate purposes
Aflac⁽²⁾	uncommitted revolving	364 days	November 30, 2018	$250 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	3 months	None	General corporate purposes
Aflac Incorporated⁽²⁾	uncommitted revolving	364 days	April 2, 2019	37.5 billion yen	0.0 billion yen	Three-month TIBOR plus 80 basis points per annum	3 months	None	General corporate purposes

⁽¹⁾ Effective April 4, 2018, the prior expiration date of September 18, 2020 was extended to April 4, 2023.

⁽²⁾ Intercompany credit agreement

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, 2018. No events of default or defaults occurred during the six-month period ended June 30, 2018.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report.


9.	INCOME TAXES

For the United States, the Tax Cuts and Jobs Act (Tax Act) was signed into law on December 22, 2017. Effective January 1, 2018, the Tax Act imposes a broad number of changes in tax law, including the permanent reduction of the U.S. federal statutory corporate income tax rate from 35% to 21%.

The Company expects to complete its accounting for the effects of the Tax Act over the measurement period of up to one year from the enactment date, as permitted by SEC Staff Accounting Bulletin No. 118 (SAB 118). As of the enactment date, the Company estimated provisional amounts for its deferred taxes, including related valuation allowance, resulting in a reduction of its deferred tax assets (DTAs) by approximately $1.0 billion and its deferred tax liabilities (DTLs) by $2.9 billion, for a net DTL reduction of approximately $1.9 billion. The Company believes that these amounts represent reasonable estimates in accordance with SAB 118. The provisions of ASC 740-10, Income Taxes, require that the effects of changes in tax law on deferred taxes be recognized as a component of the income tax provision in the period the tax rate change was enacted. Therefore, the $1.9 billion provisional amount of net DTL reduction was recorded in the fourth quarter of 2017 as a reduction in the “Income tax expense, Deferred” line item of the Company’s consolidated statement of earnings. As of the second quarter of 2018, the Company has no update to this estimated benefit.

The following includes an overview of the existing current and deferred balances for which calculation of income tax effects of the Tax Act has not been completed:

Japan deferred tax balances: The Tax Act reduces the U.S. tax rate to 21%, effective January 1, 2018. Prior to the reduction in rate, the Japan deferred tax balances were completely offset by an anticipatory foreign tax credit. As a result of the rate reduction, the Japan deferred tax balance will no longer be offset by an anticipatory foreign tax credit as all of the foreign tax credits will be used to offset the U.S. deferred tax balance of the Aflac Japan branch.

The Company has not yet completed its analysis of the components of the Japan tax computation, including a complete validation of the Aflac Japan tax basis. Additional time is needed to collect, analyze, and validate the detailed data underlying the deferred tax amounts in the Aflac Japan branch. As of the fourth quarter of 2017, the Company had recorded a provisional amount of $4.5 billion of net DTL related to this item.

Valuation allowances: The Company must assess whether its valuation allowance analyses are impacted by various aspects of the Tax Act with a primary focus on any unused anticipatory foreign tax credits. As the Company has recorded provisional amounts related to the Japan deferred tax balances, any corresponding determination of the need for or change in a valuation allowance is also provisional. As of the fourth quarter of 2017, the Company had recorded a provisional valuation allowance of $.7 billion against its anticipatory foreign tax credit asset.

The impact of the Tax Act may differ, possibly materially, from the recorded provisional amounts.


10.	SHAREHOLDERS’ EQUITY

See Note 1 for a discussion of the stock split that occurred in March 2018. All share and per-share amounts have been adjusted to reflect the stock split for any of the periods presented.

The following table is a reconciliation of the number of shares of the Company's common stock for the six-month periods ended June 30.



(In thousands of shares)	2018		2017
Common stock - issued:
Balance, beginning of period	1,345,762		1,342,498
Exercise of stock options and issuance of restricted shares	1,299		1,576
Balance, end of period	1,347,061		1,344,074
Treasury stock:
Balance, beginning of period	564,852		530,877
Purchases of treasury stock:
Open market	13,441		22,310
Other	328		346
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(400	)	(998	)
Exercise of stock options	(327	)	(414	)
Other	(105	)	(44	)
Balance, end of period	577,789		552,077
Shares outstanding, end of period	769,272		791,997

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 earnings per share for the following periods.



	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2018		2017		2018		2017
Anti-dilutive share-based awards		48		838		28		740

Share Repurchase Program

During the first six months of 2018, the Company repurchased 13.4 million shares of its common stock in the open market for $601 million as part of its share repurchase program. During the first six months of 2017, the Company repurchased 22.4 million shares of its common stock in the open market for $800 million as part of its share repurchase program. In August 2017, the Company's board of directors authorized the purchase of an additional 40 million shares of its common stock, which increased to 80 million shares in February 2018 in connection with the Company's stock split scheduled for March 2018. As of June 30, 2018, a remaining balance of 84.6 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Reclassifications from Accumulated Other Comprehensive Income

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 June 30, 2018
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,303	)		$	5,206			$	(21	)		$	(197	)		$	3,685
Other comprehensive income (loss) before reclassification ⁽¹⁾		(463		)		(391		)		(2		)		(1		)		(857		)
Amounts reclassified from accumulated other comprehensive income (loss)		0				21				0				3				24
Net current-period other comprehensive income (loss)		(463		)		(370		)		(2		)		2				(833		)
Balance, end of period		$	(1,766	)		$	4,836			$	(23	)		$	(195	)		$	2,852

All amounts in the table above are net of tax.



Three Months Ended June 30, 2017
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities			Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,650	)		$	4,474		$	(22	)		$	(170	)		$	2,632
Other comprehensive income (loss) before reclassification		70				698			(1		)		(2		)		765
Amounts reclassified from accumulated other comprehensive income (loss)		0				1			0				3				4
Net current-period other comprehensive income (loss)		70				699			(1		)		1				769
Balance, end of period		$	(1,580	)		$	5,173		$	(23	)		$	(169	)		$	3,401

All amounts in the table above are net of tax.



Six Months Ended June 30, 2018
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,750	)		$	5,964			$	(23	)		$	(163	)		$	4,028
Cumulative effect of change in accounting principle - financial instruments		0				(148		)		0				0				(148		)
Cumulative effect of change in accounting principle - tax effects from tax reform		(325		)		734				(3		)		(32		)		374
Other comprehensive income (loss) before reclassification ⁽¹⁾		309				(1,733		)		3				(5		)		(1,426		)
Amounts reclassified from accumulated other comprehensive income (loss)		0				19				0				5				24
Net current-period other comprehensive income (loss)		309				(1,714		)		3				0				(1,402		)
Balance, end of period		$	(1,766	)		$	4,836			$	(23	)		$	(195	)		$	2,852

All amounts in the table above are net of tax.

⁽¹⁾ Amounts have been corrected to exclude the cumulative effects of changes in accounting principles for financial instruments and the tax effects from tax reform as identified in the rollforward of Accumulated Other Comprehensive Income within the Consolidated Statements of Shareholder’s Equity.



Six Months Ended June 30, 2017
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities			Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,983	)		$	4,805		$	(24	)		$	(168	)		$	2,630
Other comprehensive income (loss) before reclassification		403				357			1				(6		)		755
Amounts reclassified from accumulated other comprehensive income (loss)		0				11			0				5				16
Net current-period other comprehensive income (loss)		403				368			1				(1		)		771
Balance, end of period		$	(1,580	)		$	5,173		$	(23	)		$	(169	)		$	3,401

All amounts in the table above are net of tax.

For the six-month period ended June 30, 2018, see Note 1 for discussion of the amounts reclassified between AOCI and retained earnings upon the adoption of new accounting pronouncements.

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 June 30, 2018
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		$	(2	)	Other-than-temporary impairment losses realized
		(26		)	Other gains (losses)
		(28		)	Total before tax
		7			Tax (expense) or benefit⁽¹⁾
		$	(21	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(4	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾
		1			Tax (expense) or benefit⁽¹⁾
		$	(3	)	Net of tax
Total reclassifications for the period		$	(24	)	Net of tax

⁽¹⁾Based on 26% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).



(In millions)	Three Months Ended June 30, 2017
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		$	(6	)	Other-than-temporary impairment losses realized
		5			Other gains (losses)
		(1		)	Total before tax
		0			Tax (expense) or benefit⁽¹⁾
		$	(1	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(5	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾
		2			Tax (expense) or benefit⁽¹⁾
		$	(3	)	Net of tax
Total reclassifications for the period		$	(4	)	Net of tax

⁽¹⁾Based on 35% tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details)



(In millions)	Six Months Ended June 30, 2018
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		$	(2	)	Other-than-temporary impairment losses realized
		(24		)	Other gains (losses)
		(26		)	Total before tax
		7			Tax (expense) or benefit⁽¹⁾
		$	(19	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(8	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾
		3			Tax (expense) or benefit⁽¹⁾
		$	(5	)	Net of tax
Total reclassifications for the period		$	(24	)	Net of tax

⁽¹⁾Based on 27% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details).



(In millions)	Six Months Ended June 30, 2017
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		$	(16	)	Other-than-temporary impairment losses realized
		(1		)	Other gains (losses)
		(17		)	Total before tax
		6			Tax (expense) or benefit⁽¹⁾
		$	(11	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(8	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾
		3			Tax (expense) or benefit⁽¹⁾
		$	(5	)	Net of tax
Total reclassifications for the period		$	(16	)	Net of tax

⁽¹⁾Based on 35% tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 12 for additional details)

11. SHARE-BASED COMPENSATION

See Note 1 for a discussion of the stock split that occurred in March 2018. All share and per-share amounts have been adjusted to reflect the stock split for any of the periods presented.

As of June 30, 2018, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (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, as amended on February 14, 2017, 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 June 30, 2018, approximately 40.4 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 June 30, 2018, the only performance-based awards issued and outstanding were restricted stock awards.

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 granted after January 1, 2017 generally vest on a ratable basis over three years, and awards granted prior to the amendment vest on a three-year cliff basis. 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 June 30, 2018.



	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		6,057		5.4		$	89		$	28.26
Exercisable		4,365		4.4		71			26.77

The Company received cash from the exercise of stock options in the amount of $31 million during the first six months of 2018, compared with $39 million in the first six months of 2017. The tax benefit realized as a result of stock option exercises and restricted stock releases was $14 million in the first six months of 2018, compared with $20 million in the first six months of 2017.

As of June 30, 2018, total compensation cost not yet recognized in the Company's financial statements related to restricted stock awards was $54 million, of which $26 million (826 thousand shares) was related to restricted stock awards with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.3 years. There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the six-month period ended June 30.



(In thousands of shares)	Shares		Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2017	3,635			$	32.40
Granted in 2018	993			44.10
Canceled in 2018	(69	)		33.38
Vested in 2018	(1,062	)		31.69
Restricted stock at June 30, 2018	3,497			$	35.91

In February 2018, the Company granted 432 thousand performance-based stock awards, 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 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 pay-out 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 2017 Annual Report.


12.	BENEFIT PLANS

The Company has funded defined benefit plans in Japan and the United States, however the U.S. plan was frozen to new participants effective October 1, 2013. 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 the U.S. plan was frozen to new participants effective January 1, 2015. U.S. employees who are not participants in the defined benefit plan receive a nonelective 401(k) employer contribution.

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 statement of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $7 million and $10 million for the three-month periods and $13 million and $15 million for the six-month periods ended June 30, 2018 and 2017, respectively. Total net periodic cost includes the following components:



	Three Months Ended June 30,
	Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits
(In millions)	2018				2017				2018				2017				2018			2017
Components of net periodic benefit cost:
Service cost		$	5			$	4			$	7			$	6			$	0		$	0
Interest cost		1				2				8				8				1			1
Expected return on plan assets		(1		)		(1		)		(6		)		(5		)		0			0
Amortization of net actuarial loss		0				1				4				4				0			0
Amortization of prior service cost (credit)		0				0				0				0				0			0
Net periodic (benefit) cost		$	5			$	6			$	13			$	13			$	1		$	1



	Six Months Ended June 30,
	Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits
(In millions)	2018				2017				2018				2017				2018			2017
Components of net periodic benefit cost:
Service cost		$	10			$	9			$	14			$	12			$	0		$	0
Interest cost		3				3				17				16				1			1
Expected return on plan assets		(3		)		(2		)		(13		)		(11		)		0			0
Amortization of net actuarial loss		0				1				8				7				0			0
Amortization of prior service cost (credit)		0				0				0				0				0			0
Net periodic (benefit) cost		$	10			$	11			$	26			$	24			$	1		$	1

During the six months ended June 30, 2018, Aflac Japan contributed approximately $14 million (using the weighted-average yen/dollar exchange rate for the six-month period ending June 30, 2018) to the Japanese funded defined benefit plan, and Aflac U.S. contributed $10 million to the U.S. funded defined benefit plan.

As a result of U.S. tax reform legislation enacted in December 2017, the Company announced it would make a one-time contribution of $500 to the U.S. 401(k) plan to all employees active on December 31, 2017. This contribution was made by January 31, 2018. The Company also announced that it would increase its matching contributions to 100% of each employee's contributions which were not in excess of 4% of the employee's annual cash compensation. This increase became effective on January 1, 2018.

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 2017 Annual Report.


13.	COMMITMENTS AND CONTINGENT LIABILITIES

The Company is a defendant in various lawsuits considered to be in the normal course of business. Members of the Company's senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. 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 of the Notes to the Consolidated Financial Statements for details on certain investment commitments.

Guaranty Fund Assessments

The United States 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.

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company (collectively referred to as Penn Treaty), neither of which is affiliated with Aflac, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. A final order of liquidation was granted by a recognized judicial authority on March 1, 2017, and as a result, Penn Treaty is in the process of liquidation. The Company estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation using a discounted rate of 4.25%. The Company recognized a discounted liability for the assessments of $62 million (undiscounted $94 million), offset by discounted premium tax credits of $48

million (undiscounted $74 million), for a net $14 million impact to net income in the quarter ended March 31, 2017. The Company paid a majority of these assessments by March 31, 2018, and a majority of the tax credits will be realized over the next four years. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the six-month period ended June 30, 2018 were immaterial.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. The Company desires to take advantage of these provisions. This report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein, and in any other statements made by Company officials in communications with the financial community and contained in documents filed with the Securities and Exchange Commission (SEC). Forward-looking statements are not based on historical information and relate to future operations, strategies, financial results or other developments. Furthermore, forward-looking information is subject to numerous assumptions, risks and uncertainties. In particular, statements containing words such as the following or similar words as well as specific projections of future results, generally qualify as forward-looking. Aflac undertakes no obligation to update such forward-looking statements.



• expect	• anticipate	• believe	• goal	• objective
• may	• should	• estimate	• intends	• projects
• will	• assumes	• potential	• target	• outlook

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


•	difficult conditions in global capital markets and the economy


•	exposure to significant interest rate risk


•	concentration of business in Japan


•	foreign currency fluctuations in the yen/dollar exchange rate


•	operation of the former Japan branch as a legal subsidiary


•	limited availability of acceptable yen-denominated investments


•	deviations in actual experience from pricing and reserving assumptions


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


•	governmental actions for the purpose of stabilizing the financial markets


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


•	ongoing changes in the Company's industry


•	failure to comply with restrictions on patient privacy and information security


•	extensive regulation and changes in law or regulation by governmental authorities


•	tax rates applicable to the Company may change


•	defaults and credit downgrades of investments


•	ability to attract and retain qualified sales associates, brokers, employees and distribution partners


•	decline in creditworthiness of other financial institutions


•	subsidiaries' ability to pay dividends to Aflac Incorporated


•	decreases in the Company's financial strength or debt ratings


•	inherent limitations to risk management policies and procedures


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


•	differing judgments applied to investment valuations


•	ability to effectively manage key executive succession


•	significant valuation judgments in determination of amount of impairments taken on the Company's investments


•	catastrophic events including, but not necessarily limited to, epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events


•	changes in U.S. and/or Japanese accounting standards


•	loss of consumer trust resulting from events external to the Company's operations


•	increased expenses and reduced profitability resulting from changes in assumptions for pension and other postretirement benefit plans


•	level and outcome of litigation


•	failure of internal controls or corporate governance policies and procedures

MD&A OVERVIEW

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three- and six-month periods ended June 30, 2018 and 2017, respectively. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, the following discussion should be read in conjunction with the consolidated financial statements and notes that are included in the Company's annual report on Form 10-K for the year ended December 31, 2017 (2017 Annual Report). This MD&A is divided into the following sections:



	Page
The Company’s Business	67
Performance Highlights	67
Critical Accounting Estimates	68
Results of Operations	68
Insurance Operations	71
Analysis of Financial Condition	82
Capital Resources and Liquidity	90

THE COMPANY'S BUSINESS

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the United States (Aflac U.S.) and, effective April 1, 2018, through Aflac Life Insurance Japan Ltd. in Japan (Aflac Japan). Prior to April 1, 2018, the Company's insurance business was marketed in Japan as a branch of Aflac. (For more information about the conversion of Aflac Japan to a legal subsidiary, see the Insurance Operations subsection of this MD&A). American Family Life Assurance Company of New York (Aflac New York) is a wholly owned subsidiary of Aflac. Most of Aflac’s policies are individually underwritten and marketed through independent agents. Additionally, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. The Company's insurance operations in the United States and Japan service the two markets for the Company's insurance business.

PERFORMANCE HIGHLIGHTS

Yen-denominated income statement accounts are translated to U.S. dollars using a weighted-average Japanese yen/U.S. dollar foreign exchange rate, while yen-denominated balance sheet accounts are translated to U.S. dollars using a spot Japanese yen/U.S. dollar foreign exchange rate. The spot yen/dollar exchange rate at June 30, 2018 was 110.54, or 2.2% stronger than the spot yen/dollar exchange rate of 113.00 at December 31, 2017. The weighted-average yen/dollar exchange rate for the three-month period ended June 30, 2018 was 109.14, or 1.8% stronger than the weighted-average yen/dollar exchange rate of 111.10 for the same period in 2017. The weighted-average yen/dollar exchange rate for the six-month period ended June 30, 2018 was 108.61, or 3.4% stronger than the weighted-average yen/dollar exchange rate of 112.31 for the same period in 2017.

Total revenues were $5.6 billion in the second quarter of 2018, compared with $5.4 billion in the second quarter of 2017. Net earnings were $832 million, or $1.07 per diluted share in the second quarter of 2018, compared with $713 million, or $.89 per diluted share, in the second quarter of 2017.

Total revenues were $11.1 billion in the first six months of 2018, compared with $10.7 billion in the first six months of 2017. Net earnings were $1.6 billion, or $1.98 per diluted share in the first six months of 2018, compared with $1.3 billion, or $1.62 per diluted share, in the first six months of 2017.

Results in the second quarter of 2018 included pretax net realized investment gains of $3 million, compared with net realized investment losses of $56 million in the second quarter of 2017. Net investment gains in the second quarter of 2018 included $5 million of other-than-temporary impairment losses and changes in loan loss reserves. Effective January 1, 2018 upon the adoption of new accounting guidance, changes in fair value of equity securities are recorded in earnings as a component of realized investment gains and losses. The Company reported net gains on equity securities of $18 million in the second quarter of 2018.

Results in the first six months of 2018 included pretax net realized investment losses of $131 million, compared with net realized investment losses of $196 million in the first six months of 2017. Net investment losses in the first six months of 2018 included $12 million of other-than-temporary impairment losses and changes in loan loss reserves. The Company reported net losses on equity securities of $28 million in the first six months of 2018.

On February 13, 2018, the Board of Directors of the Parent Company declared a two-for-one stock split of the

Company’s common stock in the form of a 100% stock dividend payable on March 16, 2018 to shareholders of record at

the close of business on March 2, 2018. The stock split was paid in the form of one additional common stock share

for every share of common stock held. All equity and share-based data, including the number of shares outstanding and per share amounts, have been adjusted to reflect the stock split for all periods presented in this report.

In the first six months of 2018, the Company repurchased 13.4 million shares of its common stock in the open market for $601 million under its share repurchase program.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In this MD&A, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification^™ (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 estimates that the Company deems to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 94% of the Company's assets and 79% of its liabilities are reported as of June 30, 2018, and thus has a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items that the Company has identified as critical accounting estimates during the six months ended June 30, 2018. For additional information, see the Critical Accounting Estimates section of MD&A included in the 2017 Annual Report.

New Accounting Pronouncements

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

RESULTS OF OPERATIONS

The following discussion includes references to the Company's performance measures, adjusted earnings, adjusted earnings per diluted share, and amortized hedge costs, which are not calculated in accordance with U.S. GAAP. These measures exclude items that the Company believes may obscure the underlying fundamentals and trends in the Company's insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with its insurance operations. The Company's management uses adjusted earnings and adjusted earnings per diluted share to evaluate the financial performance of its insurance operations on a consolidated basis, and the Company believes that a presentation of these measures is vitally important to an understanding of its underlying profitability drivers and trends of its insurance business. The Company believes that amortized hedge costs, which are a component of adjusted earnings, measure the periodic currency risk management costs associated with hedging a portion of Aflac Japan’s U.S. dollar-denominated investments and are an important component of net investment income.

Beginning with the first quarter of 2018, the Company began utilizing the term “adjusted earnings” for the measure formerly referred to as "operating earnings" on both a pretax and after-tax basis, as well as an absolute and per-share basis. This change only pertained to the label of the measure and did not alter its definition or calculation.

Aflac defines adjusted earnings (a non-U.S. GAAP financial measure) as the profits derived from operations. The most comparative U.S. GAAP measure is net earnings. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding realized investment

gains and losses, except for amortized hedge costs related to foreign currency denominated investments. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect Aflac’s underlying business performance.

The Company defines adjusted earnings per share (basic or diluted) to be adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. The most comparable U.S. GAAP measure is net earnings per share.

Amortized hedge costs represent costs incurred in using foreign currency forward contracts to hedge the foreign exchange risk of a portion of U.S. dollar-denominated assets in the Company’s Japan segment investment portfolio. These amortized hedge costs are derived from the difference between the foreign currency spot rate at time of trade inception and the contractual foreign currency forward rate, recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs.

Because a significant portion of the Company's business is conducted in Japan and foreign exchange rates are outside of management’s control, the Company believes it is important to understand the impact of translating Japanese yen into U.S. dollars. Adjusted earnings and adjusted earnings per diluted share excluding current period foreign currency impact are computed using the average yen/dollar exchange rate for the comparable prior year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes.

The following table is a reconciliation of items impacting adjusted earnings and adjusted earnings per diluted share to the most directly comparable U.S. GAAP measures of net earnings and net earnings per diluted share, respectively.

Reconciliation of Net Earnings to Adjusted Earnings⁽¹⁾



	In Millions						Per Diluted Share						In Millions						Per Diluted Share
	Three Months Ended June 30,												Six Months Ended June 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Net earnings	$	832		$	713		$	1.07		$	.89		$	1,550		$	1,305		$	1.98		$	1.62
Items impacting net earnings:
Realized investment (gains) losses ^(2),(3),(4)	(35		)	19			(.04		)	.02			63			128			.08			.16
Other and non-recurring (income) loss	41			8			.05			.01			70			28			.09			.04
Income tax (benefit) expense on items excluded from adjusted earnings	(4		)	(10		)	(.01		)	(.01		)	(28		)	(55		)	(.04		)	(.07		)
Adjusted earnings	835			731			1.07			.92			1,655			1,406			2.12			1.75
Current period foreign currency impact ⁽⁵⁾	(7		)	N/A			(.01		)	N/A			(29		)	N/A			(.04		)	N/A
Adjusted earnings excluding current period foreign currency impact ⁽⁶⁾	$	827		$	731		$	1.06		$	.92		$	1,627		$	1,406		$	2.08		$	1.75

⁽¹⁾ "Adjusted earnings" was formerly referred to as "operating earnings." Amounts may not foot due to rounding.

⁽²⁾Excludes amortized hedge costs of $55 and $56 for the three-month periods and $110 and $108 for the six-month periods ended June 30, 2018, and 2017, respectively, related to hedging U.S. dollar-denominated investments held in Aflac Japan which are classified as a component of adjusted earnings to conform to current year reporting. See "Hedge Costs" discussion below for further information.

⁽³⁾ Amortized hedge costs in Aflac Japan were partially offset by derivatives entered into as part of corporate activities and resulted in a benefit of $7 for the three-month period and $9 for the six-month period ended June 30, 2018 which has been reclassified from realized investment gains (losses) and reported as an increase in net investment income when analyzing operations.

⁽⁴⁾ Excludes a gain of $17 and $20 for the three-month periods and $33 and $41 for the six-month periods ended June 30, 2018 and 2017, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is classified as an operating gain when analyzing segment operations

⁽⁵⁾ Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.

⁽⁶⁾Amounts excluding current period foreign currency impact are computed using the average yen/dollar exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes.

Realized Investment Gains and Losses

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s growth and profitability. This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure. The Company does not purchase securities with the intent of generating capital gains or losses. However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing. The realization of investment gains and losses is independent of the underwriting and administration of the Company's insurance products. Realized investment gains and losses include securities transactions, impairments, changes in loan loss reserves, and derivative and foreign currency activities. Effective January 1, 2018, changes in fair value of equity securities are also included in earnings as a component of realized investment gains and losses.

Securities Transactions, Impairments, and Gains (Losses) on Equity Securities

Securities transactions include gains and losses from sales and redemptions of investments where the amount received is different from the amortized cost of the investment. Impairments include other-than-temporary-impairment losses on investment securities as well as changes in loan loss reserves for loan receivables. Starting in the first quarter of 2018, gains and losses from changes in fair value of equity securities are recorded in earnings.

Certain Derivative and Foreign Currency Gains (Losses)

The Company's derivative activities include foreign currency forwards and options on certain fixed maturity securities; foreign currency forwards and options that economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long-term exposure to a weakening yen; foreign currency swaps associated with certain senior notes and subordinated debentures; and foreign currency swaps and credit defaults swaps held in consolidated variable interest entities (VIEs). Gains and losses are recognized as a result of valuing these derivatives, net of the effects of hedge accounting. The Company also excludes the accounting impacts of remeasurement associated with changes in the yen/dollar exchange rate from adjusted earnings. Certain derivative and foreign currency gains (losses) exclude amortized hedge costs (see Hedge Cost section below) and the interest rate component of the change in fair value of foreign currency swaps on notes payable that are both included in adjusted earnings.

Hedge Costs

Effective January 1, 2017, adjusted earnings includes the impact of amortized hedge costs. Amortized hedge costs represent costs incurred in using foreign currency forward contracts to hedge the foreign exchange risk of a portion of U.S. dollar-denominated assets in the Company's Japan segment investment portfolio. Amortized hedge costs are offset by a hedge cost amortization benefit recognized for foreign currency forwards that economically hedge the Company's long-term exposure to a weakening yen. These amortized hedge costs are derived from the difference between the foreign currency spot rate at time of trade inception and the contractual foreign currency forward rate, recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs.

Hedge costs can fluctuate based upon many factors, including the derivative notional amount, the length of time of the derivative contract, changes in both U.S. and Japan interest rates, and supply and demand for dollar funding. Hedge costs have increased in recent periods due to changes in the previously mentioned factors. In late 2017, the Company

took steps to mitigate rising hedge costs by increasing the amount of unhedged U.S. dollar-denominated investments held

in Aflac Japan and to reduce hedge cost volatility by extending hedge duration. For additional information regarding

currency hedging, refer to Hedging Activities in the Analysis of Financial Condition section of this MD&A.

For additional information regarding realized investment gains and losses, including details of reported amounts for the periods presented, see Notes 3 and 4 of the Notes to the Consolidated Financial Statements.

Other and Non-recurring Items

The United States insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. The system can result in periodic charges to the Company as a result of insolvencies/bankruptcies that occur with other companies in the life insurance industry. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. These charges neither relate to the ordinary course of the Company’s

business nor reflect the Company’s underlying business performance, but result from external situations not controlled by the Company.

Based on the underlying nature of these assessments, effective January 1, 2017, the Company adopted a policy of excluding any charges associated with U.S. guaranty fund assessments and the corresponding tax benefit or expense from adjusted earnings.

For the Penn Treaty liquidation that was recognized by judicial authority in March 2017, the Company estimated and recognized a discounted liability for assessments of $62 million (undiscounted $94 million), offset by discounted premium tax credits of $48 million (undiscounted $74 million), for a net $14 million impact to net income in the quarter ended March 31, 2017. For additional information regarding guaranty fund assessments, see Note 13 of the Notes to the Consolidated Financial Statements.

Effective January 1, 2017, nonrecurring items also include conversion costs related to legally converting the Company's Japan business to a subsidiary; these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services. These Japan branch conversion costs amounted to $41 million and $8 million for the three-month periods and $70 million and $14 million for the six-month periods ended June 30, 2018 and 2017, respectively.

Foreign Currency Translation

Aflac Japan’s premiums and a significant portion of its investment income are received in yen, and its claims and most expenses are paid in yen. Aflac Japan purchases yen-denominated assets and U.S. dollar-denominated assets, which may be hedged to yen, to support yen-denominated policy liabilities. These and other yen-denominated financial statement items are, however, translated into dollars for financial reporting purposes. The Company translates Aflac Japan’s yen-denominated income statement into dollars using the average exchange rate for the reporting period, and the Company translates its yen-denominated balance sheet using the exchange rate at the end of the period.

Due to the size of Aflac Japan, whose functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on the Company's reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts on book value and the currency-neutral operating performance over time.

Income Taxes

The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 26.4% for the three-month period ended June 30, 2018, compared with 31.8% for the same period in 2017. The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 26.7% for the six-month period ended June 30, 2018, compared with 32.9% for the same period in 2017. The reduction in the tax rate for the three-month and six-month period ended June 30, 2018 was primarily due to the decrease in the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. The impact of the Tax Act, including the preliminary estimate for the change in tax rate that was recorded during the fourth quarter of 2017, and the Company's combined U.S. and Japanese effective income tax rate, may be adjusted in future periods, possibly materially, due to, among other things, further refinement of the Company's calculations, changes in interpretations and assumptions the Company has made, tax guidance that may be issued and actions the Company make take as a result of the Tax Act. For further information about the impact of tax reform, see the Critical Accounting Estimates - Income Taxes section of MD&A and Note 10 in the Notes to the Consolidated Financial Statements in the 2017 Annual Report, and Note 9 of the Notes to the Consolidated Financial Statements in this report.

INSURANCE OPERATIONS

Aflac's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to consolidated earnings. Operating business segments that are not individually reportable and business activities, including reinsurance retrocession activities, not included in the Aflac Japan or Aflac U.S. are included in the "Corporate and other" category.

On December 2, 2016, the Company publicly announced that it would pursue the conversion of Aflac Japan from a branch structure to a subsidiary structure, with the subsidiary incorporated as a “Kabushiki Kaisha,” or Japanese stock corporation. The conversion was completed on April 1, 2018. While the branch structure remains an acceptable legal form, the subsidiary structure has emerged as the more prevalent structure for both domestic and foreign companies operating in Japan. In addition, emerging global regulatory standards generally favor the subsidiary structure for foreign insurance and financial service companies. The adoption of this new organizational framework is expected to be tax-neutral and not to have a material impact on the daily operations of either Aflac Japan or Aflac U.S. as a result of this conversion. In addition, the Company expects to obtain enhanced flexibility in capital management and business development as a result of the conversion. Effective January 1, 2018, investments of Aflac U.S. as well as certain sub-advised assets of Aflac Japan, are managed by the Company’s U.S. asset management subsidiary, Aflac Asset Management LLC (AAM), and investments of Aflac Japan are managed pursuant to an investment advisory agreement between Aflac Japan and the Company's asset management subsidiary in Japan, Aflac Asset Management Japan Ltd. (AAMJ). AAMJ is licensed as a discretionary asset manager under the Japan Financial Instruments and Exchange Act and is subject to rules of the Japan Investment Advisors Association, a self-regulatory organization with mandatory membership for Japan investment managers. Beginning with the first quarter of 2018, AAM and AAMJ are reported in the "Corporate and other segment" category; however, the assets that they manage will be reported in the respective Aflac Japan and Aflac U.S. business segments. Effective April 1, 2018, Aflac Life Insurance Japan Ltd., a Japanese stock corporation, has assumed the business of Aflac Japan. The Parent Company had also formed wholly-owned U.S. subsidiary Aflac Holdings LLC, which is the parent company of Aflac Life Insurance Japan Ltd.

U.S. GAAP financial reporting requires that a company report financial and descriptive information about operating

segments in its annual and interim period financial statements. Furthermore, the Company is required to report a measure

of segment profit or loss, certain revenue and expense items, and segment assets.

The Company evaluates its sales efforts using new annualized premium sales, an industry operating measure, which is not directly reflected on the Company's Consolidated Statements of Earnings. New annualized premium sales, which include both new sales and the incremental increase in premiums due to conversions, generally represent the premiums that the Company would collect over a 12-month period, assuming the policies remain in force. For Aflac Japan, new annualized premium sales are determined by applications submitted during the reporting period. For Aflac U.S., new annualized premium sales are determined by applications that are issued during the reporting period. Net premium income, or earned premiums, as reflected on the Company's Consolidated Statements of Earnings, is a financial performance measure that reflects collected or due premiums that have been earned ratably on policies in force during the reporting period.

AFLAC JAPAN SEGMENT

Aflac Japan Pretax Adjusted Earnings

Changes in Aflac Japan’s pretax adjusted earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac Japan.

Aflac Japan Summary of Operating Results



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2018		2017		2018		2017
Net premium income	$	3,227	$	3,222	$	6,490	$	6,416
Net investment income:
Yen-denominated investment income	326		322		657		646
U.S. dollar-denominated investment income	335		291		647		577
Net investment income	661		613		1,304		1,223
Amortized hedge costs related to foreign currency denominated investments	55		56		110		108
Net investment income, less amortized hedge costs	606		557		1,194		1,115
Other income (loss)	11		10		22		20
Total adjusted revenues	3,844		3,789		7,706		7,551
Benefits and claims, net	2,237		2,272		4,530		4,559
Adjusted expenses:
Amortization of deferred policy acquisition costs	180		167		348		322
Insurance commissions	194		189		383		373
Insurance and other expenses	397		370		791		737
Total adjusted expenses	771		726		1,522		1,432
Total benefits and expenses	3,008		2,998		6,052		5,991
Pretax adjusted earnings⁽¹⁾	$	836	$	791	$	1,654	$	1,560
Weighted-average yen/dollar exchange rate	109.14		111.10		108.61		112.31



	In Dollars								In Yen
Percentage change over previous period:	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
Percentage change over previous period:	2018		2017		2018		2017		2018		2017		2018		2017
Net premium income	.2	%	(5.3	)%	1.2	%	(2.5	)%	(1.7	)%	(2.7	)%	(2.2	)%	(1.9	)%
Net investment income, less amortized hedge costs	8.8		(7.9	)	7.1		(6.7	)	6.4		(4.7	)	3.2		(5.5	)
Total adjusted revenues	1.5		(5.7	)	2.1		(3.1	)	(.5	)	(3.0	)	(1.4	)	(2.4	)
Pretax adjusted earnings⁽¹⁾	5.7		(1.4	)	6.0		(3.0	)	3.6		1.8		2.2		(2.0	)

⁽¹⁾Aflac defines pretax adjusted earnings (a non-U.S. GAAP financial measure) as adjusted earnings before the application of income taxes. See the Results of Operations section of this MD&A for the Company's definition of adjusted earnings and a reconciliation of adjusted earnings to the most directly comparable U.S. GAAP measure of net earnings.

In the three- and six-month periods ended June 30, 2018, Aflac Japan's net premium income decreased, in yen terms, with growth in third sector premium more than offset by the anticipated reduction in first sector premium due to savings products reaching premium paid-up status. Net investment income, net of amortized hedge costs, increased largely due to higher income from U.S. dollar-denominated floating rate assets. Pretax adjusted earnings in yen increased, driven by higher net investment income and a favorable third sector benefit ratio.

Annualized premiums in force decreased 1.8% to 1.54 trillion yen as of June 30, 2018, compared with 1.57 trillion yen as of June 30, 2017. The decrease in annualized premiums in force in yen was driven primarily by limited-pay policies becoming paid-up during the year. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $13.9 billion at June 30, 2018, compared with $14.0 billion a year ago.

Aflac Japan's investment portfolios include U.S. dollar-denominated securities and reverse-dual currency securities (yen-denominated debt securities with dollar coupon payments). In years when the yen strengthens in relation to the dollar, translating Aflac Japan's U.S. dollar-denominated investment income into yen lowers growth rates for net investment income, total adjusted revenues, and pretax adjusted earnings in yen terms. In years when the yen weakens, translating U.S. dollar-denominated investment income into yen magnifies growth rates for net investment income, total operating revenues, and pretax adjusted earnings in yen terms.

The following table illustrates the effect of translating Aflac Japan’s U.S. dollar-denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had yen/dollar exchange rates remained unchanged from the comparable period in the prior year. In order to compare the current period to the prior period without the impact of foreign currency, the current period income statement is translated at the prior year's comparable period average exchange rate.

Aflac Japan Percentage Changes Over Previous Period

(Yen Operating Results)

For the Periods Ended June 30,



	Including Foreign Currency Changes												Excluding Foreign Currency Changes⁽²⁾
	Three Months						Six Months						Three Months						Six Months
	2018			2017			2018			2017			2018			2017			2018			2017
Net investment income, less amortized hedge costs	6.4		%	(4.7	)	%	3.2		%	(5.5	)	%	7.5		%	(5.9	)	%	5.0		%	(5.7	)	%
Total adjusted revenues	(.5	)		(3.0	)		(1.4	)		(2.4	)		(.3	)		(3.2	)		(1.1	)		(2.5	)
Pretax adjusted earnings⁽¹⁾	3.6			1.8			2.2			(2.0	)		4.3			1.0			3.5			(2.2	)

⁽²⁾Amounts excluding foreign currency impact on U.S. dollar-denominated items (a non-U.S. GAAP measure) were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year.

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



	Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total revenues:	2018		2017		2018		2017
Benefits and claims, net	58.2	%	59.9	%	58.8	%	60.4	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	4.7		4.4		4.5		4.3
Insurance commissions	5.0		5.0		5.0		4.9
Insurance and other expenses	10.3		9.8		10.3		9.7
Total adjusted expenses	20.0		19.2		19.7		18.9
Pretax adjusted earnings⁽¹⁾	21.8		20.9		21.5		20.7
Ratios to total premiums:
Benefits and claims, net	69.3	%	70.5	%	69.8	%	71.1	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	5.6		5.2		5.4		5.0

In the three- and six-month periods ended June 30, 2018, the benefit ratio decreased, compared with the same respective periods in the prior year, primarily due to the continued change in mix of first and third sector business as first sector products become paid-up, as well as continued favorable cancer claims trends and associated reserve adjustments. In the three- and six-month periods ended June 30, 2018, the adjusted expense ratio increased due to lower premium income impacted by first sector products becoming paid-up, and higher expenses mainly came from increased

outsourcing costs and DAC amortization. In total, the pretax operating profit margin increased in the three- and six-month periods ended June 30, 2018, reflecting the decrease in the benefit ratio partially offset by a smaller increase in the expense ratio. For the full year of 2018, the Company anticipates the Aflac Japan pretax adjusted profit margin (calculated by dividing adjusted earnings by adjusted revenues) to remain stable.

Aflac Japan Sales

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



	In Dollars												In Yen
	Three Months						Six Months						Three Months				Six Months
(In millions of dollars and billions of yen)	2018			2017			2018			2017			2018		2017		2018		2017
New annualized premium sales	$	265		$	229		$	443		$	423		29.0		25.4		48.1		47.5
Increase (decrease) over prior period	16.1		%	(18.3		)%	4.7		%	(23.2		)%	14.0	%	(16.0	)%	1.4	%	(22.7	)%

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



	Three Months				Six Months
	2018		2017		2018		2017
Cancer	72.2	%	56.0	%	65.5	%	53.3	%
Medical	21.3		35.3		26.4		36.0
Income support	1.3		1.9		1.7		1.9
Ordinary life:
WAYS	.5		.6		.6		.6
Child endowment	.3		.4		.3		.6
Other ordinary life ⁽¹⁾	4.1		5.3		5.0		6.7
Other	.3		.5		.5		.9
Total	100.0	%	100.0	%	100.0	%	100.0	%

⁽¹⁾Includes term and whole life

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical and Income Support insurance products. Sales of third sector products on a yen basis increased 16.0% during the second quarter and increased 4.1% in the first six months of 2018, compared with the same respective periods in 2017. The increase in third sector sales in the second quarter was primarily driven by the launch of Aflac Japan's new cancer insurance product in April 2018. In 2018, medical sales have declined compared with 2017 as a result of strong sales in 2017 driven by the introduction of the new medical insurance product in the second quarter of 2017. Aflac Japan has been focusing more on promotion of cancer and medical insurance products in this low-interest-rate environment. These products are less interest-rate sensitive and more profitable compared to first sector products. With continued cost pressure on Japan’s health care system, the Company expects the need for third sector products will continue to rise in the future and that the medical and cancer insurance products Aflac Japan provides will continue to be an important part of its product portfolio.

Independent corporate agencies and individual agencies contributed 38.2% of total new annualized premium sales for Aflac Japan in the second quarter of 2018, compared with 41.7% for the same period in 2017. Affiliated corporate agencies, which include Japan Post, contributed 58.3% of total new annualized premium sales in the second quarter of 2018, compared with 53.9% in the second quarter of 2017. Japan Post offers Aflac's cancer insurance products in more than 20,000 post offices. The Company believes this alliance with Japan Post has and will further benefit its cancer insurance sales. During the three-month period ended June 30, 2018, Aflac Japan recruited 16 new sales agencies. At June 30, 2018, Aflac Japan was represented by more than 10,300 sales agencies, with approximately 109,000 licensed sales associates employed by those agencies.

At June 30, 2018, Aflac Japan had agreements to sell its products at 371 banks, approximately 90% of the total number of banks in Japan. Bank channel sales accounted for 3.5% of new annualized premium sales in the second quarter of 2018 for Aflac Japan, compared with 4.4% during the second quarter of 2017.

Aflac Japan Investments

The level of investment income in yen is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, the effect of yen/dollar exchange rates on U.S. dollar-denominated investment income, and other factors.

As part of the Company's portfolio management and asset allocation process, Aflac Japan invests in yen and U.S. dollar-denominated investments. Yen-denominated investments primarily consist of JGBs and public and private fixed maturity securities. Aflac Japan's U.S. dollar-denominated investments include fixed maturity investments and growth assets, including public equity securities and alternative investments in limited partnerships or similar investment vehicles. Aflac Japan has been investing in both publicly-traded and privately originated U.S. dollar-denominated investment-grade and below-investment-grade fixed maturity securities and loan receivables, and has entered into foreign currency forwards and options to hedge the currency risk on the fair value of a portion of the U.S. dollar investments.

The following table details the investment purchases for Aflac Japan.



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2018		2017		2018		2017
Yen-denominated:
Fixed maturity securities:
Japan government and agencies	$	212	$	687	$	3,399	$	3,228
Other fixed maturity securities	622		371		1,034		909
Equity securities	8		3		106		152
Total yen-denominated	$	842	$	1,061	$	4,539	$	4,289

U.S. dollar-denominated:
Fixed maturity securities:
Other fixed maturity securities	$	998	$	23	$	1,038	$	81
Infrastructure debt	0		64		0		94
Bank loans ⁽¹⁾	193		0		373		0
Equity securities	39		144		80		151
Other investments:
Transitional real estate loans	579		145		2,149		145
Commercial mortgage loans	0		0		13		48
Middle market loans	161		154		278		251
Limited partnerships	45		0		172		0
Total dollar-denominated	$	2,015	$	530	$	4,103	$	770
Total Aflac Japan purchases	$	2,857	$	1,591	$	8,642	$	5,059

⁽¹⁾ In 2017, represents funding made to unit trust structures

In the first six months of 2018, Aflac Japan purchased $550 million of yen-denominated private placements and had purchased $1.1 billion for the full year of 2017.

See the Analysis of Financial Condition section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for more information regarding loans and loan receivables.

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



	Three Months						Six Months
	2018			2017			2018			2017
Total purchases for the period (in millions) ⁽¹⁾	$	2,812		$	1,591		$	8,470		$	5,059
New money yield ^{(1), (2)}	3.55		%	2.25		%	2.88		%	1.54		%
Return on average invested assets ⁽³⁾	2.30			2.28			2.29			2.31
Portfolio book yield, including U.S. dollar-denominated investments, end of period ⁽¹⁾	2.59		%	2.55		%	2.59		%	2.55		%

⁽¹⁾Includes fixed maturity securities, loan receivables, equity securities, and excludes alternative investments in limited partnerships

⁽²⁾Reported on a gross yield basis; excludes investment expenses, external management fees, and amortized hedge costs

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

The increase in the Aflac Japan new money yield in the three-month and six-month periods ended June 30, 2018 was primarily due to increased allocations to higher yielding U.S. dollar denominated asset classes.

See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on the Company's investments and hedging strategies.

AFLAC U.S. SEGMENT

Aflac U.S. Pretax Adjusted Earnings

Changes in Aflac U.S. pretax adjusted earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac U.S.

Aflac U.S. Summary of Operating Results



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2018			2017			2018				2017
Net premium income	$	1,426		$	1,388		$	2,853			$	2,778
Net investment income	182			180			357				358
Other income	2			2			4				3
Total adjusted revenues	1,610			1,570			3,214				3,139
Benefits and claims	744			715			1,441				1,425
Adjusted expenses:
Amortization of deferred policy acquisition costs	123			116			269				256
Insurance commissions	145			146			292				291
Insurance and other expenses	258			263			535				527
Total adjusted expenses	526			525			1,096				1,074
Total benefits and expenses	1,270			1,240			2,537				2,499
Pretax adjusted earnings⁽¹⁾	$	340		$	330		$	677			$	640
Percentage change over previous period:
Net premium income	2.7		%	1.9		%	2.7			%	1.8		%
Net investment income	1.1			2.3			(.3		)		2.3
Total adjusted revenues	2.5			2.1			2.4				1.8
Pretax adjusted earnings⁽¹⁾	3.0			13.4			5.8				2.7

In the three-month period ended June 30, 2018, net investment income increased, driven by higher income from floating rate assets and an offset from the drawdown of excess capital in the U.S. segment. Pretax adjusted earnings increased, driven by higher net investment income and a favorable expense ratio in the quarter. Annualized premiums in force increased 2.8% to $6.0 billion at June 30, 2018, compared with $5.9 billion at June 30, 2017.

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



	Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total revenues:	2018		2017		2018		2017
Benefits and claims	46.2	%	45.6	%	44.8	%	45.4	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	7.6		7.4		8.4		8.1
Insurance commissions	9.0		9.3		9.1		9.3
Insurance and other expenses	16.0		16.7		16.6		16.8
Total adjusted expenses	32.7		33.4		34.1		34.2
Pretax adjusted earnings⁽¹⁾	21.1		21.0		21.1		20.4
Ratios to total premiums:
Benefits and claims	52.2	%	51.5	%	50.5	%	51.3	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	8.6		8.4		9.4		9.2

For the three-month period ended June 30, 2018, the benefit ratio increased, in line with expectations, when compared with the same period in 2017. For the same period, the adjusted expense ratio decreased compared with the same period in 2017, primarily related to one-time expenses in the second quarter of 2017 that slightly elevated expense ratios. The pretax adjusted profit margin (calculated by dividing adjusted earnings by adjusted revenues) was flat during this period compared with the same period in 2017, as increased benefit ratios were offset by decreased expense ratios.

For the six-month period ended June 30, 2018, the benefit ratio decreased when compared with the same period in 2017, due in large part to benefit reserve releases related to slightly elevated lapses of older individual cancer policies in the first quarter of 2018. The adjusted expense ratio increased slightly for the six-month period ended June 30, 2018 when compared to the same period in 2017, primarily due to planned spending increases reflecting elevated investments in the platform. The pretax adjusted profit margin increased when compared to the same period in 2017, primarily due to lower benefit ratios.

Note that all of these ratios-to-revenue reflect reduced net investment income due to the Company's planned drawdown of excess capital to lower Risk-Based Capital (RBC) ratios. (See the Capital Resources and Liquidity section of this MD&A for further discussion of the planned reduction of RBC.)

Aflac U.S. Sales

The following table presents Aflac's U.S. new annualized premium sales for the periods ended June 30.



	Three Months						Six Months
(In millions)	2018			2017			2018			2017
New annualized premium sales	$	370		$	356		$	705		$	689
Increase (decrease) over prior period	3.9		%	2.4		%	2.3		%	2.1		%

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



	Three Months				Six Months
	2018		2017		2018		2017
Accident	29.5	%	29.8	%	29.4	%	29.5	%
Short-term disability	23.5		23.9		23.3		24.5
Critical care⁽¹⁾	20.8		21.1		21.4		21.0
Hospital indemnity	15.1		14.0		15.0		14.0
Dental/vision	5.4		5.9		5.4		5.6
Life	5.7		5.3		5.5		5.4
Total	100.0	%	100.0	%	100.0	%	100.0	%

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

New annualized premium sales for accident insurance, the Aflac U.S. leading product category, increased 3.1%; short-term disability sales increased 1.9%; critical care insurance sales (including cancer insurance) increased 2.4%; and hospital indemnity insurance sales increased 11.2% in the second quarter of 2018, compared with the same period in 2017.

The addition of group products has expanded Aflac U.S.'s reach and enabled Aflac U.S. to generate more sales opportunities with larger employers and through broker and sales agent channels. The Company anticipates that the appeal of Aflac U.S. group products will continue to enhance opportunities to connect with larger businesses and their employees. The Aflac U.S. portfolio of group and individual products offers businesses the opportunity to give their employees a more valuable and comprehensive selection of benefit options.

In the second quarter of 2018, the Aflac U.S. sales force included approximately 8,500 U.S. agents, including brokers, who were actively producing business on a weekly basis. The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and needs.

One Day Pay^SMis a claims initiative that Aflac U.S. has focused on to process, approve and pay eligible claims in just one day. The Company believes that this claims practice enhances the Aflac U.S. brand reputation and the trust policyholders have in Aflac, and it helps Aflac stand out from competitors.

Aflac U.S. products provide cash benefits that can be used to help with increasing out-of-pocket medical expenses, help cover household costs, or protect against income and asset loss. Group products and relationships with insurance brokers that handle the larger-case market are helping Aflac U.S. expand its reach by selling to larger businesses. Aflac U.S. is regularly evaluating the marketplace to identify opportunities to bring the most relevant, cost-effective products to customers. The Company believes the need for its products remains very strong, and Aflac U.S. continues to work on enhancing its distribution capabilities to access employers of all sizes, including initiatives that benefit the field force and the broker community. At the same time, the Company is seeking opportunities to leverage its brand strength and attractive product portfolio in the evolving health care environment.

U.S. Regulatory Environment

Healthcare Reform Legislation

The Affordable Care Act (ACA), federal health care legislation, was intended to give Americans of all ages and income levels access to comprehensive major medical health insurance and gave the U.S. federal government direct regulatory authority over the business of health insurance. While the ACA was enacted in 2010, the major elements of the law became effective on January 1, 2014. The ACA included major changes to the U.S. health care insurance marketplace. Among other changes, the ACA included an individual medical insurance coverage mandate (which has since been repealed effective 2019 by the Tax Act), provided for penalties on certain employers for failing to provide adequate coverage, created health insurance exchanges, and addressed coverage and exclusions as well as medical loss ratios. It also imposed an excise tax on certain high cost plans, known as the “Cadillac tax,” that is currently scheduled to begin in 2020. The ACA also included changes in government reimbursements and tax credits for individuals and employers and altered federal and state regulation of health insurers. The ACA, as enacted, does not require material changes in the design of the Company's insurance products. However, indirect consequences of the legislation and regulations could present challenges that could potentially have an impact on the Company's sales model, financial condition and results of operations. The United States Congress has considered and may continue to consider legislation that would repeal and replace key provisions of the ACA. There can be no assurance that any legislation affecting the ACA will be passed by

Congress, nor as to the ultimate timing or provisions of any such legislation, nor as to the effect of any such legislation on the design or marketability of the Company's insurance products.

President Trump signed an Executive Order in October 2017 directing federal regulatory agencies to review and modify certain regulations issued under the ACA. The stated objectives of the Executive Order are to increase competition and consumer choices in health care markets, and to lower costs for health care, by making association health plans available to more employers, allowing employers to make better use of health reimbursement arrangements, and expanding coverage through short-term insurance. The Executive Order tasks three federal agencies, the Departments of Labor (DOL), Treasury, and Health and Human Services (HHS) with reviewing current rules and developing guidance to implement the order. While the details of any proposed modifications will not be known until further action by the agencies, the Company anticipates that the Executive Order will not have a significant impact on the availability or marketability of its products.

Tax Reform Legislation

The Tax Act was signed into law on December 22, 2017. Among other things, effective January 1, 2018, the Tax Act reduced the U.S. federal statutory corporate income tax rate from 35% to 21%, eliminated or reduced certain deductions and credits and limited the deductibility of interest expense and executive compensation.

The Tax Act also transitions international corporate taxation from a worldwide system to a modified territorial system, which in light of the current tax treatment of Aflac Japan as a branch has the effect of subjecting the earnings of Aflac Japan to Japan taxation and subjecting the Company's other earnings, including the consolidated earnings of the Parent Company, to U.S. taxation. The treatment of Aflac Japan as a branch for U.S. tax purposes did not change following the completion of its conversion from a branch structure to a subsidiary structure for legal purposes on April 1, 2018.

Aflac U.S. prices its business on an internal rate of return basis. The Aflac U.S. business has a financial structure that the Company expects to be neutral on a pricing basis from these tax changes. The Aflac U.S. products have high initial costs for marketing, underwriting and administration, which will have less tax relief under the changes and will increase the amount required to invest in new business. In addition, the Company expects that RBC requirements will increase on an after-tax basis, being another source of initial funding required for these products. The tax basis for reserves and DAC may also change the timing of tax payments in an accelerated or unfavorable direction. All of these effects will offset a favorable lower tax rate on income in later years. The overall impact is expected to be neutral on a pricing basis from these various effects.

The Tax Act changes became effective on January 1, 2018. However, because changes to tax rates are accounted for in the period of enactment, during the period ended December 31, 2017, the Company revalued its deferred tax assets and liabilities and recorded, as its current reasonable estimate, a net deferred tax liability reduction of $1.9 billion as of that date. For information on the effects of the Tax Act during the period ended December 31, 2017, see Note 10 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report. For information on the conversion of Aflac Japan from a branch to a subsidiary, see General Business under Item 1, Business, in the 2017 Annual Report and the Insurance Operations subsection of this MD&A.

Dodd-Frank Act

Title VII of the Dodd-Frank Act and regulations issued thereunder, in particular rules to require central clearing for certain types of derivatives, may have an impact on Aflac's derivative activity, including activity on behalf of Aflac Japan. In addition, in 2015 and 2016, six U.S. financial regulators, including the U.S. Commodity Futures Trading Commission (CFTC), issued final rules regarding the exchange of initial margin (IM) and variation margin (VM) for uncleared swaps that impose greater obligations on swap dealers regarding uncleared swaps with certain counterparties, such as Aflac. The requirements of such rules with respect to VM, as well as similar regulations in Europe, became effective on March 1, 2017. Full compliance with respect to all counterparties was required by September 1, 2017. The requirements of such rules with respect to IM are currently being phased in and will be fully implemented by September 1, 2020. In October of 2017, the CFTC and the European Commission each finalized comparability determinations that permit certain swap dealers who are subject to both regulatory margin regimes to take advantage of substituted compliance by complying with one set of margin requirements. The margin requirements are expected to result in more stringent collateral requirements and to affect other aspects of Aflac's derivatives activity.

The Dodd-Frank Act also established a Federal Insurance Office (FIO) under the U.S. Treasury Department to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. Traditionally, U.S. insurance companies have been regulated primarily by state insurance

departments. The FIO does not directly regulate the insurance industry, but under Dodd-Frank it has the power to preempt state insurance regulations that are inconsistent with international agreements reached by the federal government, subject to certain requirements and restrictions. The FIO and certain federal agencies must achieve consensus positions with the state insurance regulators when taking positions on insurance proposals by certain international forums. In December 2013, the FIO released a report entitled "How To Modernize And Improve The System Of Insurance Regulation In The United States." The report was required by the Dodd-Frank Act, and included 18 recommended areas of near-term reform for the states, including addressing capital adequacy and safety/soundness issues, reform of insurer resolution practices, and reform of marketplace regulation. The report also listed nine recommended areas for direct federal involvement in insurance regulation. Some of the recommendations outlined in the FIO report released in December 2013 have been implemented. The National Association of Registered Agents and Brokers Reform Act, signed into law in January 2015, simplifies the agent and broker licensing process across state lines. The FIO has also engaged with the supervisory colleges to monitor financial stability and identify regulatory gaps for large national and internationally active insurers. The President and Congress have stated proposals to reform or repeal certain provisions of the Dodd-Frank Act, some of which have been implemented. The Company cannot predict with any degree of certainty what impact, if any, such proposals will have on Aflac's business, financial condition, or results of operations.

Insurance Guaranty Laws

Under state insurance guaranty association laws and similar laws in international jurisdictions, Aflac is subject to assessments, based on the share of business it writes in the relevant jurisdiction, for certain obligations of insolvent insurance companies to policyholders and claimants. In the United States, some states permit member insurers to recover assessments paid through full or partial premium tax offsets. The Company's policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile's statutory definition of insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written. In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction.

Aflac U.S. Investments

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

As part of the Company's portfolio management and asset allocation process, Aflac U.S. invests in fixed maturity investments and growth assets, including public equity securities and alternative investments in limited partnerships. Aflac U.S. has been investing in both publicly traded and privately originated investment-grade and below-investment-grade fixed maturity securities and loan receivables.

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



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2018		2017		2018		2017
Fixed maturity securities:
Other fixed maturity securities	$	560	$	226	$	679	$	485
Infrastructure debt	80		10		96		15
Equity securities	26		36		49		38
Other investments:
Transitional real estate loans	98		41		170		41
Commercial mortgage loans	55		0		55		0
Middle market loans	44		42		75		93
Limited partnerships	4		0		26		0
Total Aflac U.S. Purchases	$	867	$	355	$	1,150	$	672

See Note 3 of the Notes to the Consolidated Financial Statements and Notes 1 and 3 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for more information regarding loans and loans receivables.

The following table presents the results of Aflac's U.S. investment yields for the periods ended June 30.



	Three Months						Six Months
	2018			2017			2018			2017
Total purchases for period (in millions) ⁽¹⁾	$	863		$	355		$	1,124		$	672
New money yield ^{(1), (2)}	4.21		%	4.46		%	4.33		%	4.40		%
Return on average invested assets ⁽³⁾	5.14			5.05			5.09			5.02
Portfolio book yield, end of period⁽¹⁾	5.53		%	5.54		%	5.53		%	5.54		%

⁽¹⁾Includes fixed maturity securities, loan receivables, equity securities, and excludes alternative investments in limited partnerships

⁽²⁾Reported on a gross yield basis; excludes investment expenses and external management fees

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

The decrease in the Aflac U.S. new money yield for the three- and six-month periods ended June 30, 2018 was primarily due to the purchase of tax-advantaged municipal bonds in the second quarter of 2018. Excluding this, new money yields for the three- and six-month periods ended June 30, 2018 were higher. See Notes 3 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on the Company's investments.

CORPORATE AND OTHER

In the three-month period ended June 30, 2018, total revenue increased 21.4% to $85 million, reflecting net investment income of $27 million. Net investment income, which increased $19 million, was primarily generated by invested assets transferred as part of the drawdown of excess capital from the U.S. segment beginning in the fourth quarter of 2017. Pretax adjusted earnings were a loss of $38 million, compared with a loss of $48 million a year ago.

In the first six months of 2018, total revenue increased 18.8% to $164 million, reflecting net investment income of $48 million. Net investment income, which increased $33 million, was primarily generated by invested assets transferred as part of the drawdown of excess capital in the U.S. segment beginning in the fourth quarter of 2017. Pretax adjusted earnings were a loss of $84 million, compared with a loss of $100 million a year ago.

ANALYSIS OF FINANCIAL CONDITION

The Company's financial condition has remained strong in the functional currencies of its operations. The yen/dollar exchange rate at the end of each period is used to translate yen-denominated balance sheet items to U.S. dollars for reporting purposes.

Investments

The Company’s investment strategy utilizes disciplined asset and liability management while seeking long-term risk-adjusted investment returns and the delivery of stable income within regulatory and capital objectives, and preserving shareholder value. In attempting to optimally balance these objectives, the Company seeks to maintain on behalf of Aflac Japan a diversified portfolio of yen-denominated investment assets, U.S. dollar-denominated investment portfolio hedged back to yen and a portfolio of unhedged U.S. dollar-denominated assets. As part of the Company's portfolio management and asset allocation process, Aflac U.S. invests in fixed maturity investments and growth assets, including public equity securities and alternative investments in limited partnerships. Aflac U.S. has been investing in both publicly traded and privately originated investment-grade and below-investment-grade fixed maturity securities and loans.

The following table details investments by segment.

Investments by Segment



		Aflac Japan						Aflac U.S.
(In millions)	June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017
Available for sale, fixed maturity securities, at fair value ⁽¹⁾		$	71,655		$	69,338		$	12,837		$	13,606
Held to maturity, fixed maturity securities, at amortized cost		31,259			31,430			0			0
Equity securities ⁽¹⁾		890			868			149			92
Other investments:
Transitional real estate loans		2,892			986			355			249
Commercial mortgage loans		772			767			194			141
Middle market loans		750			527			347			332
Policy loans		210			198			12			12
Short-term investments		0			57			1			0
Other		238			98			55			31
Total other investments		4,862			2,633			964			765
Total investments		108,666			104,269			13,950			14,463
Cash and cash equivalents		1,588			636			1,195			1,011
Total investments and cash ⁽²⁾		$	110,254		$	104,905		$	15,145		$	15,474

⁽¹⁾Includes perpetual securities

⁽²⁾ Excludes investments and cash held by the Parent Company and other business segments of $2,522 in 2018 and $3,280 in 2017

Cash and cash equivalents totaled $3.8 billion, or 3.0% of total investments and cash, as of June 30, 2018, compared with $3.5 billion, or 2.8%, at December 31, 2017. For a discussion of the factors affecting the Company's cash balance, see the Operating Activities, Investing Activities and Financing Activities subsections of this MD&A.

In 2017, Aflac U.S. became a member of the Federal Home Loan Bank of Atlanta (FHLB). As a member, Aflac U.S. can access low-cost funding and also receive dividends on FHLB membership stock. Additional FHLB stock purchases are required based on funding activity with the FHLB. Aflac U.S. will be required to post acceptable forms of collateral for any funding from the FHLB. The FHLB stock purchased by the Company is classified as a restricted investment and is included in other investments in the consolidated balance sheets.

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

The ratings of the Company's securities referenced in the table below are based on the ratings designations provided by major Nationally Recognized Statistical Rating Organizations (NRSROs) (Moody's, S&P and Fitch) or, if not rated, are determined based on the Company's internal analysis of such securities. When the ratings issued by the rating agencies differ, the Company utilizes the second lowest rating when three or more rating agency ratings are available or the lowest rating when only two rating agency ratings are available.

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

Composition of Securities Portfolio by Credit Rating



		June 30, 2018						December 31, 2017
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.1	%		1.1	%		1.0	%		.9	%
AA		4.0			4.1			3.9			4.0
A		66.9			68.5			65.8			66.9
BBB		23.3			21.9			24.0			23.3
BB or lower		4.7			4.4			5.3			4.9
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of June 30, 2018, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of June 30, 2018.



(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
Diamond Offshore Drilling Inc.		B		$	142		$	98		$	(44	)
AXA		BBB		294			253			(41		)
Noble Holdings International Ltd.		CCC		98			68			(30		)
The Sultanate of Oman		BBB		316			286			(30		)
Time Warner Cable Inc.		BBB		118			101			(17		)
Kommunal Landspensjonskasse (KLP)		BBB		135			118			(17		)
Baker Hughes Inc.		A		121			105			(16		)
Oracle Corp.		A		208			193			(15		)
Microsoft Corp.		AAA		217			202			(15		)
National Oilwell Varco Inc.		BBB		83			70			(13		)

Generally, declines in fair values can be a result of changes in interest rates, yen/dollar exchange rate, and changes in net spreads driven by a broad market move or a change in the issuer's underlying credit quality. As the Company believes these issuers have the ability to continue making timely payments of principal and interest, the Company views these changes in fair value to be temporary and does not believe it is necessary to impair the carrying value of these securities. See the Unrealized Investment Gains and Losses section in Note 3 of the Notes to the Consolidated Financial Statements for further discussions of unrealized losses related to financial institutions and other corporate investments.

Below-Investment-Grade Securities

The Company's portfolio of below-investment-grade securities includes debt securities purchased while the issuer was rated investment grade plus other loans and bonds purchased as part of an allocation to that segment of the market. The following is the Company's below-investment-grade exposure.

Below-Investment-Grade Investments



	June 30, 2018
(In millions)	Par Value		Amortized Cost		Fair Value		Unrealized Gain (Loss)
Republic of South Africa	$	452	$	452	$	474	$	22
Investcorp Capital Limited	385		385		396		11
Navient Corp.	301		160		226		66
KLM Royal Dutch Airlines	271		199		221		22
Republic of Tunisia	190		111		135		24
Telecom Italia SpA	181		181		227		46
Barclays Bank PLC	181		112		164		52
Generalitat de Catalunya	145		53		136		83
Transnet	136		136		136		0
Diamond Offshore Drilling Inc.	124		142		98		(44		)
IKB Deutsche Industriebank AG	118		50		109		59
Alcoa, Inc.	100		84		97		13
Noble Holdings International Ltd.	94		98		68		(30		)
Petrobras International Finance Company	84		85		79		(6		)
EMC Corp.	80		80		73		(7		)
Teva Pharmaceuticals	76		74		69		(5		)
Teck Resources Ltd.	70		76		66		(10		)
Transocean Inc.	68		72		63		(9		)
Nabors Industries Inc.	59		56		60		4
National Gas Co. Trinidad and Tobago	52		50		53		3
Votorantim Overseas Trading IV Ltd.	50		49		53		4
CF Industries Inc.	50		49		47		(2		)
Other Issuers (below $50 million in par value)	278		272		264		(8		)
Subtotal ⁽¹⁾	3,545		3,026		3,314		288
Senior secured bank loans	1,586		1,609		1,583		(26		)
High yield corporate bonds	516		513		509		(4		)
Middle market loans, net of reserves ⁽²⁾	1,113		1,097		1,095		(2		)
Grand Total	$	6,760	$	6,245	$	6,501	$	256

⁽¹⁾ Securities initially purchased as investment grade, but have subsequently been downgraded to below investment grade

⁽²⁾Middle market loans are carried at amortized cost

The Company invests in senior secured bank loans and middle market loans primarily to U.S. corporate borrowers, most of which have below-investment-grade ratings. The objectives of these programs include enhancing the yield on invested assets, achieving further diversification of credit risk, and mitigating the risk of rising interest rates and hedge costs through the acquisition of floating rate assets.

The Company maintains an allocation to higher yielding corporate bonds within the Aflac Japan and Aflac U.S. portfolios. Most of these securities were rated below-investment-grade at the time of purchase, but the Company also purchased several that were rated investment grade which, because of market pricing, offer yields commensurate with below-investment-grade risk profiles. The objective of this allocation was to enhance the Company's yield on invested assets and further diversify credit risk. All investments must have a minimum rating of low BB using the Company's above described rating methodology and are managed by the Company's internal credit portfolio management team.

Securities by Type of Issuance

The Company has investments in both publicly and privately issued securities. The Company's ability to sell either type of security is a function of overall market liquidity which is impacted by, among other things, the amount of outstanding securities of a particular issuer or issuance, trading history of the issue or issuer, overall market conditions, and idiosyncratic events affecting the specific issue or issuer.

The following table details investment securities by type of issuance.

Investment Securities by Type of Issuance



		June 30, 2018						December 31, 2017
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Publicly issued securities:
Fixed maturity securities ⁽¹⁾		$	85,477		$	95,771		$	81,454		$	93,025
Equity securities ⁽¹⁾		1,081			1,081			831			1,006
Total publicly issued		86,558			96,852			82,285			94,031
Privately issued securities: ⁽²⁾
Fixed maturity securities ⁽¹⁾		24,717			28,066			25,108			29,360
Equity securities ⁽¹⁾		22			22			15			17
Total privately issued		24,739			28,088			25,123			29,377
Total investment securities		$	111,297		$	124,940		$	107,408		$	123,408

⁽¹⁾Includes perpetual securities

⁽²⁾Includes Rule 144A securities

The Company held $1,681 million and $1,789 million of perpetual securities at fair value ($1,516 million and $1,462 million at amortized cost) as of June 30, 2018 and December 31, 2017, respectively. The perpetual securities the Company holds were largely issued by banks that are systemically important to the financial markets of the sovereign country of domicile of the issuer. Generally, the Company believes regulatory changes made in the banking industry following the Global Financial Crisis and the European Sovereign Crisis, including increased capital and liquidity requirements and a reduction of business risk, have improved overall bank creditworthiness. However, bank capital securities may be subject to varying bail-in/resolution regimes in their home countries, which may include conversion or write-down provisions when bank regulators determine that the institution has reached the point of non-viability. Such actions could result in lower cash flows and ratings downgrades of the affected securities, which in turn could result in a reduction of fair value of the securities and increase the Company’s regulatory capital requirements. These factors are an integral part of the Company's credit review process.

The following table details the Company's privately issued investment securities.

Privately Issued Securities



(Amortized cost, in millions)	June 30, 2018				December 31, 2017
Privately issued securities as a percentage of total investment securities		22.2		%		23.4		%
Privately issued securities held by Aflac Japan		$	21,975			$	22,354
Privately issued securities held by Aflac Japan as a percentage of total investment securities		19.7		%		20.8		%

Reverse-Dual Currency Securities⁽¹⁾



(Amortized cost, in millions)	June 30, 2018				December 31, 2017
Privately issued reverse-dual currency securities		$	5,549			$	5,669
Publicly issued collateral structured as reverse-dual currency securities		1,664				1,390
Total reverse-dual currency securities		$	7,213			$	7,059
Reverse-dual currency securities as a percentage of total investment securities		6.5		%		6.6		%

⁽¹⁾Principal payments in yen and interest payments in dollars

Aflac Japan has a portfolio of privately issued securities to better match liability characteristics and secure higher yields than those available on Japanese government or other public corporate bonds. Aflac Japan’s investments in yen-denominated privately issued securities consist primarily of non-Japanese issuers, are rated investment grade at purchase and have longer maturities, thereby allowing the Company to improve asset/liability matching and overall investment returns. These securities are generally either privately negotiated arrangements or issued under medium-term note programs and have standard documentation commensurate with credit ratings of the issuer, except when internal credit analysis indicates that additional protective and/or event-risk covenants were required. Many of these investments have protective covenants appropriate to the specific investment. These may include a prohibition of certain activities by the borrower, maintenance of certain financial measures, and specific conditions impacting the payment of the Company's notes.

Hedging Activities

Aflac Japan’s U.S. Dollar-Denominated Investments

Most of Aflac Japan's cash, investments, and liabilities are yen-denominated. However, Aflac Japan also owns U.S. dollar-denominated investments, a portion of which Aflac Japan hedges with foreign currency forwards and options. The currency risk being hedged is generally based on fair value of hedged investments. The following table summarizes the U.S. dollar-denominated investments held by Aflac Japan.



	June 30, 2018				December 31, 2017
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale securities:
Fixed maturity securities (excluding bank loans) ⁽¹⁾	$	17,563	$	17,671	$	17,972	$	19,314
Fixed maturity securities - bank loans (floating rate)	1,835		1,799		1,936		1,865
Fixed maturity securities - economically converted to yen	1,686		2,335		1,650		2,549
Equity securities ⁽¹⁾	187		187		147		173
Other investments:
Transitional real estate loans (floating rate)	2,892		2,910		986		984
Commercial mortgage loans	772		742		767		753
Middle market loans (floating rate)	750		753		527		530
Alternative investments	238		238		97		97
Total U.S. dollar-denominated investments in Aflac Japan	$	25,923	$	26,635	$	24,082	$	26,265

⁽¹⁾Includes perpetual securities

As of June 30, 2018, Aflac Japan had $9.9 billion outstanding notional amounts of foreign currency forwards and $9.5 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging the U.S. dollar-denominated investments, resulting in the unhedged fair value of the U.S. dollar Japan portfolio of $14.8 billion, excluding certain U.S. dollar-denominated assets shown in the table above as a result of consolidation that have been economically converted to yen using derivatives.

Foreign exchange derivatives used for hedging are periodically settled, which results in cash receipt or payment at maturity or early termination. The Company had net cash settlements of $35 million and $11 million for the three-month and $36 million and $153 million for the six-month periods ended June 30, 2018 and 2017, respectively, associated with the currency derivatives used for hedging Aflac Japan’s U.S. dollar-denominated investments.

For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, and the Risk Factor sections titled “The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and “Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity" in the 2017 Annual Report. For discussion of the Company’s view on the stressed economic surplus in Aflac Japan, refer to the Investments subsection within Item 1., Business, in the 2017 Annual Report.

The following table presents metrics related to hedge costs for the periods ended June 30.

Hedge Cost Metrics⁽¹⁾



	Three Months		Six Months
	2018	2017	2018	2017
FX forward notional at end of period (in billions of dollars)⁽²⁾	9.9	10.9	9.9	10.9
Weighted average original tenor (in months)⁽³⁾	29.5	27.1	29.5	27.1
Weighted average remaining tenor (in months)⁽⁴⁾	19.8	20.6	19.8	20.6
Annualized amortized hedge costs (in basis points)⁽⁵⁾	223	209	225	190
Amortized hedge costs for period (in millions of dollars)	(55)	(56)	(110)	(108)

⁽¹⁾ See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs.

⁽²⁾ Notional is reported net of any offsetting positions

⁽³⁾ Tenor based on derivative's original execution date to settlement date

⁽⁴⁾ Tenor based on period reporting date to settlement date

⁽⁵⁾ Based on annualized amortized hedge costs divided by average FX forward notional for the period

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 Company has taken several courses of action. First, Aflac Japan maintains certain unhedged U.S. dollar-denominated securities, which serve as an economic currency hedge of a portion of the Company's investment in Aflac Japan. Second, the Company has designated the majority of the Parent Company’s yen-denominated liabilities (notes payable and loans) as non-derivative hedging instruments and certain foreign currency forwards and options as derivative hedges of the Company's net investment in Aflac Japan. The Company makes its accounting designation of net investment hedge at the beginning of each quarter. If the total of the designated Parent Company non-derivative and derivative notional is equal to or less than the Company's net investment in Aflac Japan, the hedge is deemed to be effective, and the currency exchange effect on the yen-denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income. The Company's net investment hedge was effective during the three- and six-month periods ended June 30, 2018 and 2017, respectively.

For the hedge of the Company's net investment in Aflac Japan, the Company has designated certain of the Parent Company's yen-denominated liabilities and foreign currency forwards and options as accounting hedges of its net investment in Aflac Japan. The Company's consolidated yen-denominated net asset position was partially hedged at $1.3 billion as of June 30, 2018, with hedging instruments comprised completely of yen-denominated debt, compared with a hedge of $1.8 billion as of December 31, 2017, with hedging instruments comprised of $1.4 billion of yen-denominated debt and $.4 billion of foreign currency forwards and options.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on the Company's hedging activities.

Deferred Policy Acquisition Costs

The following table presents deferred policy acquisition costs by segment.



(In millions)	June 30, 2018		December 31, 2017			% Change
Aflac Japan	$	6,342		$	6,150		3.1	%	⁽¹⁾
Aflac U.S.	3,398			3,355			1.3
Total	$	9,740		$	9,505		2.5	%

⁽¹⁾Aflac Japan’s deferred policy acquisition costs increased .9% in yen during the six months ended June 30, 2018.

See Note 6 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for additional information on the Company's deferred policy acquisition costs.

Policy Liabilities

The following table presents policy liabilities by segment.



(In millions)	June 30, 2018			December 31, 2017				% Change
Aflac Japan	$	92,125			$	89,132			3.4	%	⁽¹⁾
Aflac U.S.	10,789				10,625				1.5
Other	167				138				21.0
Intercompany eliminations⁽²⁾	(771		)		(748		)		3.1
Total	$	102,310			$	99,147			3.2	%

⁽¹⁾Aflac Japan’s policy liabilities increased 1.1% in yen during the six months ended June 30, 2018.

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

Notes Payable

Notes payable totaled $5.3 billion at June 30, 2018 and December 31, 2017.

See Note 8 of the accompanying Notes to the Consolidated Financial Statements for additional information on the Company's notes payable.

Benefit Plans

Aflac Japan and Aflac U.S. have various benefit plans. For additional information on the Company's Japanese and U.S. plans, see Note 12 of the accompanying Notes to the Consolidated Financial Statements and Note 14 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report.

Policyholder Protection

Policyholder Protection Corporation

The Japanese insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. Legislation enacted regarding the framework of the Life Insurance Policyholder Protection Corporation (LIPPC) included government fiscal measures supporting the LIPPC. On March 30, 2012, the Diet approved legislation to enhance the stability of the LIPPC by extending the government's fiscal support of the LIPPC through March 2017. On November 25, 2016, Japan's Diet passed legislation that again extends the government's fiscal support of the LIPPC through March 2022. Effective April 2014, the annual LIPPC contribution amount for the total life industry was lowered from 40 billion yen to 33 billion yen.

Guaranty Fund Assessments

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

As of June 30, 2018, the Company has estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation of a long-term care insurer. See Note 15 of the Notes to the Consolidated Financial Statements for further information on the assessment.

Off-Balance Sheet Arrangements

As of June 30, 2018, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations. See Note 15 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

CAPITAL RESOURCES AND LIQUIDITY

Aflac Japan and Aflac U.S. provide the primary sources of liquidity to the Parent Company through dividends and management fees. The following table presents the amounts provided for the six-month periods ending June 30.

Liquidity Provided by Aflac Japan and Aflac U.S. to Parent Company



(In millions)	2018		2017
Dividends declared or paid by Aflac	$	258	$	800
Management fees paid by Aflac Japan and Aflac U.S.	98		156

The decline in dividends in the first half of 2018 was driven by the Company's decision to retain capital in Japan for this first quarter after the conversion of Aflac Japan from a branch to a subsidiary. Management fees decreased during the six-month period ending June 30, 2018, compared to prior year due to changes in the administration of intercompany expenses between legal entities subsequent to the conversion of Aflac Japan from a branch to subsidiary on April 2, 2018.

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

The Parent Company's sources and uses of cash are reasonably predictable and are not expected to change materially in the future. For additional information, including restrictions that could apply to dividends provided by Aflac Japan and Aflac U.S. to the Parent Company, see the Financing Activities and Regulatory Restrictions subsections of this MD&A.

The Parent Company also accesses debt security markets to provide additional sources of capital. In August 2016, the Company filed a shelf registration statement with Japanese regulatory authorities that allows the Company to conduct public offerings of bonds in Japan, including yen-denominated Samurai notes, up to 200 billion yen or its equivalent through August 2018. The Company intends to renew this shelf registration statement through August 2020. The shelf registration statement is for possible public offerings in Japan, but the bonds issued under the shelf may be transferred by the bondholders to U.S. persons in compliance with U.S. law. The Company intends to file a registration statement with the SEC that will allow the Company to issue an indefinite amount of debt securities, in one or more series, from time to time, for a period of three years from the date the registration statement becomes effective. The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available. For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

The principal sources of cash for the Company's insurance operations are premiums and investment income. The primary uses of cash by the Company's insurance operations are investments, policy claims, commissions, operating expenses, income taxes and payments to the Parent Company for management fees and dividends. Both the sources and uses of cash are reasonably predictable.

When making an investment decision, the Company's first consideration is based on product needs. The Company's investment objectives provide for liquidity through the purchase of investment-grade debt securities. These objectives also take into account duration matching, and because of the long-term nature of the Company's business, the Company has adequate time to react to changing cash flow needs related to benefits and expenses.

As a result of policyholder aging, claims payments are expected to gradually increase over the life of a policy. Therefore, future policy benefit reserves are accumulated in the early years of a policy and are designed to help fund future claims payments. The Company expects its future cash flows from premiums and its investment portfolio to be sufficient to meet its cash needs for benefits and expenses.

As of June 30, 2018, the Parent Company and Aflac had four lines of credit with third parties as well as two intercompany lines of credit. For additional information on the Company's lines of credit, see Note 8 of the Notes to the Consolidated Financial Statements.

As part of the FHLB funding arrangement as discussed previously in the Analysis of Financial Condition section of this MD&A, Aflac U.S. borrowed and repaid $86 million during the first six months of 2018.

The Company's financial statements convey its financing arrangements during the periods presented. The Company has not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein. The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, 2018. The Company has not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards, including securities lending transactions. See Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3, and 4 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for more information on the Company's securities lending and derivative activities. With the exception of disclosed activities in those referenced footnotes, the Company does not have a known trend, demand, commitment, event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount. The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure.

Consolidated Cash Flows

The Company translates cash flows for Aflac Japan’s yen-denominated items into U.S. dollars using weighted-average exchange rates. In periods when the yen weakens, translating yen into dollars causes fewer dollars to be reported. When the yen strengthens, translating yen into dollars causes more dollars to be reported.

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



(In millions)	2018			2017
Operating activities	$	2,807		$	3,165
Investing activities	(1,443		)	(2,517		)
Financing activities	(988		)	(1,231		)
Exchange effect on cash and cash equivalents	(20		)	(12		)
Net change in cash and cash equivalents	$	356		$	(595	)

Operating Activities

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



(In millions)	2018			2017
Aflac Japan	$	2,947		$	2,509
Aflac U.S. and other operations	(140		)	656
Total	$	2,807		$	3,165

Investing Activities

Operating cash flow is primarily used to purchase investments to meet future policy obligations. The following table summarizes investing cash flows by source for the six-month periods ended June 30.



(In millions)	2018			2017
Aflac Japan	$	(889	)	$	(2,073	)
Aflac U.S. and other operations	(554		)	(444		)
Total	$	(1,443	)	$	(2,517	)

Prudent portfolio management dictates that the Company attempts to match the duration of its assets with the duration of its liabilities. Currently, when the Company's fixed maturity securities mature, the proceeds may be reinvested at a yield below that required for the accretion of policy benefit liabilities on policies issued in earlier years. However, the long-term nature of the Company's business and its strong cash flows provide the Company with the ability to minimize the effect of mismatched durations and/or yields identified by various asset adequacy analyses. From time to time or when market opportunities arise, the Company disposes of selected fixed maturity securities that are available for sale to improve the duration matching of assets and liabilities, improve future investment yields, and/or re-balance its portfolio. As a result, dispositions before maturity can vary significantly from year to year.

Financing Activities

Consolidated cash used by financing activities was $988 million in the first six months of 2018, compared with consolidated cash used by financing activities of $1.2 billion for the same period of 2017.

See the preceding discussion in this Capital Resources and Liquidity section of MD&A for details and any outstanding balances as of June 30, 2018, for the Company's lines of credit and FHLB financing arrangement.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, 2018.

Cash returned to shareholders through dividends and treasury stock purchases was $1.0 billion during the six-month period ended June 30, 2018, compared with $1.1 billion during the six-month period ended June 30, 2017.

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

Treasury Stock Purchased



(In millions of dollars and thousands of shares)	2018		2017
Treasury stock purchases	$	601	$	813
Number of shares purchased:
Open market	13,441		22,310
Other	328		346
Total shares purchased	13,769		22,656

Treasury Stock Issued



(In millions of dollars and thousands of shares)	2018		2017
Stock issued from treasury:
Cash financing	$	12	$	34
Noncash financing	15		66
Total stock issued from treasury	$	27	$	100
Number of shares issued	832		1,452

During the first six months of 2018, the Company repurchased 13.4 million shares of its common stock for $601 million as part of its share repurchase program. As of June 30, 2018, a remaining balance of 84.6 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors. The Company currently plans to repurchase a total of $1.1 billion to $1.4 billion of its common stock in 2018, assuming stable capital conditions and the absence of compelling alternatives.

Cash dividends paid to shareholders were $.26 per share in the second quarter of 2018, compared with $.22 per share in the second quarter of 2017. The following table presents the dividend activity for the six-month periods ended June 30.



(In millions)	2018		2017
Dividends paid in cash	$	396	$	328
Dividends through issuance of treasury shares	8		16
Total dividends to shareholders	$	404	$	344

In July 2018, the board of directors declared the third quarter cash dividend of $.26 per share, an increase of 18.2% compared with the same period in 2017. The dividend is payable on September 1, 2018 to shareholders of record at the close of business on August 22, 2018.

Regulatory Restrictions

Aflac and CAIC are domiciled in Nebraska and are subject to its regulations. Subsequent to the Japan branch conversion to a subsidiary, Aflac Japan is domiciled in Japan and subject to local regulations. See further discussion below. A life insurance company’s statutory capital and surplus is determined according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance department in the insurance company’s state of domicile. Statutory accounting rules are different from U.S. GAAP and are intended to emphasize policyholder protection and company solvency. Similar laws apply in New York, the domiciliary jurisdiction of Aflac's New York insurance subsidiary.

The continued long-term growth of the Company's business may require increases in the statutory capital and surplus of its insurance operations. Aflac’s insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, capital contributions by the Parent Company from funds generated through debt or equity offerings, or reinsurance transactions. The NAIC’s risk-based capital (RBC) formula is used by insurance regulators to help identify inadequately capitalized insurance companies. The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations. As of June 30, 2018, Aflac’s U.S.-only RBC ratio remains high and reflects a strong capital and surplus position, even reflecting the full negative impact of the U.S. Tax Act, which is expected to be fully adopted in 2018. This reduction occurs as a result of writing down deferred tax assets and the increase in required capital due to the reduction in tax rates. However, Aflac expects to recover from this negative impact over a period of three to five years through additional statutory income, assuming that the additional income is fully retained. The Company expects to continue to draw down RBC levels through dividends in the second half of 2018; however, the RBC level is still expected to be strong at the end of the year.

The maximum amount of dividends that can be paid to the Parent Company by Aflac without prior approval of Nebraska's director of insurance is the greater of the net income from operations, which excludes net realized investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end. Dividends declared by Aflac during 2018 in excess of $2.6 billion would be considered extraordinary and require such approval. Subsequent to the Japan branch conversion to a subsidiary, the Company intends to use extraordinary dividends as needed to actively manage to appropriate RBC levels that are lower yet sufficient to maintain ratings and support prudent capital management.

In addition to limitations and restrictions imposed by U.S. insurance regulators, after the Japan branch conversion as of April 1, 2018, the new Japan subsidiary is required to meet certain financial criteria as governed by Japanese corporate law in order to provide dividends to the Parent Company. Under these criteria, dividend capacity at the Japan subsidiary is defined as retained earnings plus other capital reserve less net after-tax unrealized losses on available-for-sale securities. These dividend capacity requirements are generally aligned with the solvency margin ratio (SMR). Japan's Financial Services Agency (FSA) maintains its own solvency standard which is quantified through the SMR. Aflac Japan's SMR is sensitive to interest rate, credit spread, and foreign exchange rate changes, therefore the Company continues to evaluate alternatives for reducing this sensitivity. In the event of a rapid change in market risk conditions causing SMR to decline, the Company has two senior unsecured revolving credit facilities in the amounts of 100 billion yen and 55 billion yen, respectively, and a committed reinsurance facility in the amount of approximately 110 billion yen as a capital contingency plan. (See Notes 7 and 8 of the Notes to the Consolidated Financial Statements for additional information.)

The Company has already undertaken various measures to mitigate the sensitivity of Aflac Japan's SMR. For example, the Company employs policy reserve matching (PRM) investment strategies, which is a Japan-specific accounting treatment that reduces SMR interest rate sensitivity since PRM-designated investments are carried at amortized cost consistent with corresponding liabilities. In order for a PRM-designated asset to be held at amortized cost, there are certain criteria that must be maintained. The primary criteria relates to maintaining the duration of designated assets and liabilities within a specified tolerance range. If the duration difference is not maintained within the specified range without rebalancing, then a certain portion of the assets must be re-classified as available for sale and held at fair value with any associated unrealized gain or loss recorded in surplus. To rebalance, assets may need to be sold in order to maintain the duration with the specified range, resulting in realizing a gain or loss from the sale. For U.S. GAAP, PRM investments are categorized as available-for-sale. The Company also uses foreign currency derivatives to hedge a portion of its U.S. dollar-denominated investments. (See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in the 2017 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.)

As of June 30, 2018, Aflac Japan's SMR remains high and reflects a strong capital and surplus position. As part of the conversion of Aflac Japan from a branch to a subsidiary on April 1, 2018, the Company experienced an accounting-driven

decline in the SMR of approximately 130 points, based on the SMR as of December 31, 2017. Subject to regulatory approval, the Company expects to be able to pay dividends out of certain accounts, thus restoring this accounting impact over an estimated three-year period. The FSA has been conducting field testing with the insurance industry concerning the introduction of an economic value-based solvency regime. The field testing will assist the FSA in determining if an economic value-based solvency regime in Japan will be appropriate for the insurance industry.

Payments are made from Aflac Japan to the Parent Company for management fees, allocated expenses and remittances of earnings. Prior to the Aflac Japan branch conversion on April 1, 2018, Aflac Japan paid allocated expenses and profit remittances to Aflac U.S. The following table details Aflac Japan remittances for the six-month periods ended June 30.

Aflac Japan Remittances



(In millions of dollars and billions of yen)	2018		2017
Aflac Japan management fees paid to Parent Company	$	40	$	55
Expenses allocated to Aflac Japan (in dollars)	8		56
Aflac Japan profit remittances to the Parent Company or Aflac U.S. (in dollars)	312		275
Aflac Japan profit remittances to the Parent Company or Aflac U.S. (in yen)	33.4		31.3

The Company had foreign exchange forwards and options as part of an economic hedge of foreign exchange risk on 30.0 billion yen of profit remittances received from Aflac Japan in the first six months of 2018, resulting in $2 million more funds received when the yen were exchanged into dollars relative to what would have been received at the then-current exchange rate.

For additional information on regulatory restrictions on dividends, profit repatriations and other transfers, see Note 13 of the Notes to the Consolidated Financial Statements and the Regulatory Restrictions subsection of MD&A, both in the 2017 Annual Report.

Other

For information regarding commitments and contingent liabilities, see Note 13 of the Notes to the Consolidated Financial Statements.

Additional Information

Investors should note that the Company announces material financial information in its SEC filings, press releases and public conference calls. In accordance with SEC guidance, the Company may also use the Investor Relations section of the Company's website (http://investors.aflac.com) to communicate with investors about the Company. It is possible that the financial and other information the Company posts there could be deemed to be material information. The information on the Company's website is not part of this document.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed primarily to the following types of market risks: currency risk, interest rate risk, credit risk and equity risk. The Company regularly monitors its market risks and uses a variety of strategies to manage its exposure to these market risks. A description of the Company's market risk exposures may be found under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, of the 2017 Annual Report. There have been no material changes to the Company's market risk exposures from the market risk exposures previously disclosed in the 2017 Annual Report.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the second fiscal quarter of 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, with the exception of the new and revised internal controls related to the implementation of a new investment accounting reporting system. The Company had also implemented new and revised internal controls related to the upgrade to a newer version of the Company's financial accounting and reporting consolidation system effective January 2018. The Company's management believes that the implementation of these systems has improved and enhanced its internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

On December 14, 2017, three former independent sales contractors filed a shareholders derivative complaint in the U.S. District Court for the Southern District of New York naming the Parent Company as nominal defendant and the Parent Company’s Chairman and Chief Executive Officer, several of its directors, and a former officer and director as defendants. The complaint alleges breaches of fiduciary duty, misstatements and omissions in the Company’s public disclosures, and insider trading. The Company’s Board of Directors had previously established a special litigation committee (SLC) in July 2017 to investigate certain allegations underlying the derivative action. The SLC issued a report of its investigation in September 2017 and another report in February 2018, each of which determined that it was not in the best interests of the Company to pursue the action demanded by the shareholders. An amended complaint was filed on January 31, 2018. On February 12, 2018, this litigation was transferred to the U.S. District Court for the Middle District of Georgia. The SLC issued a third report of its investigation in May 2018 regarding certain additional allegations raised in the amended complaint, in which the SLC also determined that it was not in the best interests of the Company to pursue the action demanded by the shareholders. The Company has filed a motion to dismiss, as well as a supplemental brief in support of the motion to dismiss, in part based upon the conclusions of the SLC reports. The Company believes the outcome of this litigation will not have a material adverse effect on its financial position, results of operation or cash flows.

On February 9, 2018, a putative class action complaint was filed in the U.S. District Court for the Middle District of Georgia, purportedly on behalf of purchasers of Aflac Incorporated stock between February 27, 2013 and January 11, 2018. The complaint named the Parent Company and certain officers as defendants and alleged that the Company’s public disclosures were misleading in relation to purported recruiting practices, misclassification of independent contractors, manipulation of a sales metric, and failure to adhere to the Company’s Code of Business Conduct and Ethics and corporate social responsibility standards. On June 5, 2018, the plaintiff voluntarily dismissed the complaint without prejudice, and on June 6, 2018, the case was closed by the Middle District of Georgia.


Item 1A.	Risk Factors

The following should be read in conjunction with and supplements and amends the risk factors that may affect the Company’s business or operations described under “Risk Factors” in Part I, Item 1A. of the Company's 2017 Annual Report on Form 10-K for the year ended December 31, 2017 and Part II, Item 1A. of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

Operation of the former Japan branch as a legal subsidiary could adversely affect the Company's business, results of operations, or financial position.

The conversion of the Japan branch to a legal subsidiary, which the Company executed in the second quarter of 2018, is a complex undertaking and involves a number of risks, including information technology-related delays and problems, personnel loss, regulatory law changes, legal and regulatory requirements, changes to the Company's operations, and management distraction. The conversion and continued operation as a legal subsidiary may entail modifications of certain aspects of the Company's operations, which could result in additional costs or reduce net earnings. Any of these risks, if realized, could result in a material adverse effect on the Company's business, results of operations or financial condition.

The Japan branch conversion is conditioned on the continued validity of a private letter ruling that the Company received from the U.S. Internal Revenue Service (IRS). Notwithstanding the receipt of the private letter ruling, the IRS could determine that the Japan branch conversion should be treated as a taxable transaction. For example, the IRS could conclude that the representations, assumptions and covenants on which the private letter ruling is based are untrue or not accurate. If the IRS made such a conclusion, the Japan branch conversion could be treated as a taxable transaction, and the Company could incur significant U.S. federal income tax liabilities or litigation costs to defend the tax treatment by the IRS.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

During the first six months of 2018, the Company repurchased shares of its common stock as follows:



Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31	2,370,284		$	44.31	2,370,284	95,626,488
February 1 - February 28	2,349,600		44.70		2,349,600	93,276,888
March 1 - March 31	1,937,161		44.49		1,920,400	91,356,488
April 1 - April 30	2,082,500		44.62		2,082,500	89,273,988
May 1 - May 31	2,558,472		45.17		2,542,900	86,731,088
June 1 - June 30	2,175,100		44.99		2,175,100	84,555,988
Total	13,473,117	⁽²⁾	$	44.73	13,440,784	84,555,988	⁽¹⁾

⁽¹⁾The total remaining shares available for purchase at June 30, 2018, consisted of 4,555,988 shares related to an 80,000,000 share repurchase authorization by the board of directors announced in 2015 and 80,000,000 shares related to an 80,000,000 share repurchase authorization by the board of directors announced in 2017.

⁽²⁾During the first six months of 2018, 32,333 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.


Item 6.	Exhibits



(a)	EXHIBIT INDEX
	3.0	-	Articles of Incorporation, as amended – incorporated by reference from Form 10-Q for June 30, 2008, Exhibit 3.0 (File No. 001-07434).
	3.1	-	Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated November 10, 2015, Exhibit 3.1 (File No. 001-07434).
	15	-	Letter from KPMG LLP regarding unaudited interim financial information.
	31.1	-	Certification of CEO dated August 3, 2018, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	31.2	-	Certification of CFO dated August 3, 2018, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	32	-	Certification of CEO and CFO dated August 3, 2018, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	-	XBRL Instance Document.⁽¹⁾
	101.SCH	-	XBRL Taxonomy Extension Schema.
	101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase.
	101.DEF	-	XBRL Taxonomy Extension Definition Linkbase.
	101.LAB	-	XBRL Taxonomy Extension Label Linkbase.
	101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase.



₍₁₎	Includes the following materials contained in this Quarterly Report on Form 10-Q for the period ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to the Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Aflac Incorporated

August 3, 2018		/s/ Frederick J. Crawford
		(Frederick J. Crawford)
		Executive Vice President, Chief Financial Officer

August 3, 2018		/s/ June Howard
		(June Howard)
		Senior Vice President, Financial Services; Chief Accounting Officer