AFLAC INC - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended March 31, 2021

☐

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)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.10 par value per share

AFL

New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	¨	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. 679,667,234 shares of the issuer's common stock were outstanding as of April 20, 2021.

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2021

Table of Contents


PART I.		FINANCIAL INFORMATION:	Page

	Item 1.	Financial Statements (Unaudited)

		Consolidated Statements of Earnings Three Months Ended March 31, 2021 and 2020	1

		Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2021 and 2020	2

		Consolidated Balance Sheets March 31, 2021, and December 31, 2020	3

		Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2021 and 2020	4

		Consolidated Statements of Cash Flows Three Months Ended March 31, 2021 and 2020	5

		Notes to the Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	60

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	93

	Item 4.	Controls and Procedures	93

PART II.		OTHER INFORMATION:

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

	Item 5.	Other Information	94

	Item 6.	Exhibits	95

Glossary of Selected Terms			96

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.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings


	Three Months Ended March 31,
(In millions, except for share and per-share amounts - Unaudited)		2021	2020
Revenues:
Net premiums, principally supplemental health insurance				$	4,593	$	4,681
Net investment income				925		904
Net investment gains (losses)				307		(463)
Other income (loss)				44		40
Total revenues				5,869		5,162
Benefits and expenses:
Benefits and claims, net				2,735		2,939
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs				311		333
Insurance commissions				326		336
Insurance and other expenses				832		779		(1)
Interest expense				62		55
Total acquisition and operating expenses				1,531		1,503
Total benefits and expenses				4,266		4,442
Earnings before income taxes				1,603		720
Income taxes				310		154
Net earnings				$	1,293	$	566
Net earnings per share:
Basic				$	1.88	$	.78
Diluted				1.87		.78
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic				688,938		724,366
Diluted				691,940		727,512
Cash dividends per share				$	.33	$	.28

(1) Includes expense of $15 for the early extinguishment of debt

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)


	Three Months Ended March 31,
(In millions - Unaudited)		2021	2020
Net earnings				$	1,293	$	566
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period				(581)		85
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period				(2,003)		(4,605)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings				20		7
Unrealized gains (losses) on derivatives during period				0		(4)
Pension liability adjustment during period				5		0
Total other comprehensive income (loss) before income taxes				(2,559)		(4,517)
Income tax expense (benefit) related to items of other comprehensive income (loss)				(432)		(1,242)
Other comprehensive income (loss), net of income taxes				(2,127)		(3,275)
Total comprehensive income (loss)				$	(834)	$	(2,709)

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets


(In millions, except for share and per-share amounts)	March 31, 2021 (Unaudited)			December 31, 2020
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (allowance for credit losses of $27 in 2021 and $38 in 2020, amortized cost $85,174 in 2021 and amortized cost $88,143 in 2020)		$	96,391		$	101,286
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,291 in 2021 and amortized cost of $3,487 in 2020)		4,353			4,596
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $8 in 2021 and $10 in 2020 (fair value $28,056 in 2021 and $30,399 in 2020)		22,868			24,464
Equity securities, at fair value		1,174			1,283
Commercial mortgage and other loans, net of allowance for credit losses of $154 in 2021 and $180 in 2020 (includes $9,210 in 2021 and $8,964 in 2020 of consolidated variable interest entities)		10,847			10,554
Other investments (includes $908 in 2021 and $826 in 2020 of consolidated variable interest entities)		2,666			2,429
Cash and cash equivalents		4,990			5,141
Total investments and cash		143,289			149,753
Receivables		777			796
Accrued investment income		706			780
Deferred policy acquisition costs		9,835			10,441
Property and equipment, at cost less accumulated depreciation		578			601
Other		2,972			2,715
Total assets		$	158,157		$	165,086
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	92,396		$	97,783
Unpaid policy claims		4,948			5,187
Unearned premiums		3,194			3,597
Other policyholders’ funds		7,367			7,824
Total policy liabilities		107,905			114,391
Income taxes		4,350			4,661
Payables for return of cash collateral on loaned securities		1,896			964
Notes payable and lease obligations		8,088			7,899
Other		3,815			3,612
Total liabilities		126,054			131,527
Commitments and contingent liabilities (Note 12)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2021 and 2020; issued 1,352,279 shares in 2021 and 1,351,018 shares in 2020		135			135
Additional paid-in capital		2,438			2,410
Retained earnings		39,277			37,984
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,674)			(1,109)
Unrealized gains (losses) on fixed maturity securities		8,794			10,361
Unrealized gains (losses) on derivatives		(33)			(34)
Pension liability adjustment		(280)			(284)
Treasury stock, at average cost		(16,554)			(15,904)
Total shareholders’ equity		32,103			33,559
Total liabilities and shareholders’ equity		$	158,157		$	165,086

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity


(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders' Equity
Balance at December 31, 2020	$	135	$	2,410	$	37,984	$	8,934	$	(15,904)	$	33,559
Net earnings	0		0		1,293		0		0		1,293
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		(565)		0		(565)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(1,567)		0		(1,567)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		1		0		1
Pension liability adjustment during period, net of income taxes	0		0		0		4		0		4
Dividends to shareholders ($.00 per share)	0		0		0		0		0		0
Exercise of stock options	0		9		0		0		0		9
Share-based compensation	0		9		0		0		0		9
Purchases of treasury stock	0		0		0		0		(668)		(668)
Treasury stock reissued	0		10		0		0		18		28
Balance at March 31, 2021	$	135	$	2,438	$	39,277	$	6,807	$	(16,554)	$	32,103


(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders' Equity
Balance at December 31, 2019	$	135	$	2,313	$	34,291	$	6,615	$	(14,395)	$	28,959
Cumulative effect of change in accounting principle - Accounting Standards Update (ASU) 2016-13, net of income taxes (1)	0		0		(56)		0		0		(56)
Cumulative effect of change in accounting principle - ASU 2019-04, net of income taxes (1)	0		0		0		848		0		848
Balance at January 1, 2020	135		2,313		34,235		7,463		(14,395)		29,751
Net earnings	0		0		566		0		0		566
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		80		0		80
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(3,353)		0		(3,353)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		(2)		0		(2)
Pension liability adjustment during period, net of income taxes	0		0		0		0		0		0
Dividends to shareholders ($.28 per share)	0		0		(202)		0		0		(202)
Exercise of stock options	0		5		0		0		0		5
Share-based compensation	0		7		0		0		0		7
Purchases of treasury stock	0		0		0		0		(476)		(476)
Treasury stock reissued	0		9		0		0		17		26
Balance at March 31, 2020	$	135	$	2,334	$	34,599	$	4,188	$	(14,854)	$	26,402

(1) See Note 1 of the Notes to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows


	Three Months Ended March 31,
(In millions - Unaudited)	2021			2020
Cash flows from operating activities:
Net earnings		$	1,293		$	566
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums		(19)			15
Capitalization of deferred policy acquisition costs		(262)			(325)
Amortization of deferred policy acquisition costs		311			333
Increase in policy liabilities		204			368
Change in income tax liabilities		331			153
Net investment (gains) losses		(307)			463
Other, net		(185)			(159)
Net cash provided (used) by operating activities		1,366			1,414
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		651			726
Equity securities		123			3

Commercial mortgage and other loans		725			408
Costs of investments acquired:
Available-for-sale fixed maturity securities		(2,475)			(1,817)
Equity securities		(126)			(6)
Commercial mortgage and other loans		(956)			(1,787)
Other investments, net		(201)			(361)
Settlement of derivatives, net		116			13
Cash received (pledged or returned) as collateral, net		1,206			1,160
Other, net		(32)			(55)
Net cash provided (used) by investing activities		(969)			(1,716)
Cash flows from financing activities:
Purchases of treasury stock		(650)			(449)
Proceeds from borrowings		400			545
Principal payments under debt obligations		0			(350)
Dividends paid to shareholders		(219)			(195)
Change in investment-type contracts, net		(12)			(5)
Treasury stock reissued		9			9
Other, net		2			(1)
Net cash provided (used) by financing activities		(470)			(446)
Effect of exchange rate changes on cash and cash equivalents		(78)			0
Net change in cash and cash equivalents		(151)			(748)
Cash and cash equivalents, beginning of period		5,141			4,896
Cash and cash equivalents, end of period		$	4,990		$	4,148
Supplemental disclosures of cash flow information:
Income taxes paid		$	(20)		$	2
Interest paid		35			39
Noncash interest		27			15
Noncash financing activities:
Lease obligations		20			13
Treasury stock issued for:
Associate stock bonus		7			5
Shareholder dividend reinvestment		8			7
Share-based compensation grants		4			5

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 (U.S.) and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the U.S. and through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan. The Company’s operations consist of two reportable business segments: Aflac U.S., which includes Aflac, and Aflac Japan, which includes ALIJ. 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. With the exception of group dental and vision products administered by Argus Dental & Vision, Inc. (Argus) and certain group life insurance products, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. The Company's insurance operations in the U.S. and Japan service the two markets for the Company's insurance business. Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 70% and 67% of the Company's total revenues in the three-month periods ended March 31, 2021 and 2020, respectively. The percentage of the Company's total assets attributable to Aflac Japan was 83% at both March 31, 2021 and December 31, 2020.

Basis of Presentation

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In these Notes to the Consolidated Financial Statements, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards CodificationTM (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 March 31, 2021 and December 31, 2020, and the consolidated statements of earnings, comprehensive income (loss), shareholders' equity and cash flows for the three-month periods ended March 31, 2021 and 2020. 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, 2020 (2020 Annual Report).

COVID-19: The impact of the COVID-19 global pandemic on the Company continues to evolve, and its future effects remain uncertain. The Company continues to closely monitor the effects and risks of COVID-19 to assess its impact on economic conditions in Japan and the U.S. and on the Company's business, financial condition, results of operations, liquidity and capital position.

The Company entered the crisis in a strong capital and liquidity position, having maintained capital ratios in Japan and the U.S. at a level designed to absorb a degree of market volatility. The Company has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments.

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.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements


Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2020-01 Clarifying the interactions between Topic 321, Topic 323, and Topic 815	In January 2020, the FASB issued amendments clarifying that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify that for the purpose of applying certain derivative guidance in Topic 815, an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in Topic 815 to determine the accounting for those forward contracts and purchased options. The amendments are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted.	January 1, 2021	The adoption of the new guidance did not have an impact on the Company’s financial position, results of operation, or disclosures.

Accounting Pronouncements Pending Adoption


Standard	Description	Effect on Financial Statements or Other Significant Matters

ASU 2018-12 Financial Services - Insurance, Targeted Improvements to the Accounting for Long-Duration Contracts as clarified and amended by: ASU 2019-09 Financial Services - Insurance (Topic 944): Effective Date ASU 2020-11 Financial Services - Insurance (Topic 944): Effective Date and Early Application	In August 2018, the FASB issued amendments that will significantly change how insurers account for long-duration contracts. The amendments will change existing recognition, measurement, presentation, and disclosure requirements. Issues addressed in the new guidance include: 1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures. In November 2019, the FASB issued an amendment extending the effective date for public business entities that meet the definition of an SEC filer, excluding entities eligible to be small reporting companies as defined by the SEC, by one year. In November 2020, the FASB issued an amendment providing an additional year deferral for all insurance entities due to the impact of COVID-19. The amendments are now effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application of the amendments is permitted.	The Company is thoroughly evaluating the impact of adoption and expects that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures. The Company anticipates that the requirement to update assumptions for liability for future policy benefits will have a significant impact on its results of operations, systems, processes and controls while the requirement to update the discount rate will have a significant impact on its equity. The Company has no products with market risk benefits. The Company does not expect to early adopt the updated standard and has selected a modified retrospective transition method.

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

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position, results of operations or disclosures, see Note 1 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

2. BUSINESS SEGMENT INFORMATION

The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. In addition, operating business units that are not individually reportable and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S. are included in Corporate and other.

The Company does not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, the Company evaluates and manages its business segments using a financial performance measure called pretax adjusted earnings. 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 net investment gains and losses, except for amortized hedge costs/income related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies. 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 reportable segment and Corporate and other, follows:


	Three Months Ended March 31,
(In millions)		2021		2020
Revenues:
Aflac Japan:
Net earned premiums		$	3,123	$	3,150
Adjusted net investment income (1),(2)		705		642
Other income		13		11
Total adjusted revenue Aflac Japan		3,841		3,803
Aflac U.S.:
Net earned premiums		1,422		1,483
Adjusted net investment income		176		177
Other income		30		27
Total adjusted revenue Aflac U.S.		1,628		1,687
Corporate and other (3)		83		104
Total adjusted revenues		5,552		5,594
Net investment gains (losses) (1),(2),(3)		317		(432)
Total revenues		$	5,869	$	5,162

(1) Amortized hedge costs of $19 and $55 for the three-month periods ended March 31, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $(8) and $(6) for the three-month periods ended March 31, 2021 and 2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(3) Amortized hedge income of $17 and $29 for the three-month periods ended March 31, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.


	Three Months Ended March 31,
(In millions)		2021		2020
Pretax earnings:
Aflac Japan (1),(2)		$	887	$	855
Aflac U.S.		445		326
Corporate and other (3),(4)		(26)		2
Pretax adjusted earnings (5)		1,306		1,183
Net investment gains (losses) (1),(2),(3),(4)		304		(448)
Other income (loss)		(7)		(15)
Total earnings before income taxes		$	1,603	$	720
Income taxes applicable to pretax adjusted earnings		$	248	$	301
Effect of foreign currency translation on after-tax adjusted earnings		13		9

(3) Amortized hedge income of $17 and $29 for the three-month periods ended March 31, 2021, and 2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(4) A gain of $14 and $16 for the three-month periods ended March 31, 2021, and 2020, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(5) Includes $45 and $33 for the three-month periods ended March 31, 2021, and 2020, respectively, of interest expense on debt.

Assets were as follows:


(In millions)	March 31, 2021			December 31, 2020
Assets:
Aflac Japan		$	130,611		$	137,271
Aflac U.S.		22,278			22,864
Corporate and other		5,268			4,951
Total assets		$	158,157		$	165,086

3. INVESTMENTS

Investment Holdings

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


	March 31, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	32,013	$	0	$	3,614	$	80	$	35,547
Municipalities	1,238		0		331		6		1,563
Mortgage- and asset-backed securities	318		0		23		1		340
Public utilities	4,616		0		970		5		5,581
Sovereign and supranational	902		0		89		0		991
Banks/financial institutions	7,188		0		837		103		7,922
Other corporate	7,452		0		1,577		35		8,994
Total yen-denominated	53,727		0		7,441		230		60,938
U.S. dollar-denominated:
U.S. government and agencies	234		0		10		0		244
Municipalities	1,188		0		154		4		1,338
Mortgage- and asset-backed securities	816		0		29		1		844
Public utilities	3,867		0		760		9		4,618
Sovereign and supranational	226		0		61		3		284
Banks/financial institutions	2,991		0		668		6		3,653
Other corporate	25,416		27		3,592		156		28,825
Total U.S. dollar-denominated	34,738		27		5,274		179		39,806
Total securities available for sale	$	88,465	$	27	$	12,715	$	409	$	100,744


	December 31, 2020
(In millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	32,959	$	0	$	4,182	$	52	$	37,089
Municipalities	1,324		0		374		5		1,693
Mortgage- and asset-backed securities	342		0		27		1		368
Public utilities	4,777		0		1,096		1		5,872
Sovereign and supranational	981		0		108		0		1,089
Banks/financial institutions	7,552		0		886		102		8,336
Other corporate	8,114		0		1,747		37		9,824
Total yen-denominated	56,049		0		8,420		198		64,271
U.S. dollar-denominated:
U.S. government and agencies	245		0		16		0		261
Municipalities	1,154		0		173		2		1,325
Mortgage- and asset-backed securities	667		0		8		5		670
Public utilities	4,013		0		947		15		4,945
Sovereign and supranational	232		0		64		3		293
Banks/financial institutions	2,973		0		758		7		3,724
Other corporate	26,297		38		4,385		251		30,393
Total U.S. dollar-denominated	35,581		38		6,351		283		41,611
Total securities available for sale	$	91,630	$	38	$	14,771	$	481	$	105,882


	March 31, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	21,918	$	3	$	21,915	$	4,924	$	0	$	26,839
Municipalities	352		0		352		108		0		460

Public utilities	45		1		44		13		0		57
Sovereign and supranational	538		4		534		136		0		670

Other corporate	23		0		23		7		0		30
Total yen-denominated	22,876		8		22,868		5,188		0		28,056
Total securities held to maturity	$	22,876	$	8	$	22,868	$	5,188	$	0	$	28,056


	December 31, 2020
(In millions)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	23,448	$	3	$	23,445	$	5,625	$	0	$	29,070
Municipalities	377		0		377		122		0		499
Public utilities	48		1		47		14		0		61
Sovereign and supranational	577		6		571		165		0		736
Other corporate	24		0		24		9		0		33
Total yen-denominated	24,474		10		24,464		5,935		0		30,399
Total securities held to maturity	$	24,474	$	10	$	24,464	$	5,935	$	0	$	30,399


(In millions)	March 31, 2021			December 31, 2020
Equity securities, carried at fair value through net earnings:	Fair Value			Fair Value
Equity securities:
Yen-denominated		$	727		$	680
U.S. dollar-denominated		405			603
Other currencies		42			0
Total equity securities		$	1,174		$	1,283

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 quarter of 2021, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category. During the first quarter of 2020, as a result of the adoption of ASU 2019-04, the Company reclassified $6.9 billion (at amortized cost) of pre-payable fixed-maturity securities from the held-to-maturity category to the available-for-sale category. This reclassification resulted in recording in accumulated other comprehensive income a net unrealized gain of $848 million on an after-tax basis.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at March 31, 2021, were as follows:


(In millions)	Amortized Cost (1)			Fair Value
Available for sale:
Due in one year or less		$	907		$	922
Due after one year through five years		8,487			9,005
Due after five years through 10 years		13,637			15,827
Due after 10 years		64,274			73,806
Mortgage- and asset-backed securities		1,134			1,184
Total fixed maturity securities available for sale		$	88,439		$	100,744
Held to maturity:
Due in one year or less		$	0		$	0
Due after one year through five years		45			50
Due after five years through 10 years		4,103			4,788
Due after 10 years		18,720			23,218
Mortgage- and asset-backed securities		0			0
Total fixed maturity securities held to maturity		$	22,868		$	28,056

(1) Net of allowance for credit losses

Economic maturities are used for certain debt instruments with no stated maturity where the expected maturity date is based on the combination of features in the financial instrument such as the right to call or prepay obligations or changes in coupon rates.

Investment Concentrations

The Company's process for investing in credit-related investments begins with an independent approach to underwriting each issuer's fundamental credit quality. The Company evaluates independently those factors that it believes could influence an issuer's ability to make payments under the contractual terms of the Company's instruments. This includes a thorough analysis of a variety of items including the issuer's country of domicile (including political, legal, and financial considerations); the industry in which the issuer competes (with an analysis of industry structure, end-market dynamics, and regulation); company specific issues (such as management, assets, earnings, cash generation, and capital needs); and contractual provisions of the instrument (such as financial covenants and position in the capital structure). The Company further evaluates the investment considering broad business and portfolio management objectives, including asset/liability needs, portfolio diversification, and expected income.

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

March 31, 2021

December 31, 2020

(In millions)

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Japan National Government(1)

A+

$52,645

$60,867

A+

$55,153

$64,657

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

Net Investment Gains and Losses

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


	Three Months Ended March 31,
(In millions)		2021		2020
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales		$	2	$	7
Gross losses from sales		(1)		0
Foreign currency gains (losses) on sales and redemptions		(12)		(14)
Total sales and redemptions		(11)		(7)
Equity securities		(68)		(149)


Credit losses:
Fixed maturity securities available for sale		11		(63)
Fixed maturity securities held to maturity		1		1
Commercial mortgage and other loans		27		(37)
Impairment losses		(20)		0
Loan commitments		5		(46)
Reinsurance recoverables and other		(2)		0
Total credit losses		22		(145)
Derivatives and other:
Derivative gains (losses)		(287)		(85)
Foreign currency gains (losses)		651		(77)
Total derivatives and other		364		(162)
Total net investment gains (losses)		$	307	$	(463)

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the three-month period ended March 31, 2021, that relate to equity securities still held at the March 31, 2021 reporting date, were $77 million.

Unrealized Investment Gains and Losses

Effect on Shareholders’ Equity

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


(In millions)	March 31, 2021			December 31, 2020
Unrealized gains (losses) on securities available for sale		$	12,306		$	14,290
Deferred income taxes		(3,512)			(3,929)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities		$	8,794		$	10,361

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	March 31, 2021
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities available for sale:


Japan government and agencies:
Yen-denominated		$	3,207		$	80		$	2,529		$	32		$	678		$	48
Municipalities:
U.S. dollar-denominated		147			4			147			4			0			0
Yen-denominated		193			6			140			3			53			3
Mortgage- and asset- backed securities:
U.S. dollar-denominated		55			1			55			1			0			0
Yen-denominated		34			1			26			1			8			0
Public utilities:
U.S. dollar-denominated		323			9			235			6			88			3
Yen-denominated		314			5			279			5			35			0
Sovereign and supranational:
U.S. dollar-denominated		39			3			0			0			39			3

Banks/financial institutions:
U.S. dollar-denominated		204			6			145			2			59			4
Yen-denominated		2,098			103			590			7			1,508			96
Other corporate:
U.S. dollar-denominated		3,826			156			2,280			81			1,546			75
Yen-denominated		811			35			351			5			460			30
Total		$	11,251		$	409		$	6,777		$	147		$	4,474		$	262


	December 31, 2020
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities available for sale:


Japan government and agencies:
Yen-denominated		$	2,604		$	52		$	2,604		$	52		$	0		$	0
Municipalities:
U.S. dollar-denominated		94			2			94			2			0			0
Yen-denominated		183			5			169			4			14			1
Mortgage- and asset- backed securities:
U.S. dollar-denominated		360			5			360			5			0			0
Yen-denominated		37			1			37			1			0			0
Public utilities:
U.S. dollar-denominated		326			15			208			7			118			8
Yen-denominated		135			1			135			1			0			0
Sovereign and supranational:
U.S. dollar-denominated		39			3			39			3			0			0
Banks/financial institutions:
U.S. dollar-denominated		82			7			44			1			38			6
Yen-denominated		1,809			102			765			36			1,044			66
Other corporate:
U.S. dollar-denominated		4,499			251			2,157			59			2,342			192
Yen-denominated		613			37			290			13			323			24
Total		$	10,781		$	481		$	6,902		$	184		$	3,879		$	297

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, and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

However, the Company has identified certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit

allowance has been calculated. As of March 31, 2021, the Company held an allowance of $27 million. Refer to the Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

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 commercial mortgage and other loans line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for credit losses.

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


(In millions)	March 31, 2021				December 31, 2020
	Amortized Cost		% of Total		Amortized Cost		% of Total
Commercial Mortgage and other loans:
Transitional real estate loans:
Office	$	1,945	17.7	%	$	2,115	19.7	%
Retail	126		1.1		125		1.2
Apartments/Multi-Family	1,658		15.1		1,782		16.6
Industrial	85		0.8		85		.8
Hospitality	1,112		10.1		1,106		10.3
Other	81		0.7		81		.7
Total transitional real estate loans	5,007		45.5		5,294		49.3
Commercial mortgage loans:
Office	389		3.5		401		3.7
Retail	338		3.1		340		3.2
Apartments/Multi-Family	585		5.3		588		5.5
Industrial	423		3.8		391		3.6

Other	5		0.0		0		0.0
Total commercial mortgage loans	1,740		15.8		1,720		16.0
Middle market loans	4,254		38.7		3,720		34.7
Total commercial mortgage and other loans	$	11,001	100.0	%	$	10,734	100.0	%
Allowance for credit losses	(154)				(180)
Total net commercial mortgage and other loans	$	10,847			$	10,554

Commercial mortgage and transitional real estate loans were secured by properties entirely within the U.S. (with the largest concentrations in California (21%), Texas (11%) and Florida (9%)). Middle market loans are issued only to companies domiciled within the U.S. and Canada.

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 and do not typically require any principal repayment prior to the maturity date. This loan portfolio is generally considered to be investment grade. As of March 31, 2021, the Company had $515 million 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

Commercial mortgage loans are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans. As of March 31, 2021, the Company had commitments of approximately $104 million 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 typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for middle market loans included $29 million and $25 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of March 31, 2021, and December 31, 2020, respectively.

As of March 31, 2021, the Company had commitments of approximately $1.8 billion to fund future middle market loans. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

Credit Quality Indicators

For TREs, the Company’s key credit quality indicator is loan-to-value (LTV). Given that TRE loans involve properties undergoing renovation or construction, LTV provides the most insight into the credit risk of the loan. The Company monitors the performance of the loans periodically, but not less frequently than quarterly.

For CMLs, the Company’s key credit quality indicators include LTV and debt service coverage ratios (DSCR). LTV is calculated by dividing the current outstanding loan balance by the most recent estimated property value. DSCR is the most recently available operating income of the underlying property compared to the required debt service of the loan.

For MMLs and held-to-maturity fixed maturity securities, the Company’s key credit quality indicator is credit ratings. The Company’s held-to-maturity portfolio is composed of investment grade securities that are senior unsecured instruments, while its MMLs generally have below-investment-grade ratings but are typically senior secured instruments. The Company monitors the credit ratings periodically, but not less frequently than quarterly.

For the Company’s reinsurance recoverable balance, the key credit quality indicator is the credit rating of the Company’s reinsurance counterparty. The Company uses external credit ratings focused on the reinsurer’s financial strength and credit worthiness. The Company's counterparties are rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly.

The following tables present as of March 31, 2021 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.


Transitional Real Estate Loans
(In millions)	2021		2020		2019		2018		2017		Total
Loan-to-Value Ratio:
0%-59.99%	$	0	$	53	$	548	$	396	$	77	$	1,074
60%-69.99%	0		170		830		766		208		1,974
70%-79.99%	23		259		731		735		185		1,933
80% or greater	0		26		0		0		0		26
Total	$	23	$	508	$	2,109	$	1,897	$	470	$	5,007


Commercial Mortgage Loans
(In millions)	2021		2020		2019		2018		2017		Prior		Total		Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%	$	20	$	32	$	441	$	129	$	68	$	541	$	1,231	2.46
60%-69.99%	34		16		179		40		0		160		429		1.97
70%-79.99%	0		0		32		0		0		22		54		1.63
80% or greater	0		0		0		0		0		26		26		1.62
Total	54		48		652		169		68		749		1,740		2.30
Weighted Average DSCR	2.98		1.91		2.38		2.16		2.48		2.22


Middle Market Loans
(In millions)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Credit Ratings:
BBB	$	7	$	70	$	73	$	30	$	10	$	4	$	44	$	238
BB	62		387		283		207		94		47		123		1,203
B	80		569		714		409		251		156		174		2,353
CCC	0		5		85		105		90		59		74		418
CC	0		0		0		0		32		0		1		33
C and lower	0		8		0		0		0		0		1		9
Total	$	149	$	1,039	$	1,155	$	751	$	477	$	266	$	417	$	4,254

Allowance for Credit Losses

The Company calculates its allowance for credit losses for held-to-maturity fixed maturity securities, loan receivables, loan commitments and reinsurance recoverable by grouping assets with similar risk characteristics when there is not a specific expectation of a loss for an individual asset. For held-to-maturity fixed maturity securities, MMLs, and MML commitments, the Company groups assets by credit ratings, industry, and country. The Company groups CMLs and TREs and respective loan commitments by property type, property location and the property’s LTV and debt service coverage ratios. The credit allowance for the reinsurance recoverable balance is estimated using a probability-of-default (PD) / loss-given-default (LGD) method.

The credit allowance for held-to-maturity fixed maturity securities and loan receivables is estimated using a PD / LGD method, discounted for the time value of money. For held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities and loan receivables, the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses. The Company’s methodology for estimating credit losses utilizes the contractual maturity date of the financial asset, adjusted when necessary to reflect the expected timing of repayment

(such as prepayment options, renewal options, call options, or extension options). The Company applies reasonable and supportable forecasts of macroeconomic variables that impact the determination of PD/LGD over a two-year period for held-to-maturity fixed maturity securities and MMLs. The Company reverts to historical loss information over one year, following the two-year forecast period. For the CML and TRE portfolio, the Company applies reasonable and supportable forecasts of macroeconomic variables as well as national and local real-estate market factors to estimate future credit losses where the market factors revert back to historical levels over time with the period being dependent on current market conditions, projected market conditions and difference in the current and historical market levels for each factor. The Company continuously monitors the estimation methodology, due to changes in portfolio composition, changes in underwriting practices and significant events or conditions and makes adjustments as necessary.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $21.7 billion amortized cost as of March 31, 2021 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

An investment in an available-for-sale fixed maturity security is impaired if the fair value falls below amortized cost. The Company regularly reviews its fixed maturity security investments portfolio for declines in fair value. The Company's debt impairment model focuses on the ultimate collection of the cash flows from its investments and whether the Company has the intent to sell or if it is more likely than not the Company would be required to sell the security prior to recovery of its amortized cost. The determination of the amount of impairments under this model is based upon the Company's periodic evaluation and assessment of known and inherent risks associated with the respective securities. Such evaluations and assessments are revised as conditions change and new information becomes available.

When determining the Company's intention to sell a security prior to recovery of its fair value to amortized cost, the Company evaluates facts and circumstances such as, but not limited to, future cash flow needs, decisions to reposition its security portfolio, and risk profile of individual investment holdings. The Company performs ongoing analyses of its liquidity needs, which includes cash flow testing of its policy liabilities, debt maturities, projected dividend payments, and other cash flow and liquidity needs.

The Company’s methodology for estimating credit losses for available-for-sale fixed maturity securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as industry analysis and credit ratings of the fixed maturity securities. In addition, the Company evaluates the specific issuer’s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and/or security of other debt holders in the issuer when developing management’s best estimate of expected cash flows.

The Company granted certain loan modifications in its MML and TRE portfolios during the period ended March 31, 2021. As of March 31, 2021, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no TDRs during the period ended March 31, 2021 and an immaterial amount due to COVID-19 during the year ended December 31, 2020.

The Company designates nonaccrual status for a nonperforming debt security or a loan that is not generating its stated interest rate because of nonpayment of periodic interest by the borrower. The Company applies the cash basis method to record any payments received on non-accrual assets. The Company resumes the accrual of interest on fixed maturity securities and loans that are currently making contractual payments or for those that are not current where the borrower has paid timely (less than 30 days outstanding).

As of March 31, 2021 and December 31, 2020, the Company had an immaterial amount (cost basis) of loans and fixed maturities on nonaccrual status.

The following table presents the roll forward of the allowance for credit losses by portfolio segment during the three-month period ended March 31, 2021.


(in millions)	Transitional Real Estate Loans		Commercial Mortgage Loans		Middle Market Loans		Held to Maturity Securities		Available for Sale Securities		Reinsurance Recoverables
Balance at December 31, 2020	$	(63)	$	(33)	$	(85)	$	(9)	$	(38)	$	(11)
(Addition to) release of allowance for credit losses	16		9		2		1		0		(2)
Write-offs, net of recoveries	0		0		0		0		11		0

Balance at March 31, 2021	$	(47)	$	(24)	$	(83)	$	(8)	$	(27)	$	(13)

For assets that are subject to the credit loss measurement, the change in credit loss allowance will be significantly impacted by purchases and sales in those assets during the period as well as entering into new non-cancelable loan commitments. The estimate of credit losses for loan commitments as of March 31, 2021 was $30 million.

Other Investments

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


(In millions)	March 31, 2021			December 31, 2020
Other investments:
Policy loans		$	242		$	260
Short-term investments (1)		1,295			1,139
Limited partnerships		1,110			1,004
Other		19			26
Total other investments		$	2,666		$	2,429

(1) Includes securities lending collateral

As of March 31, 2021, the Company had $1.6 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


	March 31, 2021						December 31, 2020
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Assets:
Fixed maturity securities, available for sale		$	3,291		$	4,353		$	3,487		$	4,596

Commercial mortgage and other loans		9,210			9,247			8,964			9,040
Other investments (2)		908			908			826			826
Other assets (3)		138			138			133			133
Total assets of consolidated VIEs		$	13,547		$	14,646		$	13,410		$	14,595
Liabilities:
Other liabilities (3)		$	218		$	218		$	231		$	231
Total liabilities of consolidated VIEs		$	218		$	218		$	231		$	231

(1) Net of allowance for credit losses

(2) Consists entirely of 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 swaps, 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.

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


	March 31, 2021						December 31, 2020
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	5,142		$	6,269		$	5,477		$	6,767
Other investments (1)		202			202			178			178
Total investments in VIEs not consolidated		$	5,344		$	6,471		$	5,655		$	6,945

(1) Consists entirely of alternative investments in limited partnerships

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 receives cash or other securities as collateral for such loans. The Company's security lending policy requires that the fair value of the securities received as collateral be 102% or more of the fair value of the loaned securities and that unrestricted cash received as collateral be 100% or more of the fair value of the loaned securities. The securities loaned continue to be carried as investment assets on the Company's balance sheet during the terms of the loans and are not reported as sales. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral. For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge, the collateral is not reflected on the consolidated financial statements.

Details of collateral by loaned security type and remaining maturity of the agreements were as follows:


Securities Lending Transactions Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
	March 31, 2021						December 31, 2020
(In millions)	Overnight and Continuous(1)		Up to 30 days		Total			Overnight and Continuous(1)		Up to 30 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	829	$	829		$	0	$	0	$	0

Public utilities	44		0		44			57		0		57
Sovereign and supranational	3		0		3			3		0		3
Banks/financial institutions	89		0		89			63		0		63
Other corporate	931		0		931			841		0		841
Total borrowings	$	1,067	$	829	$	1,896		$	964	$	0	$	964
Gross amount of recognized liabilities for securities lending transactions					$	1,896						$	964

(1) The related loaned security, under the Company's U.S. securities lending program, can be returned to the Company at the transferee's discretion; therefore, they are classified as Overnight and Continuous.

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $7,475 million and $6,654 million at March 31, 2021 and December 31, 2020, respectively, which may not be sold or re-pledged, unless the counterparty is in default. Such securities collateral is not reflected on the consolidated financial statements.

The Company did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of March 31, 2021, and December 31, 2020, respectively.

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

4. DERIVATIVE INSTRUMENTS

The Company's freestanding derivative financial instruments have historically consisted of:

•foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio

•foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen

•cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures

•foreign currency swaps that are associated with VIE bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary

•interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments

•interest rate swaptions used to hedge changes in the fair value associated with interest rate fluctuations for certain U.S. dollar-denominated available-for-sale fixed-maturity securities.

•bond purchase commitments at the inception of investments in consolidated VIEs

Some of the Company's derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting or the Company elects not to designate them as accounting hedges.

Derivative Types

Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held. In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged, the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options. In the purchased put transactions, Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. In the sold call transaction, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S. dollars at a specified future date. The combination of purchasing the put option and selling the call option results in no net premium being paid (i.e. a costless or zero-cost collar).

From time to time, the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, 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 may use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options (options that protect against a weakening yen) and selling yen call options (options that limit participation in a strengthening yen). The combination of these two actions create a zero-cost collar. Additionally, the Company enters into purchased options to hedge cash flows from the net investment in Aflac Japan.

The Company enters into foreign currency swaps pursuant to which it exchanges an initial principal amount in one currency for an initial principal amount of another currency, with an agreement to re-exchange the principal amounts at a future date. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in the Company's Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize

cash flow fluctuations. The Company also uses foreign currency swaps to economically convert certain of its U.S. dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations.

In order to reduce investment income volatility from its variable-rate investments, the Company enters into receive–fixed, pay–floating interest rate swaps. These derivatives are cleared and settled through a central clearinghouse.

Swaptions are used to mitigate the adverse impact resulting from significant changes in the fair value of U.S. dollar-denominated available-for-sale securities due to fluctuation in interest rates. In a payer swaption, the Company pays a premium to obtain the right, but not the obligation, to enter into a swap contract where it will pay a fixed rate and receive a floating rate. Interest rate swaption collars are combinations of two swaption positions. In order to maximize the efficiency of the collars while minimizing cost, a collar strategy is used whereby the Company purchases a long payer swaption (the Company purchases an option that allows it to enter into a swap where the Company will pay the fixed rate and receive the floating rate of the swap) and sells a short receiver swaption (the Company sells an option that provides the counterparty with the right to enter into a swap where the Company will receive the fixed rate and pay the floating rate of the swap). The combination of purchasing the long payer swaption and selling the short receiver swaption results in no net premium being paid (i.e. a costless or zero-cost collar).

Bond purchase commitments result from repackaged bond structures that are consolidated VIEs whereby there is a delay in the trade date and settlement date of the bond within the structure to ensure completion of all necessary legal agreements to support the consolidated VIE that issues the repackaged bond. Since the Company has a commitment to purchase the underlying bond at a specified price, the agreement meets the definition of a derivative where the value is derived based on the current market value of the bond compared to the fixed purchase price to be paid on the settlement date.

Derivative Balance Sheet Classification

The table below summarizes the balance sheet classification of the Company's derivative fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals. Derivative assets are included in “Other Assets,” while derivative liabilities are included in “Other Liabilities” within the Company’s Consolidated Balance Sheets. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk.


		March 31, 2021									December 31, 2020
(In millions)				Asset Derivatives			Liability Derivatives						Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value			Fair Value			Notional Amount			Fair Value			Fair Value
Cash flow hedges:
Foreign currency swaps - VIE		$	18		$	0		$	2		$	18		$	0		$	1
Total cash flow hedges		18			0			2			18			0			1
Fair value hedges:
Foreign currency forwards		64			0			2			64			2			0
Foreign currency options		8,672			0			85			8,865			0			0

Total fair value hedges		8,736			0			87			8,929			2			0
Net investment hedge:
Foreign currency forwards		4,978			277			1			5,010			14			84
Foreign currency options		1,896			0			0			2,027			1			0
Total net investment hedge		6,874			277			1			7,037			15			84
Non-qualifying strategies:
Foreign currency swaps		2,250			63			24			2,250			47			81
Foreign currency swaps - VIE		2,904			138			216			2,857			133			230
Foreign currency forwards		15,285			319			763			26,528			386			301
Foreign currency options		9,094			44			1			11,037			0			0




Total non-qualifying strategies		29,533			564			1,004			42,672			566			612
Total derivatives		$	45,161		$	841		$	1,094		$	58,656		$	583		$	697

Cash Flow Hedges

For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the USD variable rate interest and principal payments to fixed rate JPY interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is approximately six years. The derivatives in the Company's consolidated VIEs that are not designated as accounting hedges are discussed in the "non-qualifying strategies" section of this note.

Fair Value Hedges

The Company designates and accounts for certain foreign currency forwards, options, and interest rate swaptions as fair value hedges when they meet the requirements for hedge accounting. The Company recognizes gains and losses on these derivatives as well as the offsetting gain or loss on the related hedged items in current earnings.

Foreign currency forwards and options hedge the foreign currency exposure of certain U.S. dollar-denominated available-for-sale fixed-maturity investments held in Aflac Japan. The change in the fair value of the foreign currency forwards related to the changes in the difference between the spot rate and the forward price is excluded from the assessment of hedge effectiveness. The change in fair value of the foreign currency option related to the time value of the option is recognized in current earnings and is excluded from the assessment of hedge effectiveness.

Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment income. The change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term.

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

Fair Value Hedging Relationships


(In millions)		Hedging Derivatives						Hedged Items
Hedging Derivatives	Hedged Items	Total Gains (Losses)		Gains (Losses) Excluded from Effectiveness Testing(1)		Gains (Losses) Included in Effectiveness Testing(2)		Gains (Losses)(2)		Net Investment Gains (Losses) Recognized for Fair Value Hedge
Three Months Ended March 31, 2021:
Foreign currency forwards	Fixed maturity securities	$	(4)	$	0	$	(4)	$	4	$	0
Foreign currency options	Fixed maturity securities	(60)		(3)		(57)		59		2

Total gains (losses)		$	(64)	$	(3)	$	(61)	$	63	$	2





Three Months Ended March 31, 2020:
Foreign currency forwards	Fixed maturity securities	$	(16)	$	(7)	$	(9)	$	10	$	1


Total gains (losses)		$	(16)	$	(7)	$	(9)	$	10	$	1

(1) Gains (losses) excluded from effectiveness testing includes the forward point on foreign currency forwards and time value change on foreign currency options which are reported in the consolidated statement of earnings as net investment gains (losses). It also includes the change in the fair value of the interest rate swaptions related to the time value of the swaptions which is recognized as a component of other comprehensive income (loss).

(2) Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statement of earnings as net investment gains (losses). For interest rate swaptions and related hedged items, gains and losses included in the hedge assessment, premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income. The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains and losses consistent with the impact of the hedged item. For the three-month periods ended March 31, 2021 and 2020, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

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


(In millions)	Carrying Amount of the Hedged Assets/(Liabilities)(1)					Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)
		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Fixed maturity securities		$	3,984	$	4,331	$	234	$	237

(1) The balance includes hedging adjustment on discontinued hedging relationships of $234 in 2021 and $237 in 2020.

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. Beginning in July 2019, certain foreign currency forwards and options were designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three-month periods ended March 31, 2021 and 2020, 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 net 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 March 31, 2021, the Parent Company had $2.3 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 9 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

The Company uses foreign exchange forwards and options to economically mitigate the currency risk of some of its U.S. dollar-denominated loan receivables held within the Aflac Japan segment. These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and generally offsets gains and losses from foreign exchange forwards within net investment gains (losses). The Company also has certain foreign exchange forwards on U.S. dollar-denominated available-for-sale securities where hedge accounting is not being applied.

The Company uses interest rate swaps to economically convert the variable rate investment income to a fixed rate on certain variable-rate investments.

Impact of Derivatives and Hedging Instruments

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


	Three Months Ended March 31,
	2021										2020
(In millions)	Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)			Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE		$	0		$	(1)			$	0		$	(1)		$	0			$	(4)
Total cash flow hedges		0			(1)		(3)		0			(1)			0		(3)		(4)
Fair value hedges:
Foreign currency forwards(3)					0										(6)
Foreign currency options(3)					(1)										0

Total fair value hedges		0			(1)				0			0			(6)				0
Net investment hedge:
Non-derivative hedging instruments					0				188						0				6
Foreign currency forwards					18				335						51				(25)
Foreign currency options					(2)				0						6				0
Total net investment hedge					16				523						57				(19)
Non-qualifying strategies:
Foreign currency swaps					87										50
Foreign currency swaps - VIE					29										(195)
Foreign currency forwards					(432)										(36)
Foreign currency options					16										(2)
Interest rate swaps					0										47
Forward bond purchase commitment - VIE					(1)										0
Total non-qualifying strategies					(301)										(136)
Total		$	0		$	(287)			$	523		$	(1)		$	(85)			$	(23)

(1) Interest expense/income on cash flow hedges are recorded in net investment income. For interest rate swaptions classified as fair value hedges, the change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into net investment income over its legal term. If the swaption is early terminated but the hedge item is still outstanding, the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items.

(2) Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses). Gains and losses on net investment hedges related to change in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

(3) Impact of cash flow hedges reported as net investment gains (losses) includes an immaterial amount of gains or losses reclassified from accumulated other comprehensive income (loss) into earnings. It also includes an immaterial amount excluded from effectiveness testing during the three-month periods ended March 31, 2021 and 2020. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).

As of March 31, 2021, $5 million of deferred gains and losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified to earnings during the next twelve months.

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

As of March 31, 2021, all of the Company's derivative agreement counterparties were investment grade.

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

The Company also engages in OTC cleared derivative transactions through regulated central clearing counterparties. These positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to these derivatives.

Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $497 million and $268 million as of March 31, 2021, and December 31, 2020, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2021, the Company estimates that it would be required to post a maximum of $38 million of additional collateral to these derivative counterparties. The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights. (See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates.)

Offsetting of Financial Instruments and Derivatives

Most of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Parent Company or its subsidiaries and the respective counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements with the master netting arrangements generally provide that the Company will receive or pledge financial collateral at the first dollar of exposure.

The Company has securities lending agreements with unaffiliated financial institutions that post collateral to the Company in return for the use of its fixed maturity and public equity securities (see Note 3). When the Company has entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off allows the Company to keep and apply collateral received if the counterparty failed to return the securities borrowed from the Company as contractually agreed.

The tables below summarize the Company's derivatives and securities lending transactions, and as reflected in the tables, in accordance with U.S. GAAP, the Company's policy is to not offset these financial instruments in the Consolidated Balance Sheets.

Offsetting of Financial Assets and Derivative Assets


March 31, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Received			Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	703		$	0		$	703		$	(387)	$	(5)		$	(250)		$	61

Total derivative assets subject to a master netting agreement or offsetting arrangement		703			0			703			(387)		(5)			(250)			61
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		138						138											138

Total derivative assets not subject to a master netting agreement or offsetting arrangement		138						138											138
Total derivative assets		841			0			841			(387)		(5)			(250)			199
Securities lending and similar arrangements		1,860			0			1,860			0		0			(1,860)			0
Total		$	2,701		$	0		$	2,701		$	(387)	$	(5)		$	(2,110)		$	199


December 31, 2020
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Received			Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	450		$	0		$	450		$	(295)	$	(73)		$	(76)		$	6

Total derivative assets subject to a master netting agreement or offsetting arrangement		450			0			450			(295)		(73)			(76)			6
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		133						133											133

Total derivative assets not subject to a master netting agreement or offsetting arrangement		133						133											133
Total derivative assets		583			0			583			(295)		(73)			(76)			139
Securities lending and similar arrangements		940			0			940			0		0			(940)			0
Total		$	1,523		$	0		$	1,523		$	(295)	$	(73)		$	(1,016)		$	139

Offsetting of Financial Liabilities and Derivative Liabilities


March 31, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities			Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Pledged			Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	876		$	0		$	876		$	(387)	$	(447)		$	(12)		$	30

Total derivative liabilities subject to a master netting agreement or offsetting arrangement		876			0			876			(387)		(447)			(12)			30
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		218						218											218

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		218						218											218
Total derivative liabilities		1,094			0			1,094			(387)		(447)			(12)			248
Securities lending and similar arrangements		1,896			0			1,896			(1,860)		0			0			36
Total		$	2,990		$	0		$	2,990		$	(2,247)	$	(447)		$	(12)		$	284


December 31, 2020
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities			Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Pledged			Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	466		$	0		$	466		$	(295)	$	(43)		$	(69)		$	59

Total derivative liabilities subject to a master netting agreement or offsetting arrangement		466			0			466			(295)		(43)			(69)			59
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		231						231											231

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		231						231											231
Total derivative liabilities		697			0			697			(295)		(43)			(69)			290
Securities lending and similar arrangements		964			0			964			(940)		0			0			24
Total		$	1,661		$	0		$	1,661		$	(1,235)	$	(43)		$	(69)		$	314

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 2020 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.


	March 31, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies		$	34,432		$	1,359		$	0		$	35,791
Municipalities		0			2,901			0			2,901
Mortgage- and asset-backed securities		0			980			204			1,184
Public utilities		0			9,720			479			10,199
Sovereign and supranational		0			1,207			68			1,275
Banks/financial institutions		0			11,547			28			11,575
Other corporate		0			37,500			319			37,819
Total fixed maturity securities		34,432			65,214			1,098			100,744
Equity securities		971			81			122			1,174
Other investments		1,295			0			0			1,295
Cash and cash equivalents		4,990			0			0			4,990
Other assets:
Foreign currency swaps		0			63			138			201
Foreign currency forwards		0			596			0			596
Foreign currency options		0			44			0			44



Total other assets		0			703			138			841
Total assets		$	41,688		$	65,998		$	1,358		$	109,044
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	24		$	218		$	242
Foreign currency forwards		0			766			0			766
Foreign currency options		0			86			0			86


Total liabilities		$	0		$	876		$	218		$	1,094


	December 31, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies		$	36,032		$	1,318		$	0		$	37,350
Municipalities		0			3,018			0			3,018
Mortgage- and asset-backed securities		0			814			224			1,038
Public utilities		0			10,395			422			10,817
Sovereign and supranational		0			1,334			48			1,382
Banks/financial institutions		0			12,036			24			12,060
Other corporate		0			39,918			299			40,217
Total fixed maturity securities		36,032			68,833			1,017			105,882
Equity securities		1,095			86			102			1,283
Other investments		1,139			0			0			1,139
Cash and cash equivalents		5,141			0			0			5,141
Other assets:
Foreign currency swaps		0			47			133			180
Foreign currency forwards		0			402			0			402
Foreign currency options		0			1			0			1

Total other assets		0			450			133			583
Total assets		$	43,407		$	69,369		$	1,252		$	114,028
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	81		$	231		$	312
Foreign currency forwards		0			385			0			385


Total liabilities		$	0		$	466		$	231		$	697

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


	March 31, 2021
(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		$	21,915		$	26,599		$	240		$	0		$	26,839
Municipalities		352			0			460			0			460

Public utilities		44			0			57			0			57
Sovereign and supranational		534			0			670			0			670

Other corporate		23			0			30			0			30
Commercial mortgage and other loans		10,847			0			0			10,898			10,898
Other investments (1)		18			0			18			0			18
Total assets		$	33,733		$	26,599		$	1,475		$	10,898		$	38,972
Liabilities:
Other policyholders’ funds		$	7,367		$	0		$	0		$	7,258		$	7,258
Notes payable (excluding leases)		7,937			0			8,303			269			8,572
Total liabilities		$	15,304		$	0		$	8,303		$	7,527		$	15,830

(1) Excludes policy loans of $242 and equity method investments of $1,110, at carrying value


	December 31, 2020
(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		$	23,445		$	28,810		$	260		$	0		$	29,070
Municipalities		377			0			499			0			499

Public utilities		47			0			61			0			61
Sovereign and supranational		571			0			736			0			736

Other corporate		24			0			33			0			33
Commercial mortgage and other loans		10,554			0			0			10,655			10,655
Other investments (1)		26			0			26			0			26
Total assets		$	35,044		$	28,810		$	1,615		$	10,655		$	41,080
Liabilities:
Other policyholders’ funds		$	7,824		$	0		$	0		$	7,709		$	7,709
Notes payable (excluding leases)		7,745			0			8,396			288			8,684
Total liabilities		$	15,569		$	0		$	8,396		$	7,997		$	16,393

(1) Excludes policy loans of $260 and equity method investments of $1,004, 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. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the credit default swap (CDS) market to estimate expected cash flows. These models take into consideration any unique characteristics of the securities 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

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. Beginning in the third quarter of 2020, the Company refined these valuation models to explicitly incorporate currency basis swap adjustments (market observable data) to assumed interest rate curves where appropriate. 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.

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.


	March 31, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	34,432		$	1,359		$	0		$	35,791
Total government and agencies		34,432			1,359			0			35,791
Municipalities:
Third party pricing vendor		0			2,901			0			2,901
Total municipalities		0			2,901			0			2,901
Mortgage- and asset-backed securities:
Third party pricing vendor		0			406			0			406
Broker/other		0			574			204			778
Total mortgage- and asset-backed securities		0			980			204			1,184
Public utilities:
Third party pricing vendor		0			9,720			0			9,720
Broker/other		0			0			479			479
Total public utilities		0			9,720			479			10,199
Sovereign and supranational:
Third party pricing vendor		0			1,207			0			1,207
Broker/other		0			0			68			68
Total sovereign and supranational		0			1,207			68			1,275
Banks/financial institutions:
Third party pricing vendor		0			11,547			0			11,547
Broker/other		0			0			28			28
Total banks/financial institutions		0			11,547			28			11,575
Other corporate:
Third party pricing vendor		0			37,500			0			37,500
Broker/other		0			0			319			319
Total other corporate		0			37,500			319			37,819
Total securities available for sale		$	34,432		$	65,214		$	1,098		$	100,744
Equity securities, carried at fair value:
Third party pricing vendor		$	971		$	81		$	0		$	1,052
Broker/other		0			0			122			122
Total equity securities		$	971		$	81		$	122		$	1,174


	March 31, 2021
(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		$	26,599		$	240		$	0		$	26,839
Total government and agencies		26,599			240			0			26,839
Municipalities:
Third party pricing vendor		0			460			0			460
Total municipalities		0			460			0			460




Public utilities:
Third party pricing vendor		0			57			0			57

Total public utilities		0			57			0			57
Sovereign and supranational:
Third party pricing vendor		0			670			0			670
Total sovereign and supranational		0			670			0			670




Other corporate:
Third party pricing vendor		0			30			0			30

Total other corporate		0			30			0			30
Total securities held to maturity		$	26,599		$	1,457		$	0		$	28,056


	December 31, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	36,032		$	1,318		$	0		$	37,350
Total government and agencies		36,032			1,318			0			37,350
Municipalities:
Third party pricing vendor		0			3,018			0			3,018
Total municipalities		0			3,018			0			3,018
Mortgage- and asset-backed securities:
Third party pricing vendor		0			364			0			364
Broker/other		0			450			224			674
Total mortgage- and asset-backed securities		0			814			224			1,038
Public utilities:
Third party pricing vendor		0			10,395			0			10,395
Broker/other		0			0			422			422
Total public utilities		0			10,395			422			10,817
Sovereign and supranational:
Third party pricing vendor		0			1,334			0			1,334
Broker/other		0			0			48			48
Total sovereign and supranational		0			1,334			48			1,382
Banks/financial institutions:
Third party pricing vendor		0			12,036			0			12,036
Broker/other		0			0			24			24
Total banks/financial institutions		0			12,036			24			12,060
Other corporate:
Third party pricing vendor		0			39,886			0			39,886
Broker/other		0			32			299			331
Total other corporate		0			39,918			299			40,217
Total securities available for sale		$	36,032		$	68,833		$	1,017		$	105,882
Equity securities, carried at fair value:
Third party pricing vendor		$	1,095		$	86		$	0		$	1,181
Broker/other		0			0			102			102
Total equity securities		$	1,095		$	86		$	102		$	1,283


	December 31, 2020
(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		$	28,810		$	260		$	0		$	29,070
Total government and agencies		28,810			260			0			29,070
Municipalities:
Third party pricing vendor		0			499			0			499
Total municipalities		0			499			0			499




Public utilities:
Third party pricing vendor		0			61			0			61
Total public utilities		0			61			0			61
Sovereign and supranational:
Third party pricing vendor		0			736			0			736
Total sovereign and supranational		0			736			0			736



Other corporate:
Third party pricing vendor		0			33			0			33

Total other corporate		0			33			0			33
Total securities held to maturity		$	28,810		$	1,589		$	0		$	30,399

The following is a discussion of the determination of fair value of the Company's remaining financial instruments.

Derivatives

The Company uses derivative instruments to manage the risk associated with certain assets. However, the derivative instrument may not be classified in the same fair value hierarchy level as the associated asset. The significant inputs to pricing derivatives are generally observable in the market or can be derived by observable market data. When these inputs are observable, the derivatives are classified as Level 2.

The Company uses present value techniques to value non-option based derivatives. It also uses option pricing models to value option based derivatives. Key inputs are as follows:


Instrument Type	Level 2	Level 3
Interest rate derivatives	Swap yield curves Basic curves Interest rate volatility (1)	Not applicable
Foreign currency exchange rate derivatives - Non-VIES (forwards, swaps and options)	Foreign currency forward rates Swap yield curves Basis curves Foreign currency spot rates Cross foreign currency basis curves Foreign currency volatility (1)	Not applicable
Foreign currency exchange rate derivatives - VIEs (swaps)	Foreign currency spot rates	Swap yield curves (2) Credit default swap curves (2) Basis curves (2) Recovery rates Foreign currency forward rates (2) Foreign cross currency basis curves (2)

(1) Option-based only

(2) Extrapolation beyond the observable limits of the curve(s).

The fair values of the foreign currency forwards and options are based on observable market inputs, therefore they are classified as Level 2.

To determine the fair value of its interest rate derivatives, the Company uses inputs that are generally observable in the market or can be derived from observable market data. Interest rate swaps are cleared trades. In a cleared swap contract, the clearinghouse provides benefits to the counterparties similar to contracts listed for investment traded on an exchange since it maintains a daily margin to mitigate counterparties' credit risk. These derivatives are priced using observable inputs, accordingly, they are classified as Level 2. For its interest rate swaptions, the Company estimates their fair values using observable market data, including interest rate curves and volatility. Their fair values are also classified as Level 2.

For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. As a result, the fair value measurements incorporate the credit risk of the collateral associated with the VIE. 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.

For forward bond purchase commitments with VIEs, the fair value of the derivative is based on the difference in the fixed purchase price and the current market value of the related bond prior to the settlement date. Since the bond is typically a public bond with readily available pricing, the derivatives associated with the forward purchase commitment are classified as Level 2 of the fair value hierarchy.

Commercial mortgage and other loans

Commercial mortgage and other loans 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. 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 investments

Other investments includes short-term investments that are measured at fair value where amortized cost approximates fair value.

Other policyholders' funds

The largest component of the other policyholders' funds liability is the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. For this product, the Company estimates the fair value to be equal to the cash surrender value. This is analogous to the value paid to policyholders on the valuation date if they were to surrender their policy. The Company periodically checks the cash value against discounted cash flow projections for reasonableness. The Company considers its inputs for this valuation to be unobservable and have accordingly classified this valuation as Level 3.

Notes payable

The fair values of the Company's publicly issued notes payable are determined by utilizing available sources of observable inputs from third party pricing vendors and are classified as Level 2. The fair values of the Company's yen-denominated loans approximate their carrying values and are classified as Level 3.

Transfers between Hierarchy Levels and Level 3 Rollforward

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 March 31, 2021
	Fixed Maturity Securities													Equity Securities		Derivatives (1)
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Sovereign and Supranational			Banks/ Financial Institutions		Other Corporate					Foreign Currency Swaps		Total
Balance, beginning of period	$	224		$	422	$	48		$	24	$	299		$	102	$	(98)	$	1,021
Net investment gains (losses) included in earnings	0			0		0			0		0			9		19		28
Unrealized gains (losses) included in other comprehensive income (loss)	(15)			(18)		(3)			(1)		(12)			0		(1)		(50)
Purchases, issuances, sales and settlements:
Purchases	10			78		0			5		0			11		0		104
Issuances	0			0		0			0		0			0		0		0
Sales	0			0		0			0		0			0		0		0
Settlements	0			(3)		0			0		0			0		0		(3)
Transfers into Level 3	0			0		23		(2)	0		32		(2)	0		0		55
Transfers out of Level 3	(15)		(3)	0		0			0		0			0		0		(15)
Balance, end of period	$	204		$	479	$	68		$	28	$	319		$	122	$	(80)	$	1,140
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings	$	0		$	0	$	0		$	0	$	0		$	0	$	19	$	19

(1) Derivative assets and liabilities are presented net

(2) Transfer due to a lack of availability of observable market inputs

(3) Transfer due to availability of observable market inputs


Three Months Ended March 31, 2020
	Fixed Maturity Securities									Equity Securities		Derivatives (1)
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	178		$	224	$	23	$	262	$	80	$	43	$	810
Net investment gains (losses) included in earnings	0			0		0		0		0		(185)		(185)
Unrealized gains (losses) included in other comprehensive income (loss)	1			(8)		0		(17)		0		(4)		(28)
Purchases, issuances, sales and settlements:
Purchases	0			83		0		0		2		0		85
Issuances	0			0		0		0		0		0		0
Sales	0			0		0		0		0		0		0
Settlements	0			(1)		0		0		0		0		(1)
Transfers into Level 3	9		(2)	0		0		0		0		0		9
Transfers out of Level 3	0			0		0		0		0		0		0
Balance, end of period	$	188		$	298	$	23	$	245	$	82	$	(146)	$	690
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings	$	0		$	0	$	0	$	0	$	0	$	(185)	$	(185)

(1) Derivative assets and liabilities are presented net

(2) Transfer due to reclassification of level 3 securities from HTM to AFS

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.

March 31, 2021

(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

204

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

479

Discounted cash flow

Credit spreads

N/A

(a)

Sovereign and supranational

Discounted cash flow

Historical volatility

N/A

(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

(a)

Other corporate

319

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

122

Net asset value

Offered quotes

N/A

(a)

Other assets:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

1.78%

2.20%

(b)

Interest rates (JPY)

.16%

.57%

(c)

CDS spreads

26 bps

127 bps

Discounted cash flow

Interest rates (USD)

1.78%

2.20%

(b)

Interest rates (JPY)

.16%

.57%

(c)

Total assets

1,358

Liabilities:

Other liabilities:

Foreign currency swaps

140

Discounted cash flow

Interest rates (USD)

1.78%

2.20%

(b)

Interest rates (JPY)

.16%

.57%

(c)

CDS spreads

27 bps

201 bps

Discounted cash flow

Interest rates (USD)

1.78%

2.20%

(b)

Interest rates (JPY)

.16%

.57%

(c)

Total liabilities

218

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

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

December 31, 2020

(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

224

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

422

Discounted cash flow

Credit spreads

N/A

(a)

Sovereign and supranational

Discounted cash flow

Historical volatility

N/A

(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

(a)

Other corporate

299

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

102

Net asset value

Offered quotes

N/A

(a)

Other assets:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

.93%

1.40%

(b)

Interest rates (JPY)

.05%

.43%

(c)

CDS spreads

22 bps

128 bps

Discounted cash flow

Interest rates (USD)

.93%

1.40%

(b)

Interest rates (JPY)

.05%

.43%

(c)

Total assets

1,252

Liabilities:

Other liabilities:

Foreign currency swaps

160

Discounted cash flow

Interest rates (USD)

.93%

1.12%

(b)

Interest rates (JPY)

.05%

.35%

(c)

CDS spreads

41 bps

140 bps

Discounted cash flow

Interest rates (USD)

.93%

1.12%

(b)

Interest rates (JPY)

.05%

.35%

(c)

Total liabilities

231

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

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

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 and CDS Spreads

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

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

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

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 2020 Annual Report.

6. POLICY LIABILITIES

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


	Three Months Ended March 31,
(In millions)		2021		2020
Unpaid supplemental health claims, beginning of period		$	4,389	$	3,968
Less reinsurance recoverables		39		31
Net balance, beginning of period		4,350		3,937
Add claims incurred during the period related to:
Current year		1,859		1,837
Prior years		(320)		(136)
Total incurred		1,539		1,701
Less claims paid during the period on claims incurred during:
Current year		511		556
Prior years		1,061		1,144
Total paid		1,572		1,700
Effect of foreign exchange rate changes on unpaid claims		(162)		12
Net balance, end of period		4,155		3,950
Add reinsurance recoverables		37		33
Unpaid supplemental health claims, end of period		4,192		3,983
Unpaid life claims, end of period		756		710
Total liability for unpaid policy claims		$	4,948	$	4,693

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $320 million for the three-month period ended March 31, 2021 comprises approximately $101 million from Japan and $219 million from the U.S., representing approximately 32% and 68% of the total, respectively. Excluding the impact of foreign exchange of a gain of approximately $1 million from December 31, 2020 to March 31, 2021, the favorable claims development in Japan would have been approximately $100 million, representing approximately 31% of the total. The U.S. portion of the favorable claims development includes $137 million related to refinements in estimates for COVID and non-COVID claims as experience emerged.

The Company has experienced continued favorable claim trends in 2021 for its core health products in Japan. During the first quarter of 2021, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic. This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits, and was staying home more. This resulted in lower sickness, accident, and cancer incurred claims. 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.

For the majority of the Company's major U.S. accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates.

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 $942 million and $1.0 billion as of March 31, 2021 and December 31, 2020, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $972 million and $1.0 billion as of March 31, 2021 and December 31, 2020, respectively. The spot yen/dollar exchange rate weakened by approximately 6.5% and ceded reserves decreased approximately 6.4% from December 31, 2020 to March 31, 2021.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance which also includes the elimination of inter-segment amounts associated with affiliated reinsurance.


	Three Months Ended March 31,
(In millions)		2021	2020
Direct premium income				$	4,652	$	4,772
Ceded to other companies:
Ceded Aflac Japan closed blocks				(114)		(116)
Other				(19)		(24)
Assumed from other companies:
Retrocession activities				48		49
Other				26		0
Net premium income				$	4,593	$	4,681

Direct benefits and claims				$	2,776	$	3,028
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks				(99)		(105)
Eliminations				8		10
Other				(8)		(25)
Assumed from other companies:
Retrocession activities				42		41
Eliminations				(8)		(10)
Other				24		0
Benefits and claims, net				$	2,735	$	2,939

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 ¥120 billion of reserves. This reinsurance facility agreement was renewed in 2020 and is effective until December 31, 2021. 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 March 31, 2021, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

8. NOTES PAYABLE AND LEASE OBLIGATIONS

A summary of notes payable and lease obligations follows:


(In millions)	March 31, 2021			December 31, 2020
3.625% senior notes due June 2023		$	698		$	698
3.625% senior notes due November 2024		747			747
3.25% senior notes due March 2025		448			448
1.125% senior sustainability notes due March 2026		397			0
2.875% senior notes due October 2026		298			298
3.60% senior notes due April 2030		991			990
6.90% senior notes due December 2039		221			221
6.45% senior notes due August 2040		254			254
4.00% senior notes due October 2046		394			394
4.750% senior notes due January 2049		541			541
Yen-denominated senior notes and subordinated debentures:
.300% senior notes due September 2025 (principal amount ¥12.4 billion)		111			119
.932% senior notes due January 2027 (principal amount ¥60.0 billion)		540			578
.500% senior notes due December 2029 (principal amount ¥12.6 billion)		113			121
.550% senior notes due March 2030 (principal amount ¥13.3 billion)		119			127
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)		263			282
.843% senior notes due December 2031 (principal amount ¥9.3 billion)		84			90
.750% senior notes due March 2032 (principal amount ¥20.7 billion)		185			198
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)		136			146
.934% senior notes due December 2034 (principal amount ¥9.8 billion)		88			94
.830% senior notes due March 2035 (principal amount ¥10.6 billion)		95			101
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)		80			85
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)		57			61
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)		538			575
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)		270			289
Yen-denominated loans:
Variable interest rate loan due September 2026 (.43% in 2021 and 2020, principal amount ¥5.0 billion)		45			48
Variable interest rate loan due September 2029 (.58% in 2021 and 2020, principal amount ¥25.0 billion)		224			240
Finance lease obligations payable through 2027		14			11
Operating lease obligations payable through 2049		137			143
Total notes payable and lease obligations		$	8,088		$	7,899

Amounts in the table above are reported net of debt issuance costs and issuance premiums or discounts, if applicable, that are being amortized over the life of the notes.

In March 2021, the Parent Company issued $400 million of senior sustainability notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 1.125% per annum, payable semi-annually, and will mature in March 2026. The Company intends, but is not contractually committed, to allocate an amount at least equivalent to the net proceeds from this issuance exclusively to existing or future investments in, or financing of, assets, businesses or projects that meet the eligibility criteria of the Company's sustainability bond framework described in the offering documentation in connection with such notes. These notes are redeemable at the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S. Treasury security with a maturity comparable to the remaining term of the notes, plus 10 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.

A summary of the Company's lines of credit as of March 31, 2021 follows:

Borrower(s)

Type

Term

Expiration Date

Capacity

Amount Outstanding

Interest Rate on Borrowed Amount

Maturity Period

Commitment Fee

Business Purpose

Aflac Incorporated
and Aflac

uncommitted bilateral

364 days

December 17, 2021

$100 million

$0 million

The rate quoted by the bank and agreed upon at the time of borrowing

Up to 3 months

None

General corporate purposes

Aflac Incorporated

unsecured revolving

5 years

March 29,

2024, or the date commitments are terminated pursuant to an event of default

¥100.0 billion

¥0.0 billion

A rate per annum equal to (a) Tokyo interbank market rate (TIBOR) plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period

No later than
March 29, 2024

.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

November 18, 2024, or the date commitments are terminated pursuant to an event of default

$1.0 billion

$0.0 billion

A rate per annum equal to, at the Company's option, either, (a) 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 November 18, 2024

.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

$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(1)

uncommitted revolving

364 days

November 30, 2021

$250 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated(1)

uncommitted revolving

364 days

April 2, 2021(2)

¥50.0 billion

¥0.0 billion

Three-month TIBOR plus 70 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated(1)

uncommitted revolving

364 days

November 25, 2021

¥50.0 billion

¥0.0 billion

Three-month TIBOR plus 70 basis points per annum

3 months

None

General corporate purposes

Aflac New York(1)

uncommitted revolving

364 days

April 7, 2021(3)

$25 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

CAIC(1)

uncommitted revolving

364 days

March 21, 2022

$15 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

Tier One Insurance Company(1)

uncommitted revolving

364 days

March 21, 2022

$0.3 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

(1) Intercompany credit agreement

(2)Renewed in April 2021 with an expiration date April 1, 2022

(3)Renewed in April 2021 with an expiration date of April 7, 2022

(continued)

Borrower(s)

Type

Term

Expiration Date

Capacity

Amount Outstanding

Interest Rate on Borrowed Amount

Maturity Period

Commitment Fee

Business Purpose

AGV Management Services Japan K.K.(1)

uncommitted revolving

364 days

May 1, 2021

¥500 million

¥350 million

A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period

No later than
May 1, 2021

None

General corporate purposes

Hatch Healthcare K.K.(1)

uncommitted revolving

364 days

January 3, 2022

¥900 million

¥0 million

A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period

No later than January 3, 2022

None

General corporate purposes

Hatch Insight K.K.(1)

uncommitted revolving

364 days

January 3, 2022

¥600 million

¥0 million

A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period

No later than January 3, 2022

None

General corporate purposes

(1) Intercompany credit agreement

The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2021. No events of default or defaults occurred during the three-month period ended March 31, 2021.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

9. SHAREHOLDERS’ EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the three-month periods ended March 31.


(In thousands of shares)	2021	2020
Common stock - issued:
Balance, beginning of period	1,351,018	1,349,309
Exercise of stock options and issuance of restricted shares	1,261	1,341
Balance, end of period	1,352,279	1,350,650
Treasury stock:
Balance, beginning of period	658,564	622,516
Purchases of treasury stock:
Share repurchase program	13,440	9,984
Other	378	508
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(387)	(468)
Exercise of stock options	(211)	(45)
Other	(212)	(227)
Balance, end of period	671,572	632,268
Shares outstanding, end of period	680,707	718,382

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 March 31,
(In thousands)		2021	2020
Anti-dilutive share-based awards				1	744

Share Repurchase Program

During the first three months of 2021, the Company repurchased 13.4 million shares of its common stock for $650 million as part of its share repurchase program. During the first three months of 2020, the Company repurchased 10.0 million shares of its common stock for $449 million as part of its share repurchase program. As of March 31, 2021, a remaining balance of 85.7 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 March 31, 2021
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at December 31, 2020		$	(1,109)		$	10,361		$	(34)		$	(284)		$	8,934


Other comprehensive income (loss) before reclassification		(565)			(1,583)			1			(4)			(2,151)
Amounts reclassified from accumulated other comprehensive income (loss)		0			16			0			8			24
Net current-period other comprehensive income (loss)		(565)			(1,567)			1			4			(2,127)
Balance at March 31, 2021		$	(1,674)		$	8,794		$	(33)		$	(280)		$	6,807

All amounts in the table above are net of tax.


Three Months Ended March 31, 2020
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at December 31, 2019		$	(1,623)		$	8,548		$	(33)		$	(277)		$	6,615
Cumulative effect of change in accounting principle - ASU 2019-04		0			848			0			0			848
Balance at January 1, 2020		$	(1,623)		$	9,396		$	(33)		$	(277)		$	7,463
Other comprehensive income (loss) before reclassification		80			(3,359)			(2)			(6)			(3,287)
Amounts reclassified from accumulated other comprehensive income (loss)		0			6			0			6			12
Net current-period other comprehensive income (loss)		80			(3,353)			(2)			0			(3,275)
Balance at March 31, 2020		$	(1,543)		$	6,043		$	(35)		$	(277)		$	4,188

All amounts in the table above are net of tax.

The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income into net earnings for the following periods.

Reclassifications Out of Accumulated Other Comprehensive Income


(In millions)	Three Months Ended March 31, 2021
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	(20)	Net investment gains (losses)
		4		Tax (expense) or benefit(1)
		$	(16)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(10)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		2		Tax (expense) or benefit(1)
		$	(8)	Net of tax
Total reclassifications for the period		$	(24)	Net of tax

(1) Based on 21% tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11 for additional details).


(In millions)	Three Months Ended March 31, 2020
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		$	(7)	Net investment gains (losses)
		1		Tax (expense) or benefit(1)
		$	(6)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(8)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		2		Tax (expense) or benefit(1)
		$	(6)	Net of tax
Total reclassifications for the period		$	(12)	Net of tax

(1) Based on 21% blended tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11 for additional details).

10. SHARE-BASED COMPENSATION

As of March 31, 2021, 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 March 31, 2021, approximately 36.7 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of March 31, 2021, the only performance-based awards issued and outstanding were restricted stock awards and units.

Stock options and stock appreciation rights granted under the amended Plan have an exercise price of at least the fair market value of the underlying stock on the grant date and have an expiration date no later than 10 years from the grant date. 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 years 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 March 31, 2021.


	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		2,534		4.0		$	52		$	30.54
Exercisable		2,474		3.9		51			30.41

The Company received cash from the exercise of stock options in the amount of $15 million during the first three months of 2021, compared with $6 million in the first three months of 2020. The tax benefit realized as a result of stock option exercises and restricted stock releases was $14 million in the first three months of 2021, compared with $17 million in the first three months of 2020.

As of March 31, 2021, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards was $68 million, of which $32 million (1.7 million 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 2.0 years. There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the three-month period ended March 31, 2021.


(In thousands of shares)	Shares	Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2020	2,580		$	48.57
Granted in 2021	1,296		46.96
Canceled in 2021	(11)		51.82
Vested in 2021	(1,183)		46.23
Restricted stock at March 31, 2021	2,682		$	48.66

In February 2021, the Company granted 474 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 2020 Annual Report.

11. BENEFIT PLANS

The Company has funded defined benefit plans in Japan and the U.S., 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. Effective January 1, 2021, the Company increased this nonelective contribution to 4% of an employee's annual cash compensation.

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 5 years; (4) active employees who were age 55 or older and who would meet the 15 years of service requirement within the next 5 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 $6 million for the three-month periods ended March 31, 2021 and 2020, respectively. Total net periodic cost includes the following components:


	Three Months Ended March 31,
	Pension Benefits												Other
	Japan						U.S.						Postretirement Benefits
(In millions)	2021			2020			2021			2020			2021			2020
Components of net periodic benefit cost:
Service cost		$	6		$	6		$	7		$	7		$	0		$	0
Interest cost		1			1			8			8			0			0
Expected return on plan assets		(2)			(2)			(10)			(9)			0			0
Amortization of net actuarial loss		1			1			8			6			1			1

Net periodic (benefit) cost		$	6		$	6		$	13		$	12		$	1		$	1

During the three months ended March 31, 2021, Aflac Japan contributed approximately $10 million (using the weighted-average yen/dollar exchange rate for the three-month period ended March 31, 2021) to the Japanese funded defined benefit plan, and Aflac U.S. did not make a contribution to the U.S. funded defined benefit plan.

For additional information regarding the Company's Japanese and U.S. benefit plans, see Note 14 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report.

12. 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 U.S. insurance industry has a policyholder protection system that is monitored and regulated by state insurance departments. These life and health insurance guaranty associations are state entities (in all 50 states as well as Puerto Rico and the District of Columbia) created to protect policyholders of an insolvent insurance company. All insurance companies (with limited exceptions) licensed to sell life or health insurance in a state must be members of that state’s guaranty association. Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business.

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, 2021. 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 three-month period ended March 31, 2021 were immaterial.

13. SUBSEQUENT EVENTS

In April 2021, the Parent Company issued five series of senior notes totaling ¥82.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥30.0 billion, bears interest at a fixed rate of .633% per annum, payable semi-annually, and will mature in April 2031. The second series, which totaled ¥12.0 billion, bears interest at a fixed rate of .844% per annum, payable semi-annually, and will mature in April 2033. The third series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.039% per annum, payable semi-annually, and will mature in April 2036. The fourth series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.264% per annum, payable semi-annually, and will mature in April 2041. The fifth series, which totaled ¥20.0 billion, bears interest at a fixed rate of 1.560% per annum, payable semi-annually, and will mature in April 2051. These notes may only be redeemed before maturity, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

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. Aflac Incorporated (the Parent Company) and its subsidiaries (collectively with the Parent Company, the Company) desire 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 ones listed below or similar words, as well as specific projections of future results, generally qualify as forward-looking. The Company 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, including those caused by COVID-19

•defaults and credit downgrades of investments

•exposure to significant interest rate risk

•concentration of business in Japan

•limited availability of acceptable yen-denominated investments

•foreign currency fluctuations in the yen/dollar exchange rate

•differing judgments applied to investment valuations

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

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

•decline in creditworthiness of other financial institutions

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

•the effects of COVID-19, and any resulting economic effects and government interventions, on the Company's business and financial results

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

•deviations in actual experience from pricing and reserving assumptions

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

•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

•subsidiaries' ability to pay dividends to the Parent Company

•inherent limitations to risk management policies and procedures

•events related to the Japan Post investigation and other matters

•tax rates applicable to the Company may change

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

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

•competitive environment and ability to anticipate and respond to market trends

•catastrophic events, including, but not limited to, as a result of climate change, epidemics, pandemics (such as the coronavirus COVID-19), tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events

•ability to protect the Aflac brand and the Company's reputation

•ability to effectively manage key executive succession

•changes in accounting standards

•level and outcome of litigation

•allegations or determinations of worker misclassification in the United States

MD&A OVERVIEW

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three-month periods ended March 31, 2021 and 2020, 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, 2020 (2020 Annual Report). In this MD&A, amounts may not foot due to rounding. For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part II. Other Information.

This MD&A is divided into the following sections:


			Page
Executive Summary			62
Results of Operations			65
Investments			78
Hedging Activities			83
Deferred Policy Acquisition Costs			87
Policy Liabilities			87
Benefit Plans			87
Policyholder Protection			87
Off-Balance Sheet Arrangements			87
Liquidity and Capital Resources			88
Critical Accounting Estimates			93

EXECUTIVE SUMMARY

Company Overview

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) provide financial protection to more than 50 million people worldwide. The Company’s principal business is supplemental health and life insurance products with the goal to provide customers the best value in supplemental insurance products in the United States (U.S.) and Japan. The Company's insurance business consists of two reporting segments: Aflac Japan and Aflac U.S. The Parent Company’s primary insurance subsidiaries are Aflac Life Insurance Japan Ltd. in Japan (Aflac Japan) and American Family Life Assurance Company of Columbus (Aflac); Continental American Insurance Company (CAIC), branded as Aflac Group Insurance (AGI); American Family Life Assurance Company of New York (Aflac New York); Tier One Insurance Company (TOIC) and Argus Dental & Vision, Inc. (Argus), which provides a platform for Aflac Dental and Vision in the U.S. (collectively, Aflac U.S.).

COVID-19

The impact of the COVID-19 global pandemic on the Company continues to evolve, and its future effects remain uncertain. At the onset of the pandemic in 2020, the majority of the Company’s employees in Japan and the U.S. shifted to remote working environments, with returns to office undertaken as warranted by local conditions. Both Aflac Japan and Aflac U.S. have taken measures to address employee health and safety and increase employees’ ability to develop and maintain more flexible working conditions, and operations remained stable throughout the first quarter of 2021. The Company also took prompt action at the beginning of the pandemic to strengthen its capital and liquidity position, and continues to monitor its investment portfolios to adjust to market conditions. Both Aflac Japan and Aflac U.S. have accelerated investments in digital initiatives to improve productivity, efficiency and customer service over the long term.

In the first quarter of 2021, Aflac U.S. experienced a significant decrease in sales, compared to pre-pandemic levels of the first quarter of 2020, due to the ongoing effects of the pandemic and related government, community and individual responses. Sales for Aflac Japan were relatively flat as compared to the first quarter of 2020. Pandemic-related claims and associated reserve increases in both Japan and the U.S. have not materially impacted financial results in the first quarter of 2021 and were more than offset by a reduction in claims related to non-COVID-19 medical needs. The pandemic’s impact on economic conditions have contributed to sales declines, pressuring premium growth rates. This has been partially offset by lower lapse rates in the U.S. The Company has not experienced material realized losses or impairments and credit losses associated with the pandemic. The Company continues to closely monitor the effects and risks of COVID-19 to assess its impact on economic conditions in Japan and the U.S. and on the Company's business, financial condition, results of operations, liquidity and capital position. Those impacts may cause changes to estimates of future earnings, capital deployment, regulatory capital position, segment dividend payout ratios and other measures the Company provided under 2021 Outlook in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2020 Annual Report.

The Company’s efforts and other developments are outlined below.

•Liquidity and Capital Resources

The Company remains committed to prudent liquidity and capital management. In terms of repurchases, the Company remains in the market and is being tactical in its approach to repurchasing its stock. The Company believes that this approach will allow it to increase or decrease repurchase activity depending on how the pandemic and market conditions evolve.

The Company is committed to maintaining a strong Aflac Japan solvency margin ratio (SMR) and Aflac U.S. risk-based capital (RBC) ratios.

The Company regularly evaluates adjustments to its foreign currency-hedging program in Aflac Japan to mitigate hedging cost and settlement risk while maintaining a strong SMR, including the possibility of changing the level of hedging employed with the U.S dollar-denominated investments. See the Liquidity and Capital Resources section of this MD&A for additional information regarding other potential sources of liquidity and capital resources.

•Investment Portfolio

The Company's investment portfolio was well-positioned entering the crisis, and the Company continues to follow its strategy of investing primarily in fixed maturity securities to generate a reliable stream of income. Fundamental credit analysis and de-risking activity in prior periods contributed to the current quality of the Company’s investments. Although economic and market conditions have continued to improve, the Company remains cautious about the continued path of the recovery and the potential longer term impacts on certain sectors most vulnerable to the impacts of the pandemic. The Company continues working with certain issuers to provide temporary relief of terms by providing payment deferrals and other modifications or waivers where the Company believes it improves its overall position. For additional information on these loan modifications, see Note 3 of the Notes to the Consolidated Financial Statements.

•Crisis Management

The Company established command centers in Japan and the U.S. to monitor and communicate pandemic developments to the Company's leadership. The command centers participate in regular updates to the Company's leadership, including government and regulatory actions, operations, employee policies and conditions and distribution status. In addition, capital market, central bank and government stimulus updates are provided, as well as updates on cybersecurity, including with respect to the Company's remote workforce. Moreover, the Company's financial leadership group has been meeting more frequently since the onset of the pandemic and has focused on the capital markets, capital and liquidity position, stress testing and any defensive actions that may be necessary as the crisis unfolds.

•Aflac Japan initiatives

Aflac Japan has maintained certain measures implemented at the onset of the pandemic, such as working from home, staggered work hours and limitations on the number of personnel attending in-person meetings. As of March 31, 2021, Aflac Japan had approximately 58% of its workforce working remotely. Aflac Japan continues to evaluate return to the office measures; however, throughout the development of the pandemic, Aflac Japan has evaluated its operational capabilities and anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations.

Aflac Japan also continues to maintain several additional actions taken for its employees including travel restrictions and extended paid leave.

Aflac Japan remains focused on generating new business to existing and prospective customers through direct mail and digital methods. Aflac Japan has also accelerated investments in digital and paperless initiatives designed to increase long term productivity, efficiency, customer service and business continuity.

•Aflac U.S. and Corporate and Other initiatives

The Parent Company and Aflac U.S. continue to maintain certain measures that were implemented at the onset of the pandemic, including restrictions on travel and in-person meetings applicable to U.S. employees and required work from home directives across their U.S. work force. As of March 31, 2021, over 90% of U.S. employees were working remotely. The Company currently anticipates that a return to the worksite for U.S. based employees of the Parent Company and Aflac U.S. will be conducted in phases beginning no sooner than the second half of 2021, subject to factors including the availability of treatments and vaccines, the return schedule of school systems and the availability of child care, the number of COVID–19 cases and the COVID–19 replication rate in areas of the U.S. where the Company has significant operations. However, Aflac U.S. anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations. The Parent Company and Aflac U.S. continue to maintain employee and worksite safety measures including travel restrictions, building access restrictions and in-person meeting restrictions.

Aflac U.S. also continues to maintain several actions taken for its employees. These include a commitment to cover the costs of COVID-19 testing and extended paid leave in certain circumstances.

Aflac U.S. policy sales, enrollment and agent recruiting functions are highly dependent upon face-to-face interaction between independent agents and brokers with prospective and new customers and agents. Opportunities for such interaction continue to be significantly reduced by reactions to the pandemic, such as social distancing, shelter in place orders and work from home initiatives. Further, Aflac U.S. has also accelerated

investments in digital initiatives designed to improve long term productivity, efficiency and customer service. Aflac U.S. is in its third year of the build-out of the Consumer Markets business for the digital direct-to-consumer sale of insurance and sales made through that platform have continued to grow.

•Major government initiatives

Government authorities in Japan and the U.S. have implemented several initiatives in response to the COVID-19 pandemic, including actions designed to mitigate the adverse health effects of the virus and those designed to provide broad-based relief and economic support to all aspects of the economy.

In January 2021, in response to the spread of COVID-19, the Government of Japan issued a State of Emergency Declaration covering 11 prefectures, including Tokyo and Osaka. The declaration was lifted in stages in areas where improvements in infection rates and lower healthcare system utilization were observed, and it was lifted in all areas on March 21, 2021. On April 23, 2021, due to the continued spread of COVID-19, the Government of Japan issued a new State of Emergency Declaration covering four prefectures, including Tokyo and Osaka, from April 25, 2021 until May 11, 2021, depending on circumstances, this state of emergency may be extended. Additionally, certain local governments continue to request a reduction of the onsite workforce and restraint from non-urgent traveling.

The Financial Services Agency (FSA) has requested that financial service providers in Japan respond appropriately while continuing their essential operations. This request includes insurance companies, which have been asked to continue essential operations such as benefits and claims payment, including policyholder loans. Moreover, following the expansion of the impact of COVID-19, the FSA requested insurance companies to consider flexible interpretation and application of insurance policy provisions and measures required for products from the standpoint of protecting policyholders. In accordance with the FSA’s request, Aflac Life Insurance Japan Ltd. implemented a measure to pay accidental death benefits and accidental serious disability benefits under its accidental death benefit rider in cases of death or specified serious disabilities from COVID-19.

Throughout the pandemic, Aflac Japan has also followed the guidance of the FSA in terms of treating customers with care, ensuring ease and timeliness of claims payments and extended coverage for temporary medical facilities and telemedicine in certain circumstances, and waiver of interest on certain policyholder loans. In January 2021, the grace period on premium payments was extended to July 31, 2021 for the policyholders who live in areas under the state of emergency and in February 2021, the scope was expanded to all regions in Japan. Policyholders are required to file for relief through this extension.

During 2021, in response to fluctuations in COVID-19 infection rates and the declaration of a state of emergency by the Government of Japan, Aflac Japan has responded to requests of the Government of Japan and local governments while also giving priority to customer service quality and business continuity.

In the U.S., initial statewide shelter in place or stay at home orders were lifted although reopening plans have been paused or reversed in certain states experiencing an increase in cases, and shelter in place orders have been reinstated in some areas.

Throughout the pandemic, Aflac U.S. has taken steps to comply with COVID-19-related directives issued by state regulatory authorities, including those requiring or requesting premium grace periods. As of March 31, 2021, premium grace periods remained in effect in nine states, Puerto Rico and the District of Columbia. Aflac U.S. experienced some increase in policy lapses in the first quarter of 2021 in certain states where premium grace periods expired. If the premium grace periods continue to expire throughout 2021, Aflac U.S. would expect an increase in lapse rates, and a decrease in corresponding persistency rates.

The U.S. government took action in response to the COVID-19 pandemic by providing broad-based relief and economic support to all aspects of the economy.

The American Rescue Plan (ARP) Act of 2021 was signed into law in March 2021 and was designed to provide approximately $1.9 trillion in financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities. Among other measures, the ARP Act provides funding for vaccines and testing; for states, tribal and local governments; and for small businesses. The ARP Act also expands eligibility for the Paycheck Protection Program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March 2020.

Performance Highlights

Total revenues were $5.9 billion in the first quarter of 2021, compared with $5.2 billion in the first quarter of 2020. Net earnings were $1.3 billion, or $1.87 per diluted share in the first quarter of 2021, compared with $566 million, or $.78 per diluted share, in the first quarter of 2020, driven by higher net investment gains.

Results in the first quarter of 2021 included pretax net investment gains of $307 million, compared with net investment losses of $463 million in the first quarter of 2020. Net investment gains in the first quarter of 2021 included a decrease in credit loss allowances of $22 million; $364 million of net gains from certain derivative and foreign currency gains or losses; $68 million of net losses on equity securities; and $11 million of net losses from sales and redemptions.

The average yen/dollar exchange rate(1) for the three-month period ended March 31, 2021 was 105.88, or 2.8% stronger than the average yen/dollar exchange rate of 108.84 for the same period in 2020.

Adjusted earnings(2) in the first quarter of 2021 were $1.1 billion, or $1.53 per diluted share, compared with $882 million, or $1.21 per diluted share, in the first quarter of 2020. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $.02.

Total investments and cash at March 31, 2021 were $143.3 billion, compared with $137.0 billion at March 31, 2020. In the first quarter of 2021, Aflac Incorporated repurchased $650 million, or 13.4 million of its common shares. At March 31, 2021, the Company had 85.7 million remaining shares authorized for repurchase.

Shareholders’ equity was $32.1 billion, or $47.16 per share, at March 31, 2021, compared with $26.4 billion, or $36.75 per share, at March 31, 2020. Shareholders’ equity at March 31, 2021 included a net unrealized gain on investment securities and derivatives of $8.8 billion, compared with a net unrealized gain of $6.0 billion at March 31, 2020. Shareholders’ equity at March 31, 2021 also included an unrealized foreign currency translation loss of $1.7 billion, compared with an unrealized foreign currency translation loss of $1.5 billion at March 31, 2020. The annualized return on average shareholders’ equity in the first quarter of 2021 was 15.8%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI)(2) (adjusted book value) was $25.3 billion, or $37.16 per share at March 31, 2021, compared with $22.2 billion, or $30.92 per share, at March 31, 2020. The annualized adjusted return on equity excluding foreign currency impact(2) in the first quarter of 2021 was 16.7%.

(1) Yen/U.S. dollar exchange rates are based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

(2) See the Results of Operations section of this MD&A for a definition of this non-U.S. GAAP financial measure.

RESULTS OF OPERATIONS

The Company earns its revenues principally from insurance premiums and investments. The Company’s operating expenses primarily consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, commissions and other costs of selling and servicing its products. Profitability for the Company depends principally on its ability to price its insurance products at a level that enables the Company to earn a margin over the costs associated with providing benefits and administering those products. Profitability also depends on, among other items, actuarial and policyholder behavior experience on insurance products, and the Company's ability to attract and retain customer assets, generate and maintain favorable investment results, effectively deploy capital and utilize tax capacity, and manage expenses.

This document includes references to the Company's financial performance measures which are not calculated in accordance with U.S. generally accepted accounting principles (GAAP) (non-U.S. GAAP). The financial 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.

Due to the size of Aflac Japan,where the 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. A significant portion of the Company's business is conducted in yen and never converted into dollars but translated into dollars for U.S. GAAP reporting purposes. 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. The average yen/dollar exchange rate is based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

The Company defines the non-U.S. GAAP financial measures included in this document as follows:

•Adjusted earnings are adjusted revenues less benefits and adjusted expenses. Adjusted earnings per share (basic or diluted) are adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. 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 adjusted net investment gains and losses. 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 the Company's underlying business performance. Management uses adjusted earnings and adjusted earnings per diluted share to evaluate the financial performance of its insurance operations on a consolidated basis and believes that a presentation of these financial measures is vitally important to an understanding of its underlying profitability drivers and trends of the Company's insurance business. The most comparable U.S. GAAP financial measure is net earnings and net earnings per share, respectively.

•Adjusted net investment gains and losses are net investment gains and losses adjusted for i) amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity, ii) net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies, which are both reclassified to net investment income, and iii) the impact of interest cash flows from derivatives associated with notes payable, which is reclassified to interest expense as a component of total adjusted expenses. The Company considers adjusted net investment gains and losses important as it represents the remainder amount that is considered outside management’s control, while excluding the components that are within management’s control and are accordingly reclassified to net investment income and interest expense. The most comparable U.S. GAAP financial measure is net investment gains and losses.

•Amortized hedge costs/income represent costs/income incurred or recognized as a result of using foreign currency-derivatives to hedge certain foreign exchange risks in the Company's Japan segment or in the Corporate and Other segment. These amortized hedge costs/income are estimated at the inception of the derivatives based on the specific terms of each contract and are recognized on a straight line basis over the term of the hedge. The Company believes that amortized hedge costs/income measure the periodic currency risk management costs/income related to hedging certain foreign currency exchange risks and are an important component of net investment income. There is no comparable U.S. GAAP financial measure for amortized hedge costs/income

•Adjusted earnings excluding current period foreign currency impact are computed using the average foreign currency exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by foreign currency exchange rate changes. Adjusted earnings per diluted share excluding current period foreign currency impact are adjusted earnings excluding current period foreign currency impact divided by the weighted average outstanding diluted shares for the period presented. The Company considers adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact important because a significant portion of the Company's business is conducted in Japan and foreign exchange rates are outside of management’s control; therefore, the Company believes it is important to understand the impact of translating foreign currency (primarily Japanese yen) into U.S. dollars. The most comparable U.S. GAAP financial measures for adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact are net earnings and net earnings per share, respectively.

•Adjusted book value is the U.S. GAAP book value (representing total shareholders' equity), less AOCI as recorded on the U.S. GAAP balance sheet. The Company considers adjusted book value important as it excludes AOCI, which fluctuates due to market movements that are outside management's control. The most comparable U.S. GAAP financial measure is total book value.

•Adjusted return on equity (ROE) excluding foreign currency impact is calculated using adjusted earnings excluding current period foreign currency impact divided by average shareholders’ equity, excluding AOCI. The Company considers adjusted return on equity excluding foreign currency impact important as it excludes changes in foreign currency and components of AOCI, which fluctuate due to market movements that are outside

management's control. The most comparable U.S. GAAP financial measure is return on average equity as determined using net earnings and average total shareholders’ equity.

•U.S. dollar-denominated investment income excluding foreign currency impact is determined using the average foreign currency exchange rate for the comparable prior year period. The Company considers U.S. dollar-denominated investment income excluding foreign currency impact important as it eliminates the impact of foreign currency changes on the Aflac Japan segment results, which are outside management's control. The most comparable U.S. GAAP financial measure for U.S. dollar-denominated investment income excluding foreign currency impact is the corresponding net investment income amount from the U.S. dollar denominated investments translated to yen.

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 financial measures of net earnings and net earnings per diluted share, respectively.

Reconciliation of Net Earnings to Adjusted Earnings(1)


		In Millions	Per Diluted Share
	Three Months Ended March 31,
			2021		2020		2021		2020
Net earnings			$	1,293	$	566	$	1.87	$	.78
Items impacting net earnings:
Adjusted net investment (gains) losses (2)			(304)		448		(.44)		.62
Other and non-recurring (income) loss			6		15		.01		.02
Income tax (benefit) expense on items excluded from adjusted earnings			62		(146)		.09		(.20)

Adjusted earnings			1,058		882		1.53		1.21
Current period foreign currency impact (3)			(13)		N/A		(.02)		N/A
Adjusted earnings excluding current period foreign currency impact			$	1,045	$	882	$	1.51	$	1.21

(1) Amounts may not foot due to rounding.

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

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

Reconciling Items

Net Investment Gains and Losses

Reconciliation of Net Investment (Gains) Losses to Adjusted Net Investment (Gains) Losses(1)


	Three Months Ended March 31,
(In millions)		2021		2020
Net investment (gains) losses		$	(307)	$	463
Items impacting net investment (gains) losses:
Amortized hedge costs		(19)		(55)
Amortized hedge income		17		29
Net interest cash flows from derivatives associated with certain investment strategies		(8)		(6)
Interest rate component of the change in fair value of foreign currency swaps on notes payable		14		16
Adjusted net investment (gains) losses		$	(304)	$	448

(1) Amounts may not foot due to rounding.

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

realization of investment gains and losses is independent of the underwriting and administration of the Company's insurance products. Net investment gains and losses excluded from adjusted earnings include the following:

•Securities Transactions

•Credit Losses

•Changes in the Fair Value of Equity Securities

•Certain Derivative and Foreign Currency Activities.

Securities Transactions, Credit Losses and Changes in the Fair Value of 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. Credit losses include losses for held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities, loan receivables, loan commitments and reinsurance recoverables. Changes in the fair value of equity securities are the result of gains or losses driven by fluctuations in market prices.

Certain Derivative and Foreign Currency Activities

The Company's derivative activities include:

•foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio

•foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen

•cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures

•foreign currency swaps that are associated with VIE bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary

•interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments

•interest rate swaptions used to hedge changes in the fair value associated with interest rate fluctuations for certain U.S. dollar-denominated available-for-sale fixed-maturity securities

•bond purchase commitments at the inception of investments in consolidated VIEs

Gains and losses are recognized as a result of valuing these derivatives, net of the effects of hedge accounting. The Company also excludes from adjusted earnings the accounting impacts of remeasurement associated with changes in the foreign currency exchange rate.

For additional information regarding net 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 U.S. 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. The Company excludes any charges associated with U.S. guaranty fund assessments and the corresponding tax benefit or expense from adjusted earnings.

In Japan, the government also requires the insurance industry to contribute to a policyholder protection corporation that provides funds for the policyholders of insolvent insurers; however, these costs are calculated and administered differently than in the U.S. In Japan, these costs are not directly related to specific insolvencies or bankruptcies, but are rather a regular operational cost for an insurance company. Based on this structure, the Company does not remove the Japan policyholder protection expenses from adjusted earnings.

Other items excluded from adjusted earnings included integration costs related to the Company's acquisition of Zurich North America's U.S. Corporate Life and Pensions business; these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services. These integration costs amounted to $6 million for the three-month period ended March 31, 2021.

Income Taxes

The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 19.4% for the three-month period ended March 31, 2021, compared with 21.4% for the same period in 2020. The combined effective tax rate differs from the U.S. statutory rate primarily due to foreign earnings taxed at different rates. For additional information, see Critical Accounting Estimates - Income Taxes section of the MD&A in the 2020 Annual Report.

The Company expects that its effective tax rate for future periods will be approximately 20%. The effective tax rate continues to be subject to future tax law changes both in the U.S. and in foreign jurisdictions. See risk factor entitled "Tax rates applicable to the Company may change" in the 2020 Annual Report for more information.

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. Yen-denominated income statement accounts are translated to U.S. dollars using a weighted average Japanese yen/U.S. dollar foreign exchange rate, except realized gains and losses on security transactions which are translated at the exchange rate on the trade date of each transaction. Yen-denominated balance sheet accounts are translated to U.S. dollars using a spot Japanese yen/U.S. dollar foreign exchange rate.

RESULTS OF OPERATIONS BY SEGMENT

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's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to consolidated earnings. Businesses that are not individually reportable, such as the Parent Company, asset management subsidiaries and other business activities, including reinsurance retrocession activities, are included in the Corporate and other segment. See the Item 1. Business section of the 2020 Annual Report for a summary of each segment's products and distribution channels.

Consistent with U.S. GAAP guidance for segment reporting, pretax adjusted earnings is the Company's U.S. GAAP measure of segment performance. The Company believes that a presentation of this measure is vitally important to an understanding of the underlying profitability drivers and trends of its business. Additional performance measures used to evaluate the financial condition and performance of the Company's segments are listed below.

•Operating Ratios

•New Annualized Premium Sales

•New Money Yield

•Return on Average Invested Assets

•Average Weekly Producer

For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part II. Other Information. See Note 2 of the Notes to the Consolidated Financial Statements for the reconciliation of segment results to the Company's consolidated U.S. GAAP results and additional information.

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 March 31,
(In millions)		2021		2020
Net premium income		$	3,123	$	3,150
Net investment income: (1)
Yen-denominated investment income		328		322
U.S. dollar-denominated investment income		397		375
Net investment income		724		697
Amortized hedge costs related to certain foreign currency exposure management strategies		19		55
Adjusted net investment income		705		642
Other income (loss)		13		11
Total adjusted revenues		3,841		3,803
Benefits and claims, net		2,135		2,186
Adjusted expenses:
Amortization of deferred policy acquisition costs		172		173
Insurance commissions		187		185
Insurance and other expenses		460		404
Total adjusted expenses		818		762
Total benefits and adjusted expenses		2,954		2,948
Pretax adjusted earnings		$	887	$	855
Weighted-average yen/dollar exchange rate		105.88		108.84


		In Dollars						In Yen
Percentage change over previous period:	Three Months Ended March 31,						Three Months Ended March 31,
			2021		2020				2021		2020
Net premium income			(.9)	%	(.9)	%			(3.6)	%	(2.1)	%
Adjusted net investment income			9.8		5.2				6.9		4.0
Total adjusted revenues			1.0		.0				(1.8)		(1.1)
Pretax adjusted earnings			3.7		2.5				.9		1.2

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(8) and $(6) for the three-month periods ended March 31, 2021 and 2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three-month period ended March 31, 2021, Aflac Japan's net premium income decreased, in yen terms, due to an anticipated decrease in first sector premiums as savings products reached premium paid-up status and constrained sales as a result of the COVID-19 pandemic. Adjusted net investment income increased in the three-month period ended March 31, 2021, primarily due to lower hedge costs and higher income from U.S. dollar-denominated assets.

Annualized premiums in force decreased 4.4% to ¥1.41 trillion as of March 31, 2021, compared with ¥1.47 trillion as of March 31, 2020. The decrease in annualized premiums in force in yen was driven primarily by limited-pay products reaching paid up status. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $12.7 billion at March 31, 2021, compared with $13.5 billion at March 31, 2020.

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 adjusted 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 foreign currency exchange rates remained unchanged from the comparable period in the prior year. Amounts excluding foreign currency impact on U.S. dollar-denominated investment income were determined using the average foreign currency exchange rate for the comparable prior year period. See non-U.S. GAAP financial measures defined above.

Aflac Japan Percentage Changes Over Previous Period

(Yen Operating Results)

For the Periods Ended March 31,


		Including Foreign Currency Changes						Excluding Foreign Currency Changes
	Three Months Ended March 31,						Three Months Ended March 31,
			2021		2020				2021	2020
Adjusted net investment income			6.9	%	4.0	%			8.5	4.8	%
Total adjusted revenues			(1.8)		(1.1)				(1.5)	(1.0)
Pretax adjusted earnings			.9		1.2				2.1	1.7

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


	Three Months Ended March 31,
Ratios to total adjusted revenues:		2021		2020
Benefits and claims, net		55.6	%	57.5	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		4.5		4.6
Insurance commissions		4.9		4.9
Insurance and other expenses		12.0		10.6
Total adjusted expenses		21.3		20.0
Pretax adjusted earnings		23.1		22.5
Ratios to total premiums:
Benefits and claims, net		68.4	%	69.4	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		5.5		5.5

In the three-month period ended March 31, 2021, the benefit ratio decreased, compared with the same period in the prior year. This is primarily due to the continued change in mix of first and third sector business, favorable third sector claim experience, and higher surrenders in Aflac Japan's medical product. In the three-month period ended March 31, 2021, the adjusted expense ratio increased due to the decrease in total revenues and an increase in expenses, mainly due to increased outsourcing expenses related to system operation, partially offset by decreased DAC amortization caused by lower sales in 2020. In total, the pretax adjusted profit margin increased in the three-month period ended March 31, 2021. For the full year of 2021, the Company will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

Aflac Japan Sales

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


		In Dollars								In Yen
	Three Months								Three Months
(In millions of dollars and billions of yen)			2021			2020				2021			2020
New annualized premium sales			$	132		$	129			¥	14.0		¥	14.0
Increase (decrease) over prior period			2.6		%	(24.5)		%		(.2)		%	(25.4)		%

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


	Three Months
		2021		2020
Cancer		45.4	%	55.5	%
Medical		43.3		32.4
Income support		.6		1.2
Ordinary life:
WAYS		.7		.6
Child endowment		.3		.3
Other ordinary life (1)		8.9		9.3
Other		.8		.7
Total		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. Aflac Japan has been focusing more on promotion of cancer and medical insurance products in this low-interest-rate environment. These products are less interest-rate sensitive and more profitable compared to first sector savings products. With continued cost pressure on Japan’s health care system, the Company expects the need for third sector products will continue to rise in the future and that the medical and cancer insurance products Aflac Japan provides will continue to be an important part of its product portfolio.

Sales of protection-type first sector and third sector products on a yen basis decreased .3% in the first quarter of 2021, compared with the same period in 2020, due to the ongoing effects of the COVID-19 pandemic, partially offset by the launch of a new medical product in January 2021.

Sales of Aflac Japan cancer products in the Japan Post Group channel experienced a material decline beginning in August 2019 which has continued into the first quarter of 2021. On March 24, 2021, Japan Post Group announced that it planned to begin resuming proactive sales of financial products on April 1, 2021, which the Company believes will lead to gradual improvement of cancer insurance sales in the second half of the year. For additional information, see the risk factor entitled "Events related to the ongoing Japan Post investigation and other matters regarding sales of Japan Post Insurance products could negatively impact the Company’s sales and results of operations," in Item 1A. Risk Factors in the 2020 Annual Report. Beginning in the second quarter of 2020 and continuing into 2021, Aflac Japan experienced a sharp drop-off in total sales, as compared to pre-pandemic levels, due to the ongoing effects of the COVID-19 pandemic.

In response to the COVID-19 pandemic, Aflac Japan continues to promote digital and web-based sales to groups and use of its system that enables smart device-based insurance application by allowing the customer and an Aflac Japan operator to see the same screen through their smart devices. Further, Aflac Japan continues to utilize its virtual sales tool that enables online consultations and policy applications to be completed entirely online.

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


	2021		2020
Independent corporate and individual	54.3	%	52.8	%
Affiliated corporate (1)	40.6		42.7
Bank	5.1		4.5
Total	100.0	%	100.0	%

(1) Includes Japan Post

During the three-month period ended March 31, 2021, Aflac Japan recruited 13 new sales agencies. At March 31, 2021, Aflac Japan was represented by more than 8,400 sales agencies, with more than 112,000 licensed sales associates employed by those agencies. The number of sales agencies has declined in recent years due to Aflac Japan's focus on supporting agencies with strong management frameworks, high productivity and more producing agents.

At March 31, 2021, Aflac Japan had agreements to sell its products at 360 banks, approximately 90% of the total number of banks in Japan.

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, public and private fixed maturity securities and public equity securities. Aflac Japan's U.S. dollar-denominated investments include fixed maturity investments and growth assets, including 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 March 31,
(In millions)		2021		2020
Yen-denominated:
Fixed maturity securities:
Japan government and agencies		$	1,181	$	736
Private placements		196		90
Other fixed maturity securities		107		77
Equity securities		117		3
Other investments		2		0
Total yen-denominated		$	1,603	$	906

U.S. dollar-denominated:
Fixed maturity securities:
Other fixed maturity securities		$	606	$	527
Infrastructure debt		0		35

Collateralized loan obligations		117		0

Commercial mortgage and other loans:
Transitional real estate loans		61		368
Commercial mortgage loans		0		12
Middle market loans		783		1,187
Other investments		56		50
Total dollar-denominated		$	1,623	$	2,179
Total Aflac Japan purchases		$	3,226	$	3,085

See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2020 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 March 31.


	Three Months
		2021			2020
Total purchases for the period (in millions) (1)		$	3,168		$	3,035
New money yield (1), (2)		2.72		%	4.06		%
Return on average invested assets (3)		2.47			2.35
Portfolio book yield, including U.S. dollar-denominated investments, end of period (1)		2.58		%	2.64		%

(1) Includes fixed maturity securities, commercial mortgage and other loans, 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 decrease in the Aflac Japan new money yield in the three-month period ended March 31, 2021 was primarily due to higher allocations to lower yielding yen-denominated asset classes.

See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Investments 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 March 31,
(In millions)		2021			2020
Net premium income		$	1,422		$	1,483
Adjusted net investment income		176			177
Other income		30			27
Total adjusted revenues		1,628			1,687
Benefits and claims		556			713
Adjusted expenses:
Amortization of deferred policy acquisition costs		139			160
Insurance commissions		139			151
Insurance and other expenses		347			337
Total adjusted expenses		626			648
Total benefits and adjusted expenses		1,182			1,361
Pretax adjusted earnings		$	445		$	326
Percentage change over previous period:
Net premium income		(4.1)		%	1.5		%
Adjusted net investment income		(.6)			.0
Total adjusted revenues		(3.5)			2.9
Pretax adjusted earnings		36.5			.9

In the three-month period ended March 31, 2021, net premium income for Aflac U.S. decreased primarily due to constrained sales as a result of the COVID-19 pandemic. Total revenues decreased in the three month-period ended March 31, 2021, mainly due to the decline in net premium income from reduced sales activity. Pretax adjusted earnings increased in the three-month period ended March 31, 2021, driven primarily by lower-than-expected benefit ratios due to lower incurred claims related to pandemic conditions.

Annualized premiums in force decreased 3.2% to $6.0 billion at March 31, 2021, compared with $6.2 billion at March 31, 2020.

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


	Three Months Ended March 31,
Ratios to total adjusted revenues:		2021		2020
Benefits and claims		34.2	%	42.3	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		8.5		9.5
Insurance commissions		8.5		9.0
Insurance and other expenses		21.3		20.0
Total adjusted expenses		38.5		38.4
Pretax adjusted earnings		27.3		19.3
Ratios to total premiums:
Benefits and claims		39.1	%	48.1	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		9.8		10.8

For the three-month period ended March 31, 2021, the benefit ratio decreased compared with the same period in 2020, reflecting reduced estimates of both COVID-19-related and non-COVID-19-related incurred claims since the advent of the pandemic. The adjusted expense ratio increased slightly in the three-month period ended March 31, 2021, when compared with the same period in 2020, primarily due to the decline in total revenues, partially offset by lower acquisition costs and lower DAC amortization, due to the decline in sales and impacted by higher persistency. The pretax adjusted profit margin increased in the three-month period, when compared with the same period in 2020, due to lower benefit

ratios. For the full year of 2021, the Company will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

Aflac U.S. Sales

The following table presents Aflac's U.S. new annualized premium sales for the periods ended March 31.


	Three Months
(In millions)		2021			2020
New annualized premium sales		$	251		$	323
Increase (decrease) over prior period		(22.1)		%	(5.2)		%

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


	Three Months
		2021		2020
Accident		26.3	%	27.3	%
Disability		23.1		22.6
Critical care(1)		22.6		21.1
Hospital indemnity		16.7		16.9
Dental/vision		4.6		4.4
Life		6.7		7.7
Total		100.0	%	100.0	%

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

New annualized premium sales for accident insurance, the leading Aflac U.S. product category, decreased 24.7%; disability sales decreased 20.5%; critical care insurance sales (including cancer insurance) decreased 16.7%; and hospital indemnity insurance sales decreased 23.0% in the first quarter of 2021, compared with the same period in 2020. The decline in sales for Aflac U.S. in the first quarter of 2021 is primarily attributable to the ongoing effects of the COVID-19 pandemic, which limited face-to-face sales opportunities beginning in mid-March 2020. See the Executive Summary section entitled COVID-19 of this MD&A for additional information.

In the first quarter of 2021, the Aflac U.S. sales force included an average of approximately 5,600 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, as well as serve as a leading indicator of future production capacity.

In response to the COVID-19 pandemic, Aflac U.S. remains focused on supporting its agency channel, most of which are small businesses, by offering financial support and an extended value proposition. The Aflac U.S. sales team has pivoted to accommodate preferred enrollment conditions which include realizing sales at the worksite through in-person enrollment, an enrollment call center, video enrollment through co-browsing and self-enrollment. The traditional agent sales team is also using virtual recruiting and training through video conferencing in order to maintain or increase the recruiting pipeline. The Aflac U.S. broker sales team is focused on product enhancements due to COVID-19 as well as leveraging technology based solutions to drive enrollment.

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 March 31,
(In millions)		2021		2020
Fixed maturity securities:
Other fixed maturity securities		$	246	$	182
Infrastructure debt		0		16
Collateralized loan obligations		11		0
Equity securities		0		4
Commercial mortgage and other loans:
Transitional real estate loans		24		38
Commercial mortgage loans		34		27
Middle market loans		58		38
Other investments		6		6
Total Aflac U.S. Purchases		$	379	$	311

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 2020 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 March 31.


	Three Months
		2021			2020
Total purchases for period (in millions) (1)		$	373		$	305
New money yield (1), (2)		3.22		%	3.73		%
Return on average invested assets (3)		4.69			5.01
Portfolio book yield, end of period (1)		5.12		%	5.34		%

(1) Includes fixed maturity securities, commercial mortgage and other loans, 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-month period ended March 31, 2021 was primarily due to lower yields in the investment grade portfolio. 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

Changes in the pretax adjusted earnings of Corporate and other are primarily affected by investment income. The following table presents a summary of results for Corporate and other.

Corporate and Other Summary of Operating Results


	Three Months Ended March 31,
(In millions)		2021		2020
Premium income		$	48	$	49
Net investment income		16		24
Amortized hedge income related to certain foreign currency management strategies		17		29
Adjusted net investment income		33		53
Other income		2		2
Total adjusted revenues		83		104
Benefits and claims, net		43		40
Adjusted expenses:
Interest expense		44		33
Other adjusted expenses		22		29
Total adjusted expenses		66		62
Total benefits and adjusted expenses		109		102
Pretax adjusted earnings		$	(26)	$	2

In the three-month period ended March 31, 2021, the decrease in total adjusted revenues was primarily driven by the decline in net investment income due to lower hedge income and short-term interest rates. The decrease in pretax adjusted earnings in the three-month period ended March 31, 2021, was primarily driven by higher interest expense associated with debt issuances and lower adjusted net investment income. Beginning in 2020, net investment income also includes the Company's portion of earnings from its strategic equity investment in an asset management company.

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

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

Financial Statements.

The following tables detail investments by segment.

Investment Securities by Segment


	March 31, 2021
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	84,319	$	14,446	$	1,979	$	100,744
Held to maturity, fixed maturity securities, at amortized cost (1)	22,868		0		0		22,868
Equity securities	702		66		406		1,174
Commercial mortgage and other loans:
Transitional real estate loans (1)	4,080		880		0		4,960
Commercial mortgage loans (1)	1,256		455		5		1,716
Middle market loans (1)	3,874		297		0		4,171
Other investments:
Policy loans	224		18		0		242
Short-term investments (2)	457		234		604		1,295
Limited partnerships	905		100		105		1,110
Other	0		19		0		19
Total investments	118,685		16,515		3,099		138,299
Cash and cash equivalents	1,706		904		2,380		4,990
Total investments and cash	$	120,391	$	17,419	$	5,479	$	143,289

(1) Net of allowance for credit losses

(2) Includes securities lending collateral


	December 31, 2020
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	88,757	$	15,133	$	1,992	$	105,882
Held to maturity, fixed maturity securities, at amortized cost (1)	24,464		0		0		24,464
Equity securities	674		66		543		1,283
Commercial mortgage and other loans:
Transitional real estate loans (1)	4,331		900		0		5,231
Commercial mortgage loans (1)	1,268		420		0		1,688
Middle market loans (1)	3,365		270		0		3,635
Other investments:
Policy loans	242		18		0		260
Short-term investments (2)	449		242		448		1,139
Limited partnerships	828		91		85		1,004
Other	0		26		0		26
Total investments	124,378		17,166		3,068		144,612
Cash and cash equivalents	2,001		785		2,355		5,141
Total investments and cash	$	126,379	$	17,951	$	5,423	$	149,753

(1) Net of allowance for credit losses

(2) Includes securities lending collateral

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

Composition of Fixed Maturity Securities by Credit Rating


		March 31, 2021						December 31, 2020
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.0	%		1.0	%		1.0	%		.9	%
AA		4.7	%		4.8	%		4.5			4.6
A		68.9	%		68.9	%		69.3			69.5
BBB		22.2	%		22.1	%		21.9			21.9
BB or lower		3.2	%		3.2	%		3.3			3.1
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of March 31, 2021, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of March 31, 2021.


(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
Transocean Inc.		CCC		$	49		$	23		$	(26)
Grenke Finance PLC		BBB		63			45			(18)
KLM Royal Dutch Airlines		B		145			129			(16)
Intesa Sanpaolo Spa		BBB		141			132			(9)
National Football League		A		145			136			(9)
Alphabet Inc.		AA		175			167			(8)
Kommunal Landspensjonskasse (KLP)		BBB		136			128			(8)
Lloyds Banking Group PLC		A		207			200			(7)
Nippon Prologis REIT Inc.		A		90			84			(6)
National Oilwell Varco Inc.		BBB		56			50			(6)

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. The Company believes these issuers have the ability to continue making timely payments of principal and interest. 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


	March 31, 2021
(In millions)	Par Value		Amortized Cost (1)		Fair Value		Unrealized Gain (Loss)
Investcorp Capital Limited	$	384	$	384	$	396	$	12
Commerzbank	361		247		404		157
Pemex Project Funding Master Trust	271		271		274		3
Autostrade Per Litalia Spa	181		179		202		23
KLM Royal Dutch Airlines	181		145		129		(16)
Telecom Italia SpA	181		181		238		57
Barclays Bank PLC	181		120		202		82
Apache Corporation	138		124		152		28
Ovintiv Inc.	134		132		163		31
IKB Deutsche Industriebank AG	117		53		106		53
Other Issuers	926		781		912		131
Subtotal (2)	3,055		2,617		3,178		561
Senior secured bank loans	200		205		194		(11)
High yield corporate bonds	762		746		788		42
Middle market loans	4,295		4,171		4,186		15
Grand Total	$	8,312	$	7,739	$	8,346	$	607

(1) Net of allowance for credit losses

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

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 in this program must have a minimum rating at purchase of low BB using the Company's above described rating methodology and are managed by the Company's internal credit portfolio management team.

Fixed Maturity Securities by Sector

The Company maintains diversification in investments by sector to avoid concentrations to any one sector, thus managing exposure risk. The following table shows the distribution of fixed maturities by sector classification.


	March 31, 2021
(In millions)	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		% of Total
Government and agencies	$	54,162	$	8,548	$	(80)	$	62,630	48.8	%
Municipalities	2,778		593		(10)		3,361		2.5
Mortgage- and asset-backed securities	1,134		52		(2)		1,184		1.0
Public utilities	8,527		1,743		(14)		10,256		7.7
Electric	6,916		1,431		(10)		8,337		6.2
Natural Gas	297		53		0		350		.3
Other	583		117		(2)		697		.5
Utility/Energy	731		142		(2)		872		.7
Sovereign and Supranational	1,662		286		(3)		1,945		1.5
Banks/financial institutions	10,179		1,505		(109)		11,575		9.1
Banking	6,034		1,015		(38)		7,010		5.4
Insurance	1,912		344		(32)		2,224		1.7
Other	2,233		146		(39)		2,341		2.0
Other corporate	32,864		5,176		(191)		37,849		29.4
Basic Industry	3,182		627		(17)		3,792		2.9
Capital Goods	3,320		438		(14)		3,744		2.9
Communications	3,975		801		(17)		4,761		3.6
Consumer Cyclical	2,786		469		(7)		3,248		2.5
Consumer Non-Cyclical	7,018		984		(39)		7,964		6.3
Energy	3,833		625		(14)		4,443		3.4
Other	1,496		204		(9)		1,691		1.3
Technology	3,637		280		(41)		3,875		3.3
Transportation	3,617		748		(33)		4,331		3.2
Total fixed maturity securities	$	111,306	$	17,903	$	(409)	$	128,800	100.0	%

(1) Net of allowance for credit losses

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


		March 31, 2021						December 31, 2020
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Publicly issued securities:
Fixed maturity securities		$	91,910		$	105,538		$	95,545		$	111,479
Equity securities		775			775			740			740
Total publicly issued		92,685			106,313			96,285			112,219
Privately issued securities: (2)
Fixed maturity securities (3)		19,397			23,262			20,511			24,802
Equity securities		399			399			543			543
Total privately issued		19,796			23,661			21,054			25,345
Total investment securities		$	112,481		$	129,974		$	117,339		$	137,564

(1) Net of allowance for credit losses

(2) Primarily consists of securities owned by Aflac Japan

(3) Excludes Rule 144A securities

The following table details the Company's reverse-dual currency securities.

Reverse-Dual Currency Securities(1)


(Amortized cost, in millions)	March 31, 2021				December 31, 2020
Privately issued reverse-dual currency securities		$	4,959			$	5,300
Publicly issued collateral structured as reverse-dual currency securities		1,659				1,775
Total reverse-dual currency securities		$	6,618			$	7,075
Reverse-dual currency securities as a percentage of total investment securities		5.9		%		6.0		%

(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

The Company uses derivative contracts to hedge foreign currency exchange rate risk and interest rate risk. The Company uses various strategies, including derivatives, to manage these risks. See item “7A. Quantitative and Qualitative Disclosures About Market Risk” in the 2020 Annual Report for more information about market risk and the Company’s use of derivatives.

Derivatives are designed to reduce risk on an economic basis while minimizing the impact on financial results. The Company’s derivatives programs vary depending on the type of risk being hedged. See Note 4 of the Notes to the Consolidated Financial Statements for:

•A description of the Company's derivatives, hedging strategies and underlying risk exposure.

•Information about the notional amount and fair market value of the Company's derivatives.

•The unrealized and realized gains and losses impact on adjusted earnings of derivatives in cash flow, fair value, net investments in foreign operations, or non-qualifying hedging relationships.

Foreign Currency Exchange Rate Risk Hedge Program

The Company has deployed the following hedging strategies to mitigate exposure to foreign currency exchange rate risk:

•Aflac Japan hedges U.S. dollar-denominated investments back to yen (see Aflac Japan’s U.S. Dollar-Denominated Hedge Program below).

•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 (see Aflac Japan’s U.S. Dollar-Denominated Hedge Program below).

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

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

Aflac Japan’s U.S. Dollar-Denominated Hedge Program

Aflac Japan buys U.S. dollar-denominated investments, typically corporate bonds, and hedges them back to yen with foreign currency forwards and options to hedge foreign currency exchange rate risk. This economically creates yen assets that match yen liabilities during the life of the derivative and provides capital relief. 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.


	March 31, 2021				December 31, 2020
(In millions)	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value
Available-for-sale securities:
Fixed maturity securities (excluding bank loans)	$	18,309	$	20,172	$	19,249	$	21,108
Fixed maturity securities - bank loans (floating rate)	267		254		319		283
Equity securities	15		15		20		20
Commercial mortgage and other loans:
Transitional real estate loans (floating rate)	4,080		4,046		4,331		4,298
Commercial mortgage loans	1,256		1,306		1,268		1,365
Middle market loans (floating rate)	3,874		3,895		3,365		3,377
Other investments	905		905		828		828
Total U.S. Dollar Program	28,706		30,593		29,380		31,279
Available-for-sale securities:
Fixed maturity securities - economically converted to yen	2,010		2,956		2,085		3,094
Total U.S. dollar-denominated investments in Aflac Japan	$	30,716	$	33,549	$	31,465	$	34,373

(1) Net of allowance for credit losses

U.S. Dollar Program includes all U.S. dollar-denominated investments in Aflac Japan other than the investments in certain consolidated VIEs where the instrument is economically converted to yen as a result of a derivative in the consolidated VIE. Aflac Japan maintains a collar program on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange and therefore support SMR. Depending on further developments, including the possibility of further market volatility, there may be additional costs associated with maintaining the collar program. The Company is continually evaluating other adjustments, including the possibility of changing the level of hedging employed with the U.S dollar-denominated investments.

As of March 31, 2021, Aflac Japan had $6.4 billion outstanding notional amounts of foreign currency forwards and $11.5 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging its U.S. dollar-denominated investments. The fair value of Aflac Japan's unhedged U.S. dollar-denominated portfolio was $10.4 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 inflows of $108 million and net cash outflows of $33 million for the three-month periods ended March 31, 2021 and 2020, respectively, associated with the currency derivatives used for hedging Aflac Japan’s U.S. dollar-denominated investments.

Enterprise Corporate Hedging Program

The Company has designated certain yen-denominated liabilities and foreign currency forwards and options of the Parent Company as accounting hedges of its net investment in Aflac Japan. The Company's consolidated yen-denominated net asset position was partially hedged at $9.6 billion as of March 31, 2021, compared with $9.9 billion as of December 31, 2020.

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-month periods ended March 31, 2021 and 2020, respectively. For additional information on the Company's net investment hedging strategy, see Note 4 of the Notes to the Consolidated Financial Statements.

In order to economically mitigate risks associated with the enterprise-wide exposure to the yen and the level and volatility of hedge costs, the Parent Company enters into foreign exchange forward and option contracts. By buying U.S. dollars and selling yen, the Parent Company is effectively lowering its overall economic exposure to the yen, while Aflac Japan's U.S dollar exposure remains reduced as a result of Aflac Japan's U.S. dollar-denominated hedge program that economically creates yen assets. Among other objectives, this strategy is intended to offset the enterprise-wide amortized hedge costs by generating amortized hedge income. The portion of the enterprise-wide amortized hedge income contributed by this strategy was $17 million and $29 million for the three-month periods ended March 31, 2021 and 2020, respectively. This activity is reported in Corporate and Other. As this program evolves, the Company will continue to evaluate the program’s efficacy. See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs/income.

The following table presents metrics related to Aflac Japan amortized hedge costs and the Parent Company amortized hedge income for the periods ended March 31.

Hedge Cost/Income Metrics(1)


	Three Months
	2021	2020
Aflac Japan:
FX Forwards
FX forward (sell USD, buy yen) notional at end of period (in billions)(2)	$6.4	$9.1
Weighted average remaining tenor (in months)(3)	9.7	11.0
Amortized hedge income (cost) for period (in millions)	$(17)	$(53)
FX Options
FX option notional at the end of period (in billions) (2)	$11.5	12.0
Weighted average remaining tenor (in months) (3)	4.6	1.6
Amortized hedge income (cost) for period (in millions)	$(3)	$(2)
Corporate and Other (Parent Company):
FX Forwards
FX forward (buy USD, sell yen) notional at end of period (in billions)(2)	$5.0	$5.0
Weighted average remaining tenor (in months)(3)	11.5	12.8
Amortized hedge income (cost) for period (in millions)	$18	$30
FX Options
FX option notional at the end of period (in billions) (2)	$1.9	$2.0
Weighted average remaining tenor (in months) (3)	7.6	8.4
Amortized hedge income (cost) for period (in millions)	$(1)	$(1)

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

(2) Notional is reported net of any offsetting positions within Aflac Japan or the Parent Company, respectively.

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

Amortized hedge costs/income 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. Amortized hedge costs and income have fluctuated in recent periods due to changes in the previously mentioned factors.

Interest Rate Risk Hedge Program

Aflac Japan and Aflac U.S. use interest rate swaps from time to time to mitigate the risk of investment income volatility for certain variable-rate investments. Additionally, to manage interest rate risk associated with its U.S. dollar-denominated investments held by Aflac Japan, from time to time the Company utilizes interest rate swaptions.

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 Item 1A, specifically to the Risk Factor 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 2020 Annual Report.

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)	March 31, 2021			December 31, 2020			% Change
Aflac Japan		$	6,514		$	6,991		(6.8)	%	(1)
Aflac U.S.		3,320			3,450			(3.8)
Total		$	9,835		$	10,441		(5.8)	%

(1)Aflac Japan’s deferred policy acquisition costs decreased .3% in yen during the three months ended March 31, 2021.

See Note 6 of the Notes to the Consolidated Financial Statements in the 2020 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)	March 31, 2021			December 31, 2020			% Change
Aflac Japan		$	96,599		$	103,128		(6.3)	%	(1)
Aflac U.S.		11,808			11,810			.0
Other		265			274			(3.3)
Intercompany eliminations(2)		(767)			(821)			(6.6)
Total		$	107,905		$	114,391		(5.7)	%

(1) Aflac Japan’s policy liabilities increased .2% in yen during the three months ended March 31, 2021.

(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.

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 11 of the accompanying Notes to the Consolidated Financial Statements and Note 14 of the Notes to the Consolidated Financial Statements in the 2020 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. In November 2016, Japan's Diet passed legislation that extended 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 to ¥33 billion. Aflac Japan recognized an expense of ¥.9 billion and ¥1.0 billion for the three-month periods ended March 31, 2021 and 2020, respectively, for LIPPC assessments.

Guaranty Fund Assessments

Under U.S. 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. Guaranty fund assessments for the three-month periods ended March 31, 2021 and 2020, were immaterial.

OFF-BALANCE SHEET ARRANGEMENTS

See Note 3 of the Notes to the Consolidated Financial Statements for details on certain investment commitments.

As of March 31, 2021, 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 2020 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity refers to the ability to generate sufficient cash resources to meet the payment obligations of the Company. Capital refers to the long-term financial resources available to support the operations of the businesses, fund business growth and provide for an ability to withstand adverse circumstances. Financial leverage (leverage) refers to an investment strategy of using debt to increase the potential return on equity. The Company targets and actively manages liquidity, capital and leverage in the context of a number of considerations, including:

•business investment and growth needs

•strategic growth objectives

•financial flexibility and obligations

•capital support for hedging activity

•a constantly evolving business and economic environment

•a balanced approach to capital allocation and shareholder deployment.

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

The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure. The target minimum amount for the Parent Company’s cash and cash equivalents is approximately $2.0 billion to provide a capital buffer and liquidity support at the holding company. This amount excludes $400 million of proceeds from the issuance of senior sustainability notes discussed below, which proceeds contribute to the capital buffer but are not intended to support holding company liquidity. Amid the COVID-19 pandemic, the Company remains committed to prudent liquidity and capital management. At March 31, 2021, the Company held $5.0 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion. For additional information on the Company’s liquidity and capital resources in response to COVID-19, see the Executive Summary section of this MD&A.

Aflac Japan and Aflac U.S. provide the primary sources of liquidity to the Parent Company through management fees and dividends, with Aflac Japan being the largest contributor. 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 following table presents the amounts provided to the Parent Company for the three-month periods ended March 31.

Liquidity Provided by Subsidiaries to Parent Company


(In millions)	2021		2020
Dividends declared or paid by subsidiaries	$	427	$	501
Management fees paid by subsidiaries	32		35

The following table details Aflac Japan remittances for the three-month periods ended March 31.

Aflac Japan Remittances


(In millions of dollars and billions of yen)	2021		2020
Aflac Japan management fees paid to Parent Company	$	15	$	22

Aflac Japan dividends declared or paid to Parent Company (in dollars)	377		351
Aflac Japan dividends declared or paid to Parent Company (in yen)	¥	41.0	¥	38.9

The Company intends to maintain higher than historical levels of liquidity and capital at the Parent Company for stress conditions and with the goals of addressing the Company’s hedge costs and related potential need for collateral and mitigating against long-term weakening of the Japanese yen. Further, the Company plans to continue to maintain a

portfolio of unhedged U.S. dollar based investments at Aflac Japan and to consider whether the amount of such investments should be increased or decreased relative to the Company’s view of economic equity surplus in Aflac Japan in light of potentially rising hedge costs and other factors. See the Hedging Activity subsection of this MD&A for more information.

In addition to cash and equivalents, the Company also maintains credit facilities, both intercompany and with external partners, and a number of other available tools to support liquidity needs on a global basis. In September 2018, the Parent Company filed a shelf registration statement with the SEC that allows the Company to issue an indefinite amount of debt securities, in one or more series, from time to time until September 2021. The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available. Additionally, as of March 31, 2021, the Parent Company and Aflac had four lines of credit with third parties as well as nine intercompany lines of credit. For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

The Company's consolidated financial statements convey its financing arrangements during the periods presented. The Company has not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein. The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2021. 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 2020 Annual Report for more information on the Company's securities lending and derivative activities. With the exception of disclosed activities in those referenced footnotes and the Risk Factors in the 2020 Annual Report entitled, "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," the Company is not aware of any trend, demand, commitment, event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount.

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 three-month periods ended March 31.


(In millions)	2021		2020
Operating activities	$	1,366	$	1,414
Investing activities	(969)		(1,716)
Financing activities	(470)		(446)
Exchange effect on cash and cash equivalents	(78)		0
Net change in cash and cash equivalents	$	(151)	$	(748)

Operating Activities

The principal cash inflows for the Company's insurance activities come from insurance premiums and investment income. The principal cash outflows are the result of policy claims, operating expenses, income tax, as well as interest expense. 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 investment portfolios to be sufficient to meet its cash needs for benefits and expenses.

Investing Activities

The Company's investment objectives provide for liquidity primarily through the purchase of publicly traded investment-grade debt securities. 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.

As part of its overall corporate strategy, the Company has committed $400 million to Aflac Ventures, LLC (Aflac Ventures), as opportunities emerge. Aflac Ventures is a subsidiary of Aflac Global Ventures, LLC (Aflac Global Ventures) which is reported in the Corporate and Other segment. The central mission of Aflac Global Ventures is to support the organic growth and business development needs of Aflac Japan and Aflac U.S. with emphasis on digital applications designed to improve the customer experience, gain efficiencies, and develop new markets in an effort to enhance and defend long-term shareholder value. Investments are included in equity securities or the other investments line in the consolidated balance sheets.

As part of an arrangement with FHLB, Aflac U.S. obtains low-cost funding from FHLB supported by acceptable forms of collateral pledged by Aflac U.S. In the first three months of 2021, Aflac U.S. borrowed and repaid $28 million under this program. As of March 31, 2021, Aflac U.S. had outstanding borrowings of $273 million reported in its balance sheet.

See Note 3 of the Notes to the Consolidated Financial Statements for details on certain investment commitments.

Financing Activities

Consolidated cash used by financing activities was $470 million in the first three months of 2021, compared with consolidated cash used by financing activities of $446 million for the same period of 2020.

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

The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2021.

Cash returned to shareholders through treasury stock purchases and dividends was $869 million during the three-month period ended March 31, 2021, compared with $644 million during the three-month period ended March 31, 2020.

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

Treasury Stock Purchased


(In millions of dollars and thousands of shares)	2021		2020
Treasury stock purchases	$	650	$	449
Number of shares purchased:
Share repurchase program	13,440		9,984
Other	378		508
Total shares purchased	13,818		10,492

Treasury Stock Issued


(In millions of dollars and thousands of shares)	2021		2020
Stock issued from treasury:
Cash financing	$	9	$	9
Noncash financing	19		17
Total stock issued from treasury	$	28	$	26
Number of shares issued	810		740

During the first three months of 2021, the Company repurchased 13.4 million shares of its common stock for $650 million as part of its share repurchase program. As of March 31, 2021, a remaining balance of 85.7 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors. For information on the impact of COVID-19 on the Company's share repurchase program, see the Executive Summary section of this MD&A.

Cash dividends paid to shareholders were $.33 per share in the first quarter of 2021, compared with $.28 per share in the first quarter of 2020. The following table presents the dividend activity for the three-month periods ended March 31.


(In millions)	2021		2020
Dividends paid in cash	$	219	$	195
Dividends through issuance of treasury shares	8		7
Total dividends to shareholders	$	227	$	202

In April 2021, the board of directors declared the second quarter cash dividend of $.33 per share, an increase of 17.9% compared with the same period in 2020. The dividend is payable on June 1, 2021 to shareholders of record at the close of business on May 19, 2021.

Regulatory Restrictions

Aflac Japan

Aflac Japan is required to meet certain financial criteria as governed by Japanese corporate law in order to provide dividends to the Parent Company. Under these criteria, dividend capacity at the Japan subsidiary is basically defined as total equity excluding common stock, accumulated other comprehensive income amounts, capital reserves (representing statutorily required amounts in Japan) but reduced for net after-tax unrealized losses on available-for-sale securities. These dividend capacity requirements are generally aligned with the SMR. Japan's FSA maintains its own solvency standard which is quantified through the SMR. Aflac Japan's SMR is sensitive to interest rate, credit spread, and foreign exchange rate changes, therefore the Company continues to evaluate alternatives for reducing this sensitivity, including the reduction of subsidiary dividends paid to the Parent Company and Parent Company capital contributions. In the event of a rapid change in market risk conditions causing SMR to decline, the Company has one senior unsecured revolving credit facility in the amount of ¥100 billion and a committed reinsurance facility in the amount of approximately ¥120 billion as a capital contingency plan. Additionally, the Company could take action to enter into derivatives on unhedged U.S. dollar-denominated investments with foreign currency options or forwards. 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 criterion 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 2020 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.

As of March 31, 2021, Aflac Japan's SMR remains high and reflects a strong capital and surplus position. The Company is committed to maintaining strong capital levels throughout the pandemic, consistent with maintaining current insurance financial strength and credit ratings. For additional information see the Executive Summary COVID-19 section of this MD&A.

Aflac U.S.

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. The continued long-term growth of the Company's business may require increases in the statutory capital and surplus of its insurance operations. The Company's insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, reduced dividends paid to the Parent Company, capital contributions by the Parent Company from funds generated through debt or equity offerings, or reinsurance transactions. The NAIC’s 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 March 31, 2021, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

Aflac, CAIC and TOIC are domiciled in Nebraska and are subject to its regulations. The maximum amount of dividends that can be paid to the Parent Company by Aflac, CAIC and TOIC without prior approval of Nebraska's director of insurance is the greater of the net income from operations, which excludes net 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 2021 in excess of $872 million would be considered extraordinary and require such approval. Similar laws apply in New York, the domiciliary jurisdiction of Aflac New York.

Privacy and Cybersecurity Governance

The Company’s Board of Directors has adopted an information security policy directing management to establish and operate a global information security program with the goals of monitoring existing and emerging threats and ensuring that the Company’s information assets and data, and the data of its customers, are appropriately protected from loss or theft. The Board has delegated oversight of the Company’s information security program to the Audit and Risk Committee. The Company’s senior officers, including its Global Security and Chief Information Security Officer, are responsible for the operation of the global information security program and communicates quarterly with the Audit and Risk Committee on the program, including with respect to the state of the program, compliance with applicable regulations, current and evolving threats, and recommendations for changes in the information security program. The global information security program also includes a cybersecurity incident response plan that is designed to provide a management framework across Company functions for a coordinated assessment and response to potential security incidents. This framework establishes a protocol to report certain incidents to the Global Security and Chief Information Security Officer and other senior officers, with the goal of timely assessing such incidents, determining applicable disclosure requirements and communicating with the Audit and Risk Committee. The incident response plan directs the executive officers to report certain incidents immediately and directly to the Lead Non-Management Director.

Other

For information regarding commitments and contingent liabilities, see Note 12 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. Further, the Company's references to website URLs are intended to be inactive textual references only.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance with U.S. GAAP. These principles are established primarily by the 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, 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 81% of its liabilities are reported as of March 31, 2021, and thus has a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items the Company has identified as critical accounting estimates during the three months ended March 31, 2021. For additional information, see the Critical Accounting Estimates section of MD&A included in the 2020 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.

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 2020 Annual Report. There have been no changes to the Company's market risk exposures from the market risk exposures previously disclosed in the 2020 Annual Report except as outlined below.

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 first fiscal quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

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

Issuer Purchases of Equity Securities

During the first three months of 2021, 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	2,850,664		$	45.60	2,850,664	96,304,954
February 1 - February 28	5,034,979		47.30		4,661,812	91,643,142
March 1 - March 31	5,932,047		50.55		5,927,500	85,715,642






Total	13,817,690	(1)	$	48.34	13,439,976	85,715,642

(1) During the first three months of 2021, 377,714 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.

Item 5. Other Information

On April 29, 2021, the Company entered into an amendment of the employment agreement it entered with Frederick J. Crawford on June 23, 2015. The amendment reflects Mr. Crawford’s previously announced title as President and Chief Operating Officer of Aflac Incorporated. The amendment also provides for an initial three-year term beginning on May 1, 2021 with automatic one-year extensions absent notice from either party to not extend. Mr. Crawford’s initial base salary under the agreement will be $950,000, and he will be eligible for a target annual bonus of 200% of his base salary (400% at maximum). The amendment also provides nondisclosure provisions and other customary covenants. To the extent not modified by the amendment, the other provisions of Mr. Crawford’s employment agreement remain in effect.

On April 29, 2021, the Company entered into an employment agreement with Max K. Brodén, Executive Vice President, Chief Financial Officer and Treasurer of the Company. The agreement provides for an initial three-year term beginning on May 1, 2021 with automatic one-year extensions absent notice from either party to not extend. Mr. Brodén’s initial base salary under the agreement will be $620,000, and he will be eligible for a target annual bonus of 125% of his base salary (250% at maximum). He also will be eligible for grants of equity in the form of restricted stock awards, stock options or other equity awards pursuant to the Company’s Long-Term Incentive Plan and for annual contributions to the Company's Executive Deferred Compensation Plan in an amount equal to 15% of his salary and bonus. Upon a qualifying severance (a termination by the Company without cause or by Mr. Brodén for good reason), he would be entitled to continuation of salary, bonus and welfare benefits through the remaining term of the employment agreement, and any unvested equity awards would vest subject to attainment of any applicable Company performance goals. In connection with the agreement, on April 29, 2021, Mr. Brodén received an equity grant with a grant-date value of approximately $1,000,000 in the form of restricted stock units that will vest on the third anniversary of the grant date. The equity award is generally subject to Mr. Brodén’s continued employment with the Company through the vesting date.

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.
	3.1	-	Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated April 6, 2020, Exhibit 3.1.
	4.1	-	Twenty-Eighth Supplemental Indenture, dated as of March 8, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.125% Senior Sustainability Note due 2026) – incorporated by reference from Form 8-K dated March 8, 2021, Exhibit 4.1 (File No. 001-07434).
	4.2	-	Twenty-Ninth Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 0.633% Senior Note due 2031) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.1 (File No. 001-07434).
	4.3	-	Thirtieth Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 0.844% Senior Note due 2033) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.2 (File No. 001-07434).
	4.4	-	Thirty-First Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.039% Senior Note due 2036) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.3 (File No. 001-07434).
	4.5	-	Thirty-Second Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.264% Senior Note due 2041) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.4 (File No. 001-07434).
	4.6	-	Thirty-Third Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.560% Senior Note due 2051) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.5 (File No. 001-07434).
	10.1	-	1999 Aflac Associate Stock Bonus Plan, amended and restated as of February 1, 2021.
	10.2	-	Amendment to Aflac Incorporated Employment Agreement with Frederick J. Crawford, dated April 29, 2021.
	10.3	-	Aflac Incorporated Employment Agreement with Max K. Brodén, dated April 29, 2021.
	31.1	-	Certification of CEO dated April 29, 2021, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	31.2	-	Certification of CFO dated April 29, 2021, 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 April 29, 2021, 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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
	101.SCH	-	Inline XBRL Taxonomy Extension Schema.
	101.CAL	-	Inline XBRL Taxonomy Extension Calculation Linkbase.
	101.DEF	-	Inline XBRL Taxonomy Extension Definition Linkbase.
	101.LAB	-	Inline XBRL Taxonomy Extension Label Linkbase.
	101.PRE	-	Inline XBRL Taxonomy Extension Presentation Linkbase.
	104	-	Cover Page Interactive Data File - formatted as Inline XBRL and contained in Exhibit 101.

Glossary of Selected Terms

Throughout this Quarterly Report on Form 10-Q, the Company may use certain performance metrics and other terms which are defined below.

Adjusted Net Investment Income - Net Investment Income adjusted for i) amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity and ii) net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies, which are reclassified from net investment gains and (losses) to net investment income. The Company considers adjusted net investment income important because it provides a more comprehensive understanding of the costs and income associated with the Company's investments and related hedging strategies. The metric is used in segment reporting as a component of segment profitability.

Affiliated Corporate Agency – Agency in Japan directly affiliated with a specific corporation that sells insurance policies primarily to its employees.

Annualized Premiums in Force – the amount of gross premium that a policyholder must pay over a full year in order to keep coverage. The growth of net premiums (defined below) is directly affected by the change in premiums in force and by the change in weighted-average yen/dollar exchange rates.

Average Weekly Producer – The total number of writing associates who have produced greater than $0.00 during the production week - excluding any manual adjustments divided by the number of weeks in the time period. The Company believes this metric allows sales management to monitor progress and needs, as well as serve as a leading indicator of future production capacity.

Capital Buffer – Established dollar amount of liquidity at the Parent Company reserved for injecting capital into the insurance entities or general liquidity support for general expenses at the Parent Company. Currently, the capital buffer is $1.0 billion and is part of $2.0 billion minimum balance at the Parent Company.

Earnings Per Basic Share – Net earnings divided by weighted-average number of shares outstanding for the period.

Earnings Per Diluted Share – Net earnings divided by the weighted-average number of shares outstanding for the period plus the weighted-average shares for the dilutive effect of share-based awards outstanding.

Group Insurance – Insurance issued to a group, such as an employer or trade association, that covers

employees or association members and their dependents through certificates of coverage.

Individual Insurance – Insurance issued to an individual with the policy designed to cover that person and his or her dependents.

In-force Policies – A count of policies that are active contracts at the end of a period.

Liquidity Support – Internally defined and established dollar amount of liquidity reserved for supporting potential collateral and settlements of derivatives at the Parent Company. Currently, the liquidity support is $1.0 billion and is part of the $2.0 billion minimum balance at the Parent Company.

Net Investment Income – The income derived from interest and dividends on invested assets, after deducting investment expenses.

Net Premiums – (sometimes referred to as net premium income or net earned premiums) is a financial measure that appears on the Company's Consolidated Statements of Earnings and in its segment reporting. This measure reflects collected or due premiums that have been earned ratably on policies in force during the reporting period, reduced by premiums that have been ceded to third parties and increased by premiums assumed through reinsurance.

New Annualized Premium Sales – (sometimes referred to as new sales or sales) An operating measure that is not reflected on the Company's financial statements. New annualized premium sales generally represent annual premiums on policies the Company sold and incremental increases from policy conversions that would be collected over a 12-month period assuming the policies remain in force for that entire period. 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. Policy conversions are defined as the positive difference in the annualized premium when a policy upgrades in the current reporting period.

New Money Yield – Gross yields earned on purchases of fixed maturities, loan receivables, and equities. Purchases exclude capitalized interest, securities lending/repurchase agreements, short-term/cash activity, and alternatives. New money yield for equities is based on the assumed dividend yield at the time of purchase. The new money yield for Aflac Japan excludes the impact of any derivatives and associated amortized hedge costs associated with USD-denominated investments. Management uses this metric as a leading indicator of future investment earning potential.

Operating Ratios – Used to evaluate the Company's financial condition and profitability. Examples include: (1) Ratios to total adjusted revenues, which present expenses as a percentage of total revenues and (2) Ratios to total premium, including benefit ratio.

Persistency – Percentage of premiums remaining in force at the end of a period, usually one year. For example, 95% persistency would mean that 95% of the premiums in force at the beginning of the period were still in force at the end of the period.

Pretax Adjusted Earnings – Earnings as adjusted earnings before the application of income taxes. This measure is used in the Company's segment reporting.

Pretax Adjusted Profit Margin – Adjusted earnings divided by adjusted revenues, before taxes are applied. This measure is used in the Company's segment reporting.

Return on Average Invested Assets – Net investment income as a percentage of average invested assets during the period. Management uses this metric to demonstrate how our actual net investment income results represent an overall return on the portfolio to provide a more comparative metric as the size of our investment portfolio changes over time.

Risk-based Capital (RBC) Ratio – Statutory adjusted capital divided by statutory required capital. This insurance ratio is based on rules prescribed by the National Association of Insurance Commissioners (NAIC) and provides an indication of the amount of statutory capital the insurance company maintains, relative to the inherent risks in the insurer’s operations.

Solvency Margin Ratio (SMR) – Solvency margin total divided by one half of the risk total. This insurance ratio is prescribed by the Japan Financial Services Agency (FSA) and is used for all life insurance companies in Japan to measure the adequacy of the company’s ability to pay policyholder claims in the event actual risks exceed expected levels.

Statutory Earnings – Earnings determined according to accounting rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance department in the insurance company’s state of domicile. These statutory accounting rules are different from U.S. GAAP and are intended to emphasize policyholder protection and company solvency.

Weighted-Average Foreign Currency Exchange Rate – Japan segment operating earnings for the period (excluding hedge costs) in yen divided by Japan segment operating earnings for the period (excluding hedge costs) in dollars. Management uses this metric to evaluate and determine consolidated results on foreign currency effective basis.

Defined Terms

Throughout this Quarterly Report on Form 10-Q, the Company may use abbreviations, acronyms and defined terms which are defined below.


AFS			Available-for-Sale
ALM			Asset-Liability Matching
AOCI			Accumulated Other Comprehensive Income
ARP			American Rescue Plan
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
CAA			The Consolidated Appropriations Act
CARES			Coronavirus Aid, Relief, and Economic Security
CDSs			Credit Default Swaps
CMLs			Commercial Mortgage Loans
CSAs			Credit Support Annexes
DAC			Deferred Policy Acquisition Costs
DSCR			Debt Service Coverage Ratios
EPS			Earnings Per Share
FASB			Financial Accounting Standard Boards
FHLB			Federal Home Loan Bank of Atlanta
FSA			Japanese Financial Services Agency
HTM			Held-to-Maturity
ISDA			International Swaps and Derivatives Association, Inc.
ISOs			Incentive Stock Options
JGB			Japan Government Bond
LGD			Loss-Given-Default
LIBOR			London Interbank Offered Rate
LIPPC			Life Insurance Policyholder Protection Corporation
LTV			Loan-to-Value
MD&A			Management's Discussion and Analysis of Financial Condition and Results of Operations
MMLs			Middle Market Loans
NAIC			National Association of Insurance Commissioners
NOLHGA			National Organization of Life and Health Guaranty Associations
NQSOs			Non-qualifying Stock Options
NRSROs			Nationally Recognized Statistical Rating Organizations
OTC			Over-the-Counter
PD			Probability-of-Default
PRM			Policy Reserve Matching
RBC			Risk-Based Capital
ROE			Return on Equity
S&P			Standard & Poor's
SEC			Securities and Exchange Commission
SMR			Solvency Margin Ratio
The Plan			Aflac Incorporated Long-Term Incentive Plan
TIBOR			Tokyo Interbank Market Rate
TDRs			Trouble Debt Restructurings
TREs			Transitional Real Estate Loans
TTM			Telegraphic Transfer Middle Rate
U.S. GAAP			U.S. Generally Accepted Accounting Principles
VIEs			Variable Interest Entities

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

April 29, 2021						/s/ Max K. Brodén
						(Max K. Brodén)
						Executive Vice President; Chief Financial Officer

April 29, 2021						/s/ June Howard
						(June Howard)
						Senior Vice President, Financial Services; Chief Accounting Officer