AFLAC INC - Quarter Report: 2022 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, 2022

☐

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. 644,164,538 shares of the issuer's common stock were outstanding as of April 21, 2022.

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents


PART I.		FINANCIAL INFORMATION:	Page

	Item 1.	Financial Statements (Unaudited)

		Consolidated Statements of Earnings Three Months Ended March 31, 2022 and 2021	1

		Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2022 and 2021	2

		Consolidated Balance Sheets March 31, 2022, and December 31, 2021	3

		Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2022 and 2021	4

		Consolidated Statements of Cash Flows Three Months Ended March 31, 2022 and 2021	5

		Notes to the Consolidated Financial Statements	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	63

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94

	Item 4.	Controls and Procedures	94

PART II.		OTHER INFORMATION:

	Item 1A.	Risk Factors	95

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96



	Item 6.	Exhibits	97

Glossary of Selected Terms			99

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)		2022	2021
Revenues:
Net earned premiums, principally supplemental health insurance				$	4,178	$	4,593
Net investment income				903		925
Net investment gains (losses)				122		307
Other income (loss)				69		44
Total revenues				5,272		5,869
Benefits and expenses:
Benefits and claims, net				2,487		2,735
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs				322		311
Insurance commissions				300		326
Insurance and other expenses				831		832
Interest expense				56		62
Total acquisition and operating expenses				1,509		1,531
Total benefits and expenses				3,996		4,266
Earnings before income taxes				1,276		1,603
Income taxes				244		310
Net earnings				$	1,032	$	1,293
Net earnings per share:
Basic				$	1.59	$	1.88
Diluted				1.58		1.87
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic				649,753		688,938
Diluted				652,827		691,940
Cash dividends per share				$	.40	$	.33

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)		2022	2021
Net earnings				$	1,032	$	1,293
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period				(467)		(581)
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period				(4,752)		(2,003)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings				(77)		20
Unrealized gains (losses) on derivatives during period				1		0
Pension liability adjustment during period				3		5
Total other comprehensive income (loss) before income taxes				(5,292)		(2,559)
Income tax expense (benefit) related to items of other comprehensive income (loss)				(1,012)		(432)
Other comprehensive income (loss), net of income taxes				(4,280)		(2,127)
Total comprehensive income (loss)				$	(3,248)	$	(834)

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, 2022 (Unaudited)			December 31, 2021
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (no allowance for credit losses in 2022 and 2021, amortized cost $78,241 in 2022 and $82,105 in 2021)		$	85,795		$	94,206
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,223 in 2022 and $3,264 in 2021)		4,170			4,490
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $8 in 2022 and $8 in 2021 (fair value $24,585 in 2022 and $26,869 in 2021)		20,672			22,000
Equity securities, at fair value		1,415			1,603
Commercial mortgage and other loans, net of allowance for credit losses of $158 in 2022 and $174 in 2021 (includes $10,027 in 2022 and $9,740 in 2021 of consolidated variable interest entities)		12,312			11,786
Other investments (includes $1,624 in 2022 and $1,535 in 2021 of consolidated variable interest entities)		3,960			3,842
Cash and cash equivalents		4,275			5,051
Total investments and cash		132,599			142,978
Receivables		730			693
Accrued investment income		683			737
Deferred policy acquisition costs		9,082			9,525
Property and equipment, at cost less accumulated depreciation		538			538
Other		3,414			3,071
Total assets		$	147,046		$	157,542
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	85,866		$	90,588
Unpaid policy claims		4,754			4,836
Unearned premiums		2,318			2,576
Other policyholders’ funds		6,705			7,072
Total policy liabilities		99,643			105,072
Income taxes		3,503			4,339
Payables for return of cash collateral on loaned securities		2,198			2,162
Notes payable and lease obligations		7,768			7,956
Other		4,407			4,760
Total liabilities		117,519			124,289
Commitments and contingent liabilities (Note 12)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2022 and 2021; issued 1,353,780 shares in 2022 and 1,352,739 shares in 2021		135			135
Additional paid-in capital		2,560			2,529
Retained earnings		42,413			41,381
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(2,482)			(2,013)
Unrealized gains (losses) on fixed maturity securities		5,787			9,602
Unrealized gains (losses) on derivatives		(29)			(30)
Pension liability adjustment		(163)			(166)
Treasury stock, at average cost		(18,694)			(18,185)
Total shareholders’ equity		29,527			33,253
Total liabilities and shareholders’ equity		$	147,046		$	157,542

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, 2021	$	135	$	2,529	$	41,381	$	7,393	$	(18,185)	$	33,253
Net earnings	0		0		1,032		0		0		1,032
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		(469)		0		(469)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(3,815)		0		(3,815)
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		3		0		3
Dividends to shareholders (1) ($.00 per share)	0		0		0		0		0		0
Exercise of stock options	0		6		0		0		0		6
Share-based compensation	0		13		0		0		0		13
Purchases of treasury stock	0		0		0		0		(523)		(523)
Treasury stock reissued	0		12		0		0		14		26
Balance at March 31, 2022	$	135	$	2,560	$	42,413	$	3,113	$	(18,694)	$	29,527


(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 (1) ($.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

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

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows


	Three Months Ended March 31,
(In millions - Unaudited)	2022			2021
Cash flows from operating activities:
Net earnings		$	1,032		$	1,293
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums		(30)			(19)
Capitalization of deferred policy acquisition costs		(255)			(262)
Amortization of deferred policy acquisition costs		322			311
Increase in policy liabilities		198			204
Change in income tax liabilities		321			331
Net investment (gains) losses		(122)			(307)
Other, net		(206)			(185)
Net cash provided (used) by operating activities		1,260			1,366
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		545			651
Equity securities		102			123

Commercial mortgage and other loans		638			725
Costs of investments acquired:
Available-for-sale fixed maturity securities		(707)			(2,475)
Equity securities		(114)			(126)
Commercial mortgage and other loans		(1,161)			(956)
Other investments, net		(138)			(201)
Settlement of derivatives, net		(558)			116
Cash received (pledged or returned) as collateral, net		142			1,206
Other, net		41			(32)
Net cash provided (used) by investing activities		(1,210)			(969)
Cash flows from financing activities:
Purchases of treasury stock		(500)			(650)
Proceeds from borrowings		0			400

Dividends paid to shareholders		(250)			(219)
Change in investment-type contracts, net		(21)			(12)
Treasury stock reissued		9			9
Other, net		25			2
Net cash provided (used) by financing activities		(737)			(470)
Effect of exchange rate changes on cash and cash equivalents		(89)			(78)
Net change in cash and cash equivalents		(776)			(151)
Cash and cash equivalents, beginning of period		5,051			5,141
Cash and cash equivalents, end of period		$	4,275		$	4,990
Supplemental disclosures of cash flow information:
Income taxes paid		$	(77)		$	(20)
Interest paid		37			35
Noncash interest		19			27
Noncash financing activities:
Lease obligations		73			20
Treasury stock issued for:
Associate stock bonus		3			7
Shareholder dividend reinvestment		9			8
Share-based compensation grants		5			4

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 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 71% and 70% of the Company's total revenues in the three-month periods ended March 31, 2022 and 2021, respectively. The percentage of the Company's total assets attributable to Aflac Japan was 81% at March 31, 2022, compared with 82% at December 31, 2021.

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 are revised and reflected in operating results. Although some variability is inherent in these estimates, the Company believes the amounts provided are reasonable and reflective of the best estimates of management.

The unaudited consolidated financial statements include the accounts of the Parent Company, its subsidiaries and those entities required to be consolidated under applicable accounting standards. All material intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of March 31, 2022 and December 31, 2021, and the consolidated statements of earnings, comprehensive income (loss), shareholders' equity and cash flows for the three-month periods ended March 31, 2022 and 2021. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report).

Market Conditions: The impact of the Coronavirus Disease 2019 (COVID-19) global pandemic on the Company continues to evolve and the continued path of the global economic recovery remains uncertain given the potential longer term impacts of the pandemic. For example, economic conditions have acted as headwinds to sales in the first quarter of 2022, particularly in Japan, pressuring premium growth rates. Further, in the U.S., supply shortages, upward pressure on wages to attract employees and higher commodity prices have all driven near-term increases in inflation. Central bank and government efforts to control inflation, as well the impacts of the Russia-Ukraine conflict, including volatility in energy prices and additional disruptions in the global supply chain, could lead to slower economic growth in Japan and the U.S. Additionally, rising energy prices, along with increased widening of the differential between U.S. and Japan interest rates, have contributed to a weakening of the yen, which has the effect of suppressing the Company's current period results in relation to the comparable prior period.

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

Accounting Pronouncements Pending Adoption

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: Effective Date

ASU 2020-11 Financial Services - Insurance: Effective Date and Early Application

In August 2018, the FASB issued amendments that will significantly change how insurers account for long-duration contracts. The amendments will change existing recognition, measurement, presentation, and disclosure requirements. Issues addressed in the new guidance include: 1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits (LFPB) at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures.

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

In November 2020, the FASB issued an amendment providing an additional year deferral for all insurance entities due to the impact of COVID-19. The amendments are now effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application of the amendments is permitted.

The Company continues to evaluate the impact of adoption and has determined that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures. The requirement to update assumptions for LFPB will have a significant impact on the Company's results of operations, systems, processes and controls and the requirement to update discount rates will have a significant impact on its equity.

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

The Company will not early adopt the updated standard and has selected the modified retrospective transition method, which requires the amended guidance be applied as of the beginning of the earliest period presented beginning on the January 1, 2021 transition date (Transition Date). The modified retrospective transition method generally results in applying the guidance to contracts on the basis of existing carrying values as of the Transition Date. On the Transition Date the Company calculates the ratio of expected benefits less existing carrying values to gross premiums (net premium ratio) using updated assumptions and the discount rate immediately before the Transition Date. For any cohorts that have a net premium ratio greater than 100% on the Transition Date, the net premium ratio will be capped at 100%. The Company uses the net premium ratio calculated on the Transition Date (and capped at 100% if required) to calculate the LFPB using two different discount rates: i) the discount rate used immediately before the Transition Date, and ii) the discount rate determined by reference to the Transition Date market level yields for upper-medium-grade (low credit risk) fixed income instruments (as of December 31, 2020). For cohorts with their net premium ratio capped at 100% on the Transition Date, any difference between the LFPB calculated using the discount rate immediately before the Transition Date and the existing carrying value as of the Transition Date is recorded as an adjustment (decrease) to opening retained earnings. For all cohorts on the Transition Date, the difference in the LFPB calculated using the two different discount rates (i.e., the discount rate used immediately before the Transition Date and the updated discount rate as of the Transition Date) is recorded in accumulated other comprehensive income (AOCI) net of tax at transition.

When the Company adopts the updated standard beginning January 1, 2023, opening equity will be adjusted for the Transition Date impacts to AOCI and retained earnings and prior periods presented (years 2021 and 2022) will be restated following the updated standard. Based on the modified retrospective transition method, the Company currently estimates that the Transition Date impact from adoption is likely to result in a decrease in AOCI in a range between $18 billion and $20 billion and a decrease in retained earnings of approximately $0.3 billion. The variability around the impact of adoption

results from the Company making certain estimates, primarily related to the determination of Transition Date market level yields.

The Company has advanced and continues to refine the design of its discount rate methodology for both the U.S. and Japan insurance business. The methodology incorporates constructing a discount rate curve separately for discounting cash flows used to calculate the U.S. and Japan LFPB, with each curve intended to be reflective of the currency, tenor and characteristics of the insurance liabilities. Discount rates comprising each curve will be determined by reference to upper-medium grade (low credit risk) fixed-income instrument yields that are intended to reflect the duration characteristics of the corresponding insurance liabilities. The Company intends to use for these yields single-A rated fixed income instruments with credit ratings based on international rating standards. Where only local ratings are available, the Company intends to select the fixed-income instruments with local ratings that are equivalent to a single-A rating based on international rating standards. The methodology will be designed to prioritize observable inputs based on market data available in the local debt markets where the respective policies were issued in the currency in which the policies are denominated. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company will use various estimation techniques consistent with the fair value guidance in ASC 820, which include, but are not limited to: (i) for tenors where there is less observable market data and/or the observable market data is available for similar instruments, estimating tenor-specific single-A credit spreads and applying them to risk-free government rates; (ii) for tenors where there is very limited or no observable single-A or similar market data, interpolation and extrapolation techniques. Discount rates will be updated each reporting period.

Long duration insurance contracts issued by the Company will be grouped into annual calendar-year cohorts based on the contract issue date, reportable segment, legal entity and product type. Limited pay contracts will be grouped into separate cohorts from other traditional products in the same manner and will be further separated based on their premium payment structures. Riders will be combined with base policies with similar insurance coverage types and the same contract issue years.

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

•Cash flow assumptions underlying insurance liabilities will be evaluated as to whether an update is needed at least annually in the same fiscal quarter each year. To facilitate the review, experience studies will be performed annually in the consistent quarter year-to-year to substantiate assumptions, including mortality, morbidity, and terminations in future periods.

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

•For DAC amortization, the Company has made a preliminary policy election to group insurance policies into cohorts that are consistent with the groupings used in estimating the associated LFPB. DAC will be amortized on a constant-level basis for the grouped contracts over the expected remaining term of the related contracts. For both life and health products issued by Aflac Japan, the constant-level basis used will be units in force, which is a proxy for face amount and insurance in force, respectively. For life products issued by Aflac U.S., the constant level basis used will be face amount of policies in force; for health products issued by Aflac U.S., the constant level basis used will be the number of policies in force.

•The Company has made a preliminary entity-wide election to use locked-in claim expense assumptions determined for each issue-year cohort as a percentage of incurred claims; these assumptions would remain unchanged over the term of the insurance policy.

The Company has created a governance framework and a plan to support implementation of the updated standard. As part of its implementation plan, the Company has also advanced the modernization of its actuarial technology platform to enhance its modeling, data management, experience study and analytical capabilities, increase the end-to-end automation of key reporting and analytical processes and optimize its control framework. The Company has also put in place internal controls related to the new processes created as part of implementing the updated standard and will continue to refine and maturate these internal controls until the formal implementation in the first quarter of 2023.

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

The Company currently has no products with market risk benefits.

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 2021 Annual Report.

2. BUSINESS SEGMENT INFORMATION

The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. In addition, the Parent Company, other operating business units that are not individually reportable, 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 the Company'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)		2022		2021
Revenues:
Aflac Japan:
Net earned premiums		$	2,724	$	3,123
Adjusted net investment income (1),(2)		680		705
Other income		9		13
Total adjusted revenue Aflac Japan		3,413		3,841
Aflac U.S.:
Net earned premiums		1,413		1,422
Adjusted net investment income (3)		184		176
Other income		42		30
Total adjusted revenue Aflac U.S.		1,639		1,628
Corporate and other (4),(5)		74		83
Total adjusted revenues		5,126		5,552
Net investment gains (losses) (1),(2),(3),(4)		146		317
Total revenues		$	5,272	$	5,869

(1) Amortized hedge costs of $26 and $19 for the three-month periods ended March 31, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $(10) and $(8) for the three-month periods ended March 31, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

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

(4) Amortized hedge income of $11 and $17 for the three-month periods ended March 31, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) The change in value of federal historic rehabilitation and solar investments in partnerships of $12 for the three-month period ended March 31, 2022, is included as a reduction to net investment income. Tax credits on these investments of $16 for the three-month period ended March 31, 2022, have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.


	Three Months Ended March 31,
(In millions)		2022		2021
Pretax earnings:
Aflac Japan (1),(2)		$	862	$	887
Aflac U.S. (3)		325		445
Corporate and other (4),(5),(6)		(44)		(26)
Pretax adjusted earnings (7)		1,143		1,306
Net investment gains (losses) (1),(2),(3),(4),(5)		134		304
Other income (loss)		(1)		(7)
Total earnings before income taxes		$	1,276	$	1,603
Income taxes applicable to pretax adjusted earnings		$	216	$	248
Effect of foreign currency translation on after-tax adjusted earnings		(37)		13

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

(4) Amortized hedge income of $11 and $17 for the three-month periods ended March 31, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(5) A gain of $13 and $14 for the three-month periods ended March 31, 2022, and 2021, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(6) The change in value of federal historic rehabilitation and solar investments in partnerships of $12 for the three-month period ended March 31, 2022, is included as a reduction to net investment income. Tax credits on these investments of $16 for the three-month period ended March 31, 2022 have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

(7) Includes $41 and $45 for the three-month periods ended March 31, 2022, and 2021, respectively, of interest expense on debt.

Assets were as follows:


(In millions)	March 31, 2022			December 31, 2021
Assets:
Aflac Japan		$	119,270		$	128,536
Aflac U.S.		21,944			23,106
Corporate and other		5,832			5,900
Total assets		$	147,046		$	157,542

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, 2022
(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	$	28,492	$	0	$	2,403	$	345	$	30,550
Municipalities	1,120		0		259		15		1,364
Mortgage- and asset-backed securities	280		0		14		3		291
Public utilities	4,240		0		629		17		4,852
Sovereign and supranational	714		0		64		0		778
Banks/financial institutions	6,607		0		530		168		6,969
Other corporate	6,588		0		1,089		77		7,600
Total yen-denominated	48,041		0		4,988		625		52,404
U.S. dollar-denominated:
U.S. government and agencies	160		0		5		3		162
Municipalities	1,316		0		112		16		1,412
Mortgage- and asset-backed securities	1,055		0		43		23		1,075
Public utilities	3,783		0		583		29		4,337
Sovereign and supranational	213		0		52		8		257
Banks/financial institutions	3,217		0		526		26		3,717
Other corporate	23,679		0		3,129		207		26,601
Total U.S. dollar-denominated	33,423		0		4,450		312		37,561
Total securities available for sale	$	81,464	$	0	$	9,438	$	937	$	89,965


	December 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	$	30,335	$	0	$	3,343	$	61	$	33,617
Municipalities	1,192		0		322		5		1,509
Mortgage- and asset-backed securities	300		0		19		1		318
Public utilities	4,462		0		906		2		5,366
Sovereign and supranational	760		0		82		0		842
Banks/financial institutions	6,963		0		787		72		7,678
Other corporate	7,148		0		1,535		26		8,657
Total yen-denominated	51,160		0		6,994		167		57,987
U.S. dollar-denominated:
U.S. government and agencies	196		0		8		1		203
Municipalities	1,340		0		189		2		1,527
Mortgage- and asset-backed securities	897		0		33		2		928
Public utilities	3,781		0		909		5		4,685
Sovereign and supranational	222		0		57		6		273
Banks/financial institutions	3,169		0		747		3		3,913
Other corporate	24,604		0		4,629		53		29,180
Total U.S. dollar-denominated	34,209		0		6,572		72		40,709
Total securities available for sale	$	85,369	$	0	$	13,566	$	239	$	98,696


	March 31, 2022
(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	$	19,817	$	3	$	19,814	$	3,712	$	0	$	23,526
Municipalities	315		0		315		83		0		398

Public utilities	41		1		40		10		0		50
Sovereign and supranational	487		4		483		101		0		584

Other corporate	20		0		20		7		0		27
Total yen-denominated	20,680		8		20,672		3,913		0		24,585
Total securities held to maturity	$	20,680	$	8	$	20,672	$	3,913	$	0	$	24,585


	December 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	$	21,089	$	3	$	21,086	$	4,613	$	0	$	25,699
Municipalities	335		0		335		101		0		436
Public utilities	44		1		43		12		0		55
Sovereign and supranational	518		4		514		136		0		650
Other corporate	22		0		22		7		0		29
Total yen-denominated	22,008		8		22,000		4,869		0		26,869
Total securities held to maturity	$	22,008	$	8	$	22,000	$	4,869	$	0	$	26,869


(In millions)	March 31, 2022			December 31, 2021
Equity securities, carried at fair value through net earnings:	Fair Value			Fair Value
Equity securities:
Yen-denominated		$	711		$	744
U.S. dollar-denominated		663			817
Other currencies		41			42
Total equity securities		$	1,415		$	1,603

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

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at March 31, 2022, were as follows:


(In millions)	Amortized Cost (1)			Fair Value
Available for sale:
Due in one year or less		$	1,335		$	1,427
Due after one year through five years		7,876			8,406
Due after five years through 10 years		12,472			14,056
Due after 10 years		58,446			64,710
Mortgage- and asset-backed securities		1,335			1,366
Total fixed maturity securities available for sale		$	81,464		$	89,965
Held to maturity:
Due in one year or less		$	0		$	0
Due after one year through five years		41			44
Due after five years through 10 years		10,846			12,429
Due after 10 years		9,785			12,112
Mortgage- and asset-backed securities		0			0
Total fixed maturity securities held to maturity		$	20,672		$	24,585

(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, 2022

December 31, 2021

(In millions)

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Japan National Government(1)

A+

$47,146

$52,760

A+

$50,186

$57,862

(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)		2022		2021
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales		$	70	$	2
Gross losses from sales		(3)		(1)
Foreign currency gains (losses)		10		(12)
Other investments:
Gross gains from sales		9		0
Total sales and redemptions		86		(11)
Equity securities		(156)		(68)


Credit losses:
Fixed maturity securities available for sale		0		11
Fixed maturity securities held to maturity		0		1
Commercial mortgage and other loans		16		27
Impairment losses		0		(20)
Loan commitments		7		5
Reinsurance recoverables and other		2		(2)
Total credit losses		25		22
Derivatives and other:
Derivative gains (losses)		(466)		(287)
Foreign currency gains (losses)		633		651
Total derivatives and other		167		364
Total net investment gains (losses)		$	122	$	307

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the three-month period ended March 31, 2022, that relate to equity securities still held at the March 31, 2022 reporting date, were $157 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, 2022			December 31, 2021
Unrealized gains (losses) on securities available for sale		$	8,501		$	13,330
Deferred income taxes		(2,714)			(3,728)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities		$	5,787		$	9,602

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, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	March 31, 2022
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities available for sale:
U.S. government and agencies:
U.S. dollar-denominated		$	1		$	3		$	0		$	3		$	1		$	0
Japan government and agencies:
Yen-denominated		7,780			345			4,264			123			3,516			222
Municipalities:
U.S. dollar-denominated		258			16			243			14			15			2
Yen-denominated		216			15			96			4			120			11
Mortgage- and asset- backed securities:
U.S. dollar-denominated		549			23			533			23			16			0
Yen-denominated		79			3			49			0			30			3
Public utilities:
U.S. dollar-denominated		535			29			459			23			76			6
Yen-denominated		598			17			546			14			52			3
Sovereign and supranational:
U.S. dollar-denominated		34			8			5			1			29			7

Banks/financial institutions:
U.S. dollar-denominated		590			26			535			21			55			5
Yen-denominated		3,594			168			2,576			86			1,018			82
Other corporate:
U.S. dollar-denominated		3,835			207			3,011			118			824			89
Yen-denominated		1,453			77			1,209			47			244			30
Total		$	19,522		$	937		$	13,526		$	477		$	5,996		$	460


	December 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:
U.S. government and agencies:
U.S. dollar-denominated		$	1		$	1		$	0		$	1		$	1		$	0
Japan government and agencies:
Yen-denominated		2,868			61			445			3			2,423			58
Municipalities:
U.S. dollar-denominated		82			2			79			2			3			0
Yen-denominated		187			5			53			0			134			5
Mortgage- and asset- backed securities:
U.S. dollar-denominated		278			2			278			2			0			0
Yen-denominated		33			1			0			0			33			1
Public utilities:
U.S. dollar-denominated		130			5			70			2			60			3
Yen-denominated		26			2			0			0			26			2
Sovereign and supranational:
U.S. dollar-denominated		37			6			6			1			31			5
Banks/financial institutions:
U.S. dollar-denominated		292			3			274			3			18			0
Yen-denominated		2,074			72			1,011			16			1,063			56
Other corporate:
U.S. dollar-denominated		1,365			53			458			8			907			45
Yen-denominated		541			26			274			4			267			22
Total		$	7,914		$	239		$	2,948		$	42		$	4,966		$	197

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, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit allowance will be estimated. Refer to the Allowance for 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, 2022				December 31, 2021
	Amortized Cost		% of Total		Amortized Cost		% of Total
Commercial Mortgage and other loans:
Transitional real estate loans:
Office	$	2,017	16.2	%	$	2,001	16.7	%
Retail	267		2.1		267		2.2
Apartments/Multi-Family	2,135		17.1		1,893		15.8
Industrial	101		.8		94		.8
Hospitality	834		6.7		876		7.3
Other	237		1.9		228		1.9
Total transitional real estate loans	5,591		44.8		5,359		44.7
Commercial mortgage loans:
Office	395		3.2		398		3.3
Retail	330		2.6		332		2.8
Apartments/Multi-Family	633		5.1		649		5.4
Industrial	521		4.2		525		4.4


Total commercial mortgage loans	1,879		15.1		1,904		15.9
Middle market loans	5,000		40.1		4,697		39.4
Total commercial mortgage and other loans	$	12,470	100.0	%	$	11,960	100.0	%
Allowance for credit losses	(158)				(174)
Total net commercial mortgage and other loans	$	12,312			$	11,786

CMLs and TREs were secured by properties entirely within the U.S. (with the largest concentrations in California (22%), Texas (12%) and Florida (9%)). Middle market loans are issued only to companies domiciled within the U.S. and Canada.

Transitional Real Estate Loans

TREs are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date. This loan portfolio is generally considered to be investment grade. As of March 31, 2022, the Company had $693 million in outstanding commitments to fund TREs. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

CMLs are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans. As of March 31, 2022, the Company had no outstanding commitments to fund CMLs. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

MMLs are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for MMLs included $16 million and $11 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of March 31, 2022, and December 31, 2021, respectively.

As of March 31, 2022, the Company had commitments of approximately $1.2 billion to fund future MMLs. 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. As of March 31, 2022, the Company's reinsurance counterparties were rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly.

The following tables present as of March 31, 2022 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.


Transitional Real Estate Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Total
Loan-to-Value Ratio:
0%-59.99%	$	294	$	598	$	36	$	318	$	86	$	0	$	1,332
60%-69.99%	161		693		137		624		417		50		2,082
70%-79.99%	145		1,031		156		493		227		1		2,053
80% or greater	0		124		0		0		0		0		124
Total	$	600	$	2,446	$	329	$	1,435	$	730	$	51	$	5,591


Commercial Mortgage Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Total		Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%	$	0	$	303	$	47	$	518	$	154	$	599	$	1,621	2.48
60%-69.99%	0		34		0		86		0		113		233		1.87
70%-79.99%	0		0		0		0		0		25		25		1.78
80% or greater	0		0		0		0		0		0		0		0.00
Total	0		337		47		604		154		737		1,879		2.39
Weighted Average DSCR	0.00		2.87		1.93		2.39		2.10		2.28


Middle Market Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Credit Ratings:
BBB	$	0	$	117	$	58	$	37	$	23	$	0	$	81	$	316
BB	42		337		299		187		111		59		296		1,331
B	99		889		513		624		262		275		292		2,954
CCC	0		0		22		64		87		124		75		372
CC	0		0		0		0		0		26		1		27
C and lower	0		0		0		0		0		0		0		0
Total	$	141	$	1,343	$	892	$	912	$	483	$	484	$	745	$	5,000

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 $19.7 billion amortized cost as of March 31, 2022 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

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 three-month period ended March 31, 2022. As of March 31, 2022, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no troubled debt restructurings (TDRs) during the three-month periods ended March 31, 2022 and March 31, 2021, respectively.

The Company designates nonaccrual status for a nonperforming debt security or a loan that is not generating its stated interest rate because of nonpayment of periodic interest by the borrower. The Company 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, 2022 and December 31, 2021, the Company had an immaterial amount of loans and fixed maturity securities on nonaccrual status.

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


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











Three Months Ended March 31, 2022:
Balance at December 31, 2021	$	(68)	$	(10)	$	(96)	$	(8)	$	0	$	(13)
(Addition to) release of allowance for credit losses	16		2		(2)		0		0		2

Change in foreign exchange	0		0		0		0		0		2
Balance at March 31, 2022	$	(52)	$	(8)	$	(98)	$	(8)	$	0	$	(9)
Three Months Ended March 31, 2021:
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, 2022 was $24 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, 2022			December 31, 2021
Other investments:
Policy loans		$	224		$	236
Short-term investments (1)		1,747			1,726
Limited partnerships		1,964			1,858
Other		25			22
Total other investments		$	3,960		$	3,842

(1) Includes securities lending collateral

The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits. These investments are classified as limited partnerships and included in other investments in the consolidated balance sheet. The change in value of each investment is recorded as a reduction to net investment income. Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statement of earnings.

As of March 31, 2022, the Company had $1.7 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, 2022						December 31, 2021
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Assets:
Fixed maturity securities, available for sale		$	3,223		$	4,170		$	3,264		$	4,490

Commercial mortgage and other loans		10,027			10,082			9,740			9,910
Other investments (2)		1,624			1,624			1,535			1,535
Other assets (3)		75			75			78			78
Total assets of consolidated VIEs		$	14,949		$	15,951		$	14,617		$	16,013
Liabilities:
Other liabilities (3)		$	427		$	427		$	414		$	414
Total liabilities of consolidated VIEs		$	427		$	427		$	414		$	414

(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, 2022						December 31, 2021
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	4,513		$	5,260		$	4,779		$	5,864
Other investments (1)		340			340			323			323
Total investments in VIEs not consolidated		$	4,853		$	5,600		$	5,102		$	6,187

(1) Consists entirely of alternative investments in limited partnerships

Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations 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.

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.

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, 2022						December 31, 2021
(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	$	1,127	$	1,127		$	0	$	920	$	920

Public utilities	16		0		16			40		0		40
Sovereign and supranational	2		0		2			2		0		2
Banks/financial institutions	116		0		116			88		0		88
Other corporate	937		0		937			1,112		0		1,112
Total borrowings	$	1,071	$	1,127	$	2,198		$	1,242	$	920	$	2,162
Gross amount of recognized liabilities for securities lending transactions					$	2,198						$	2,162

(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 $7.0 billion and $6.8 billion at March 31, 2022 and December 31, 2021, 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, 2022, and December 31, 2021, 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, with options used on a standalone basis and/or in a collar strategy

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

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

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

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

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

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

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

Derivative Types

Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held. In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged, the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. The Company also uses one-sided foreign currency put options to mitigate the settlement risk on U.S. dollar-denominated assets related to extreme foreign currency rate changes. From time to time, Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options. In the purchased put transactions, Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. In the sold call transactions, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S. dollars at a specified future date. The combination of purchasing the put option and selling the call option results in no net premium being paid (i.e. a costless or zero-cost collar). In 2021, the Company moved to a strategy that contains one-sided put options, fewer foreign currency forwards and no collars.

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

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

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, 2022									December 31, 2021
(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		$	2
Total cash flow hedges		18			0			2			18			0			2
Fair value hedges:
Foreign currency forwards		0			0			0			62			0			5
Foreign currency options		9,004			4			0			8,829			5			0

Total fair value hedges		9,004			4			0			8,891			5			5
Net investment hedge:
Foreign currency forwards		5,012			487			0			4,996			341			0
Foreign currency options		1,908			0			0			1,949			0			0
Total net investment hedge		6,920			487			0			6,945			341			0
Non-qualifying strategies:
Foreign currency swaps		1,900			66			5			2,250			59			13
Foreign currency swaps - VIE		3,367			75			425			3,151			78			412
Foreign currency forwards		10,472			490			812			15,953			450			1,133
Foreign currency options		4,456			4			0			2,746			3			0

Interest rate swaps		3,500			0			216			3,500			0			54


Total non-qualifying strategies		23,695			635			1,458			27,600			590			1,612
Total derivatives		$	39,637		$	1,126		$	1,460		$	43,454		$	936		$	1,619

Cash Flow Hedges

For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the U.S. Dollar (USD) variable rate interest and principal payments to fixed rate Japanese Yen (JPY) interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is approximately five 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, 2022:

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

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





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

(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, 2022 and 2021, 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, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Fixed maturity securities		$	2,843	$	3,038	$	202	$	205

(1) The balance includes hedging adjustment on discontinued hedging relationships of $202 in 2022 and $205 in 2021.

Net Investment Hedge

The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative hedges and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three-month periods ended March 31, 2022 and 2021, 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, 2022, the Parent Company had $1.9 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. 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 2021 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 substantially 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,
	2022										2021
(In millions)	Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)			Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE		$	0		$	(1)			$	1		$	0		$	(1)			$	0
Total cash flow hedges		0			(1)		(3)		1			0			(1)		(3)		0
Fair value hedges:

Foreign currency options(3)					(15)										(1)

Total fair value hedges		0			(15)				0			0			(1)				0
Net investment hedge:
Non-derivative hedging instruments					0				199						0				188
Foreign currency forwards					(76)				301						18				335
Foreign currency options					(1)				0						(2)				0
Total net investment hedge					(77)				500						16				523
Non-qualifying strategies:
Foreign currency swaps					28										87
Foreign currency swaps - VIE					23										29
Foreign currency forwards					(241)										(432)
Foreign currency options					(10)										16
Interest rate swaps					(156)										0
Forward bond purchase commitment - VIE					(17)										(1)
Total non-qualifying strategies					(373)										(301)
Total		$	0		$	(466)			$	501		$	0		$	(287)			$	523

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

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

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended March 31, 2022, and an immaterial amount during the three-month period ended March 31, 2021. In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended March 31, 2022, and an immaterial amount during the three-month period ended March 31, 2021, related to fair value hedges excluded component. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).

As of March 31, 2022, $5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.

Credit Risk Assumed through Derivatives

For the foreign currency swaps associated with the Company's VIE investments for which it is the primary beneficiary, the Company bears the risk of loss due to counterparty default even though it is not a direct counterparty to those contracts.

The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; and foreign currency options, and therefore the Company is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for the Company's foreign currency swaps, certain foreign currency forwards, and foreign currency options is mitigated by collateral posting requirements that counterparties to those transactions must meet.

As of March 31, 2022, 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 the Company's financial strength rating. The actual amount of payments that the Company could be required to make depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade.

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

Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $713 million and $904 million as of March 31, 2022, and December 31, 2021, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2022, the Company estimates that it would be required to post a maximum of $264 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, 2022
										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		$	1,051		$	0		$	1,051		$	(503)	$	(3)		$	(532)		$	13

Total derivative assets subject to a master netting agreement or offsetting arrangement		1,051			0			1,051			(503)		(3)			(532)			13
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		75						75											75

Total derivative assets not subject to a master netting agreement or offsetting arrangement		75						75											75
Total derivative assets		1,126			0			1,126			(503)		(3)			(532)			88
Securities lending and similar arrangements		2,218			0			2,218			0		0			(2,218)			0
Total		$	3,344		$	0		$	3,344		$	(503)	$	(3)		$	(2,750)		$	88


December 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		$	858		$	0		$	858		$	(471)	$	(53)		$	(334)		$	0

Total derivative assets subject to a master netting agreement or offsetting arrangement		858			0			858			(471)		(53)			(334)			0
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		78						78											78

Total derivative assets not subject to a master netting agreement or offsetting arrangement		78						78											78
Total derivative assets		936			0			936			(471)		(53)			(334)			78
Securities lending and similar arrangements		2,124			0			2,124			0		0			(2,124)			0
Total		$	3,060		$	0		$	3,060		$	(471)	$	(53)		$	(2,458)		$	78

Offsetting of Financial Liabilities and Derivative Liabilities


March 31, 2022
										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		$	817		$	0		$	817		$	(503)	$	(278)		$	(21)		$	15
OTC - cleared		216			0			216			0		0			(150)			66
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		1,033			0			1,033			(503)		(278)			(171)			81
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		427						427											427

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		427						427											427
Total derivative liabilities		1,460			0			1,460			(503)		(278)			(171)			508
Securities lending and similar arrangements		2,198			0			2,198			(2,218)		0			0			(20)
Total		$	3,658		$	0		$	3,658		$	(2,721)	$	(278)		$	(171)		$	488


December 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		$	1,151		$	0		$	1,151		$	(471)	$	(662)		$	(14)		$	4
OTC - cleared		54			0			54			0		0			(35)			19
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		1,205			0			1,205			(471)		(662)			(49)			23
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		414						414											414

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		414						414											414
Total derivative liabilities		1,619			0			1,619			(471)		(662)			(49)			437
Securities lending and similar arrangements		2,162			0			2,162			(2,124)		0			0			38
Total		$	3,781		$	0		$	3,781		$	(2,595)	$	(662)		$	(49)		$	475

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 2021 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, 2022
(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		$	29,547		$	1,165		$	0		$	30,712
Municipalities		0			2,776			0			2,776
Mortgage- and asset-backed securities		0			1,048			318			1,366
Public utilities		0			8,604			585			9,189
Sovereign and supranational		0			994			41			1,035
Banks/financial institutions		0			10,626			60			10,686
Other corporate		0			33,911			290			34,201
Total fixed maturity securities		29,547			59,124			1,294			89,965
Equity securities		1,166			83			166			1,415
Other investments		1,747			0			0			1,747
Cash and cash equivalents		4,275			0			0			4,275
Other assets:
Foreign currency swaps		0			141			0			141
Foreign currency forwards		0			977			0			977
Foreign currency options		0			8			0			8



Total other assets		0			1,126			0			1,126
Total assets		$	36,735		$	60,333		$	1,460		$	98,528
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	432		$	0		$	432
Foreign currency forwards		0			812			0			812

Interest rate swaps		0			216			0			216


Total liabilities		$	0		$	1,460		$	0		$	1,460


	December 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		$	32,532		$	1,288		$	0		$	33,820
Municipalities		0			3,036			0			3,036
Mortgage- and asset-backed securities		0			955			291			1,246
Public utilities		0			9,558			493			10,051
Sovereign and supranational		0			1,072			43			1,115
Banks/financial institutions		0			11,546			45			11,591
Other corporate		0			37,411			426			37,837
Total fixed maturity securities		32,532			64,866			1,298			98,696
Equity securities		1,340			90			173			1,603
Other investments		1,726			0			0			1,726
Cash and cash equivalents		5,051			0			0			5,051
Other assets:
Foreign currency swaps		0			137			0			137
Foreign currency forwards		0			791			0			791
Foreign currency options		0			8			0			8

Total other assets		0			936			0			936
Total assets		$	40,649		$	65,892		$	1,471		$	108,012
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	427		$	0		$	427
Foreign currency forwards		0			1,138			0			1,138
Interest rate swaps		0			54			0			54


Total liabilities		$	0		$	1,619		$	0		$	1,619

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, 2022
(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		$	19,814		$	23,315		$	211		$	0		$	23,526
Municipalities		315			0			398			0			398

Public utilities		40			0			50			0			50
Sovereign and supranational		483			0			584			0			584

Other corporate		20			0			27			0			27
Commercial mortgage and other loans		12,312			0			0			12,356			12,356
Other investments (1)		25			0			25			0			25
Total assets		$	33,009		$	23,315		$	1,295		$	12,356		$	36,966
Liabilities:
Other policyholders’ funds		$	6,705		$	0		$	0		$	6,595		$	6,595
Notes payable (excluding leases)		7,628			0			7,602			244			7,846
Total liabilities		$	14,333		$	0		$	7,602		$	6,839		$	14,441

(1) Excludes policy loans of $224 and equity method investments of $1,964, at carrying value


	December 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		$	21,086		$	25,469		$	230		$	0		$	25,699
Municipalities		335			0			436			0			436

Public utilities		43			0			55			0			55
Sovereign and supranational		514			0			650			0			650

Other corporate		22			0			29			0			29
Commercial mortgage and other loans		11,786			0			0			11,996			11,996
Other investments (1)		22			0			22			0			22
Total assets		$	33,808		$	25,469		$	1,422		$	11,996		$	38,887
Liabilities:
Other policyholders’ funds		$	7,072		$	0		$	0		$	6,957		$	6,957
Notes payable (excluding leases)		7,839			0			8,280			259			8,539
Total liabilities		$	14,911		$	0		$	8,280		$	7,216		$	15,496

(1) Excludes policy loans of $236 and equity method investments of $1,858, 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), in-house valuations and non-binding price quotes the Company obtains from outside brokers.

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities. Starting in June 2021, these models and associated processes and controls were transitioned to and executed by Company personnel. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the credit default swap (CDS) market to estimate expected cash flows. These models take into consideration any unique characteristics of the securities 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. 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, 2022
(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		$	29,547		$	730		$	0		$	30,277
Internal		0			435			0			435

Total government and agencies		29,547			1,165			0			30,712
Municipalities:
Third party pricing vendor		0			2,035			0			2,035
Internal		0			741			0			741

Total municipalities		0			2,776			0			2,776
Mortgage- and asset-backed securities:
Third party pricing vendor		0			981			0			981

Broker/other		0			67			318			385
Total mortgage- and asset-backed securities		0			1,048			318			1,366
Public utilities:
Third party pricing vendor		0			4,066			0			4,066
Internal		0			4,537			0			4,537
Broker/other		0			1			585			586
Total public utilities		0			8,604			585			9,189
Sovereign and supranational:
Third party pricing vendor		0			257			0			257
Internal		0			737			0			737
Broker/other		0			0			41			41
Total sovereign and supranational		0			994			41			1,035
Banks/financial institutions:
Third party pricing vendor		0			4,922			0			4,922
Internal		0			5,704			18			5,722
Broker/other		0			0			42			42
Total banks/financial institutions		0			10,626			60			10,686
Other corporate:
Third party pricing vendor		0			26,989			0			26,989
Internal		0			6,922			24			6,946
Broker/other		0			0			266			266
Total other corporate		0			33,911			290			34,201
Total securities available for sale		$	29,547		$	59,124		$	1,294		$	89,965
Equity securities, carried at fair value:
Third party pricing vendor		$	1,166		$	83		$	0		$	1,249

Broker/other		0			0			166			166
Total equity securities		$	1,166		$	83		$	166		$	1,415


	March 31, 2022
(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		$	23,315		$	211		$	0		$	23,526

Total government and agencies		23,315			211			0			23,526
Municipalities:
Third party pricing vendor		0			398			0			398

Total municipalities		0			398			0			398




Public utilities:
Third party pricing vendor		0			50			0			50


Total public utilities		0			50			0			50
Sovereign and supranational:
Third party pricing vendor		0			283			0			283

Broker/other		0			301			0			301
Total sovereign and supranational		0			584			0			584




Other corporate:
Third party pricing vendor		0			27			0			27


Total other corporate		0			27			0			27
Total securities held to maturity		$	23,315		$	1,270		$	0		$	24,585


	December 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		$	32,532		$	808		$	0		$	33,340
Internal		0			480			0			480
Total government and agencies		32,532			1,288			0			33,820
Municipalities:
Third party pricing vendor		0			2,222			0			2,222
Internal		0			814			0			814
Total municipalities		0			3,036			0			3,036
Mortgage- and asset-backed securities:
Third party pricing vendor		0			955			0			955
Broker/other		0			0			291			291
Total mortgage- and asset-backed securities		0			955			291			1,246
Public utilities:
Third party pricing vendor		0			4,527			0			4,527
Internal		0			5,031			0			5,031
Broker/other		0			0			493			493
Total public utilities		0			9,558			493			10,051
Sovereign and supranational:
Third party pricing vendor		0			273			0			273
Internal		0			799			0			799
Broker/other		0			0			43			43
Total sovereign and supranational		0			1,072			43			1,115
Banks/financial institutions:
Third party pricing vendor		0			5,237			0			5,237
Internal		0			6,309			0			6,309
Broker/other		0			0			45			45
Total banks/financial institutions		0			11,546			45			11,591
Other corporate:
Third party pricing vendor		0			29,495			0			29,495
Internal		0			7,916			0			7,916
Broker/other		0			0			426			426
Total other corporate		0			37,411			426			37,837
Total securities available for sale		$	32,532		$	64,866		$	1,298		$	98,696
Equity securities, carried at fair value:
Third party pricing vendor		$	1,340		$	90		$	0		$	1,430
Broker/other		0			0			173			173
Total equity securities		$	1,340		$	90		$	173		$	1,603


	December 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		$	25,469		$	230		$	0		$	25,699
Total government and agencies		25,469			230			0			25,699
Municipalities:
Third party pricing vendor		0			436			0			436
Total municipalities		0			436			0			436




Public utilities:
Third party pricing vendor		0			55			0			55
Total public utilities		0			55			0			55
Sovereign and supranational:
Third party pricing vendor		0			313			0			313
Broker/other		0			337			0			337
Total sovereign and supranational		0			650			0			650



Other corporate:
Third party pricing vendor		0			29			0			29

Total other corporate		0			29			0			29
Total securities held to maturity		$	25,469		$	1,400		$	0		$	26,869

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

Derivatives

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

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


Instrument Type						Level 2
Interest rate derivatives						Swap yield curves Basic curves Interest rate volatility (1)
Foreign currency exchange rate derivatives - Non-VIES (forwards, swaps and options)						Foreign currency forward rates Swap yield curves Basis curves Foreign currency spot rates Cross foreign currency basis curves Foreign currency volatility (1)
Foreign currency exchange rate derivatives - VIEs (swaps)						Foreign currency spot rates Swap yield curves Credit default swap curves Basis curves Recovery rates Foreign currency forward rates Foreign cross currency basis curves

(1) Option-based only

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

The Parent Company has cross-currency swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. Their fair values are based on observable market inputs, therefore they are classified as Level 2.

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

For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. Nevertheless, the Company has full transparency into the contracts to properly value the swaps for reporting purposes. Prior to October 1, 2021, these derivatives were classified as Level 3 because certain significant inputs were determined to be unobservable, primarily due to the long duration of the swaps which required extrapolation beyond the observable limits of the curve(s). However, due to the natural aging of the swap portfolio and the continued evolution of capital market inputs, especially the availability of long-term interest rates with tenors beyond 30 years, the Company has concluded that all significant inputs are now observable. As a result, effective October 1, 2021, the Company transferred the derivatives associated with its consolidated VIEs to Level 2 of the fair value hierarchy.

For 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 TREs, CMLs and MMLs. The Company's loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U.S. Treasury or floating-rate benchmark yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments 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

Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable. Effective October 1, 2021, the foreign exchange swaps discussed above were transferred from Level 3 to Level 2 because the significant inputs used for their valuation that were previously unobservable are now observable.

The following tables present the changes in fair value of the Company's investments and derivatives carried at fair value classified as Level 3. Derivative assets and liabilities are presented as a net value.


Three Months Ended March 31, 2022
	Fixed Maturity Securities										Equity Securities		Derivatives
(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	$	291	$	493	$	43	$	45	$	426	$	173	$	0	$	1,471
Net investment gains (losses) included in earnings	0		0		0		0		0		7		0		7
Unrealized gains (losses) included in other comprehensive income (loss)	(15)		(37)		(2)		0		(18)		0		0		(72)
Purchases, issuances, sales and settlements:
Purchases	76		9		0		0		0		10		0		95
Issuances	0		0		0		0		0		0		0		0
Sales	0		0		0		0		0		0		0		0
Settlements	(2)		(8)		0		(3)		(1)		(7)		0		(21)
Transfers into Level 3	0		128		0		18		24		0		0		170
Transfers out of Level 3	(32)		0		0		0		(141)		(17)		0		(190)
Balance, end of period	$	318	$	585	$	41	$	60	$	290	$	166	$	0	$	1,460
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	$	4	$	0	$	4


Three Months Ended March 31, 2021
	Fixed Maturity Securities										Equity Securities		Derivatives
(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		0		32		0		0		55
Transfers out of Level 3	(15)		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

Fair Value Sensitivity

Level 3 Significant Unobservable Input Sensitivity

The following tables summarize the significant unobservable inputs used in the valuation of the Company's Level 3 investments carried at fair value. Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments.

March 31, 2022

(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

318

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

585

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

290

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

166

Net asset value

Offered quotes

N/A

(a)

Total assets

1,460

(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.

December 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

291

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

493

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

426

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

173

Net asset value

Offered quotes

N/A

(a)

Total assets

1,471

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

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

Net Asset Value

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

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.

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

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 2021 Annual Report.

6. POLICY LIABILITIES

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


	Three Months Ended March 31,
(In millions)		2022		2021
Unpaid supplemental health claims, beginning of period		$	4,067	$	4,389
Less reinsurance recoverables		37		39
Net balance, beginning of period		4,030		4,350
Add claims incurred during the period related to:
Current year		1,737		1,859
Prior years		(208)		(320)
Total incurred		1,529		1,539
Less claims paid during the period on claims incurred during:
Current year		468		511
Prior years		987		1,061
Total paid		1,455		1,572
Effect of foreign exchange rate changes on unpaid claims		(135)		(162)
Net balance, end of period		3,969		4,155
Add reinsurance recoverables		40		37
Unpaid supplemental health claims, end of period		4,009		4,192
Unpaid life claims, end of period		745		756
Total liability for unpaid policy claims		$	4,754	$	4,948

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $208 million for the three-month period ended March 31, 2022 comprises approximately $114 million from Japan and $94 million from the U.S., representing approximately 55% and 45% of the total, respectively. Excluding the impact of foreign exchange of a loss of approximately $7 million from December 31, 2021 to March 31, 2022, the favorable claims development in Japan would have been approximately $122 million, representing approximately 59% of the total.

The Company has experienced continued favorable claim trends in 2022 for its core health products in Japan. During the first quarter of 2022, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic. This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits and staying home more. This resulted in lower sickness, accident, and cancer incurred claims. In addition, dating back to before the pandemic, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development. Even though overall experience is favorable, during the first quarter of 2022, there has been an increase in medical hospitalization claims related to COVID-19, due to the Omicron variant surge in Japan. The Company is monitoring the experience of this benefit, and will additionally adjust claim reserves as needed.

In the first quarter of 2022, as experienced in 2021 and 2020, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims trend continued for the majority of the Company's major U.S. accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability. Refinements to COVID-19 incurred estimates also contributed to the favorable development. The U.S. portion of the favorable claims development includes $32 million related to refinements in the estimates for COVID and non-COVID claims as experience emerges.

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 $793 million and $859 million as of March 31, 2022 and December 31, 2021, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $883 million and $937 million as of March 31, 2022 and December 31, 2021, respectively. The spot yen/dollar exchange rate weakened by approximately 6.0% and ceded reserves decreased approximately 5.7% from December 31, 2021 to March 31, 2022.

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


	Three Months Ended March 31,
(In millions)		2022	2021
Direct earned premiums				$	4,214	$	4,652
Ceded to other companies:
Ceded Aflac Japan closed blocks				(98)		(114)
Other				(19)		(19)
Assumed from other companies:
Retrocession activities				41		48
Other				40		26
Net earned premiums				$	4,178	$	4,593

Direct benefits and claims				$	2,505	$	2,776
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks				(91)		(99)
Eliminations				6		8
Other				(4)		(8)
Assumed from other companies:
Retrocession activities				38		42
Eliminations				(6)		(8)
Other				39		24
Benefits and claims, net				$	2,487	$	2,735

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

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥120 billion as of March 31, 2022. This reinsurance facility agreement was renewed in 2021 and is effective until December 31, 2022. 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, 2022, 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, 2022			December 31, 2021
3.625% senior notes due November 2024		$	748		$	748
3.25% senior notes due March 2025		448			448
1.125% senior sustainability notes due March 2026		397			397
2.875% senior notes due October 2026		298			298
3.60% senior notes due April 2030		992			991
6.90% senior notes due December 2039		221			221
6.45% senior notes due August 2040		255			255
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)		101			107
.932% senior notes due January 2027 (principal amount ¥60.0 billion)		489			520
.500% senior notes due December 2029 (principal amount ¥12.6 billion)		103			109
.550% senior notes due March 2030 (principal amount ¥13.3 billion)		108			115
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)		238			254
.633% senior notes due April 2031 (principal amount ¥30.0 billion)		244			259
.843% senior notes due December 2031 (principal amount ¥9.3 billion)		76			81
.750% senior notes due March 2032 (principal amount ¥20.7 billion)		168			179
.844% senior notes due April 2033 (principal amount ¥12.0 billion)		97			104
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)		123			131
.934% senior notes due December 2034 (principal amount ¥9.8 billion)		80			85
.830% senior notes due March 2035 (principal amount ¥10.6 billion)		86			91
1.039% senior notes due April 2036 (principal amount ¥10.0 billion)		81			86
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)		72			77
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)		51			54
1.264% senior notes due April 2041 (principal amount ¥10.0 billion)		81			86
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)		486			517
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)		244			260
1.560% senior notes due April 2051 (principal amount ¥20.0 billion)		162			172
Yen-denominated loans:
Variable interest rate loan due September 2026 (.42% in 2022 and .41% in 2021, principal amount ¥5.0 billion)		41			43
Variable interest rate loan due September 2029 (.57% in 2022 and .56% in 2021, principal amount ¥25.0 billion)		203			216
Finance lease obligations payable through 2028		10			12
Operating lease obligations payable through 2049		130			105
Total notes payable and lease obligations		$	7,768		$	7,956

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

A summary of the Company's lines of credit as of March 31, 2022 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 30, 2022

$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) USD London Interbank Offered Rate (LIBOR) for U.S. dollar denominated borrowings or TIBOR for Japanese yen denominated borrowings, in either case adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin

No later than November 18, 2024

.085% to

.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 rate determined by reference to USD LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the highest of (a) the lender's U.S. dollar short-term commercial loan rate, (b) the federal funds rate plus 1/2 of 1% and (c) USD one-month LIBOR plus 1%. USD LIBOR is subject to replacement with Secured Overnight Financing Rate (SOFR) under certain circumstances

Up to 3 months

None

General corporate purposes

Aflac(1)

uncommitted revolving

364 days

November 30, 2022

$250 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated(1)

(Tranche 1)

uncommitted revolving

364 days

November 25, 2022

¥50.0 billion

¥0.0 billion

Three-month TIBOR plus 70 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated(1)

(Tranche 2)

uncommitted revolving

364 days

November 25, 2022

¥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 8, 2022(2)

$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, 2023

$15 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

No later than
March 22, 2023

None

General corporate purposes

(1) Intercompany credit agreement

(2) Renewed in April 2022 with an expiration date of April 10, 2023

(continued)

Borrower(s)

Type

Term

Expiration Date

Capacity

Amount Outstanding

Interest Rate on Borrowed Amount

Maturity Period

Commitment Fee

Business Purpose

Tier One Insurance Company(1)

uncommitted revolving

364 days

March 21, 2023

$0.3 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

No later than March 22, 2023

None

General corporate purposes

Aflac Ventures Japan K.K.(1)

uncommitted revolving

364 days

May 2, 2022

¥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 2, 2022

None

General corporate purposes

Hatch Healthcare K.K.(1)

uncommitted revolving

364 days

January 3, 2023

¥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 4, 2023

None

General corporate purposes

Hatch Insight K.K.(1)

uncommitted revolving

364 days

January 3, 2023

¥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 4, 2023

None

General corporate purposes

Aflac GI Holdings LLC(1)

uncommitted revolving

364 days

July 18, 2022

$30 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

No later than July 18, 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, 2022. No events of default or defaults occurred during the three-month period ended March 31, 2022.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2021 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)	2022	2021
Common stock - issued:
Balance, beginning of period	1,352,739	1,351,018
Exercise of stock options and issuance of restricted shares	1,041	1,261
Balance, end of period	1,353,780	1,352,279
Treasury stock:
Balance, beginning of period	700,607	658,564
Purchases of treasury stock:
Share repurchase program	8,007	13,440
Other	343	378
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(259)	(387)
Exercise of stock options	(58)	(211)
Other	(209)	(212)
Balance, end of period	708,431	671,572
Shares outstanding, end of period	645,349	680,707

Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic earnings per share (EPS). The following table presents the approximate number of share-based awards to purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted EPS for the following periods.


	Three Months Ended March 31,
(In thousands)		2022	2021
Anti-dilutive share-based awards				249	1

Share Repurchase Program

During the first three months of 2022, the Company repurchased 8.0 million shares of its common stock for $500 million as part of its share repurchase program. 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, 2022, a remaining balance of 47.8 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, 2022
(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, 2021		$	(2,013)		$	9,602		$	(30)		$	(166)		$	7,393


Other comprehensive income (loss) before reclassification		(469)			(3,754)			0			(2)			(4,225)
Amounts reclassified from accumulated other comprehensive income (loss)		0			(61)			1			5			(55)
Net current-period other comprehensive income (loss)		(469)			(3,815)			1			3			(4,280)
Balance at March 31, 2022		$	(2,482)		$	5,787		$	(29)		$	(163)		$	3,113

All amounts in the table above are net of tax.


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.

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, 2022
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	77	Net investment gains (losses)
		(16)		Tax (expense) or benefit(1)
		$	61	Net of tax
Unrealized gains (losses) on derivatives		$	(1)	Net investment gains (losses)
		0		Tax (expense) or benefit(1)
		$	(1)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(6)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		1		Tax (expense) or benefit(1)
		$	(5)	Net of tax
Total reclassifications for the period		$	55	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, 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).

10. SHARE-BASED COMPENSATION

As of March 31, 2022, 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, 2022, approximately 35.8 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. 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, 2022, 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 cliff basis over three years. The Compensation Committee of the Board of Directors has the discretion to determine vesting schedules.

Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares.

The following table provides information on stock options outstanding and exercisable at March 31, 2022.


	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		1,843		3.3		$	61		$	31.48
Exercisable		1,843		3.3		61			31.48

The Company received cash from the exercise of stock options in the amount of $8 million during the first three months of 2022, compared with $15 million in the first three months of 2021. The tax benefit realized as a result of stock option exercises and restricted stock releases was $16 million in the first three months of 2022, compared with $14 million in the first three months of 2021.

As of March 31, 2022, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $76 million, of which $43 million (1.8 million shares) was related to restricted stock awards and units with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.9 years. There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the three-month period ended March 31, 2022.


(In thousands of shares)	Shares	Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2021	2,557		$	49.38
Granted in 2022	978		67.67
Canceled in 2022	(20)		50.73
Vested in 2022	(1,064)		49.49
Restricted stock at March 31, 2022	2,451		$	55.91

In February 2022, the Company granted 390 thousand performance-based stock awards and units, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company estimated the fair value of restricted stock awards and units with market-based conditions using a Monte Carlo simulation model. The model discounts the value of the stock at the assumed vesting date based on the risk-free interest rate. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage 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 2021 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.

The Company provides certain health care benefits for eligible U.S. retired employees, their beneficiaries and covered dependents (other postretirement benefits). The health care plan is contributory and unfunded. Effective January 1, 2014, employees eligible for benefits included the following: (1) active employees whose age plus service, in years, equaled or exceeded 80 (rule of 80); (2) active employees who were age 55 or older and have met the 15 years of service requirement; (3) active employees who would meet the rule of 80 in the next five years; (4) active employees who were age 55 or older and who would meet the 15 years of service requirement within the next five years; and (5) current retirees. For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $4 million and $7 million for the three-month periods ended March 31, 2022 and 2021, respectively. Total net periodic benefit cost includes the following components:


	Three Months Ended March 31,
	Pension Benefits												Other
	Japan						U.S.						Postretirement Benefits
(In millions)	2022			2021			2022			2021			2022			2021
Components of net periodic benefit cost:
Service cost		$	5		$	6		$	6		$	7		$	0		$	0
Interest cost		2			1			9			8			0			0
Expected return on plan assets		(2)			(2)			(11)			(10)			0			0
Amortization of net actuarial loss		0			1			5			8			1			1

Net periodic (benefit) cost		$	5		$	6		$	9		$	13		$	1		$	1

During the three months ended March 31, 2022, Aflac Japan contributed approximately $9 million (using the weighted-average yen/dollar exchange rate for the three-month period ended March 31, 2022) 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 2021 Annual Report.

12. COMMITMENTS AND CONTINGENT LIABILITIES

Effective for 2022, the Company renewed an outsourcing agreement with an information technology and data services company to provide application maintenance and development services for Aflac Japan. As of March 31, 2022, the agreement has a remaining term of four years and an aggregate remaining cost of ¥8.0 billion ($65 million using the March 31, 2022 exchange rate).

The Company is a defendant in various lawsuits considered to be in the normal course of business. Members of the Company's senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. 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, 2022. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the three-month periods ended March 31, 2022 and 2021 were immaterial.

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

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

•deviations in actual experience from pricing and reserving assumptions

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

•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

•operational risks of third party vendors

•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, 2022 and 2021, 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, 2021 (2021 Annual Report). In this MD&A, amounts may not foot due to rounding.

This MD&A is divided into the following sections:


			Page
Executive Summary			65
Results of Operations			66
Investments			79
Hedging Activities			84
Deferred Policy Acquisition Costs			88
Policy Liabilities			88
Benefit Plans			89
Policyholder Protection			89
Liquidity and Capital Resources			89
Critical Accounting Estimates			94

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.).

Market Conditions

The impact of the Coronavirus Disease 2019 (COVID-19) global pandemic on the Company continues to evolve and the continued path of the global economic recovery remains uncertain given the potential longer term impacts of the pandemic. For example, economic conditions have acted as headwinds to sales in the first quarter of 2022, particularly in Japan, pressuring premium growth rates. Further, in the U.S., supply shortages, upward pressure on wages to attract employees and higher commodity prices have all driven near-term increases in inflation. Central bank and government efforts to control inflation, as well the impacts of the Russia-Ukraine conflict, including volatility in energy prices and additional disruptions in the global supply chain, could lead to slower economic growth in Japan and the U.S. Additionally, rising energy prices, along with increased widening of the differential between U.S. and Japan interest rates, have contributed to a weakening of the yen, which has the effect of suppressing the Company's current period results in relation to the comparable prior period.

In the first quarter of 2022, sales for Aflac Japan in yen terms decreased 14.8%, compared to the first quarter of 2021, reflecting ongoing pandemic conditions and a first quarter of 2021 that included the launch of a new medical product. In the first quarter of 2022, sales for Aflac U.S. increased 19.0%, compared to the first quarter of 2021, reflecting continued improvement in pandemic conditions in the U.S. and investment in growth initiatives.

Performance Highlights

Total revenues were $5.3 billion in the first quarter of 2022, compared with $5.9 billion in the first quarter of 2021. Net earnings were $1.0 billion, or $1.58 per diluted share in the first quarter of 2022, compared with $1.3 billion, or $1.87 per diluted share, in the first quarter of 2021.

Results in the first quarter of 2022 included pretax net investment gains of $122 million, compared with pretax net investment gains of $307 million in the first quarter of 2021. Net investment gains in the first quarter of 2022 included a decrease in credit loss allowances of $25 million; $167 million of net gains from certain derivative and foreign currency gains or losses; $156 million of net losses on equity securities; and $86 million of net gains from sales and redemptions.

The average yen/dollar exchange rate(1) for the three-month period ended March 31, 2022 was 116.18, or 8.9% weaker than the average yen/dollar exchange rate(1) of 105.88 for the same period in 2021.

Adjusted earnings(2) in the first quarter of 2022 were $927 million, or $1.42 per diluted share, compared with $1.1 billion, or $1.53 per diluted share, in the first quarter of 2021. The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.06.

Total investments and cash at March 31, 2022 were $132.6 billion, compared with $143.0 billion at December 31, 2021. In the first quarter of 2022, Aflac Incorporated repurchased $500 million, or 8.0 million of its common shares. At March 31, 2022, the Company had 47.8 million remaining shares authorized for repurchase.

Shareholders’ equity was $29.5 billion, or $45.75 per share, at March 31, 2022, compared with $33.3 billion, or $50.99 per share, at December 31, 2021. Shareholders’ equity at March 31, 2022 included a net unrealized gain on investment securities and derivatives of $5.8 billion, compared with a net unrealized gain of $9.6 billion at December 31, 2021. Shareholders’ equity at March 31, 2022 also included an unrealized foreign currency translation loss of $2.5 billion, compared with an unrealized foreign currency translation loss of $2.0 billion at December 31, 2021. The annualized return on average shareholders’ equity in the first quarter of 2022 was 13.2%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI)(2) (adjusted book value) was $26.4 billion, or $40.93 per share at March 31, 2022, compared with $25.9 billion, or $39.65 per share, at December 31, 2021. The annualized adjusted return on equity (ROE) excluding foreign currency impact(2) in the first quarter of 2022 was 14.7%.

(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 United States generally accepted accounting principles (U.S. GAAP) (non-U.S. GAAP). The financial measures exclude items that the Company believes may obscure the underlying fundamentals and trends in insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with 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 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, which results in foreign currency impact to earnings, cash flows and book value on a U.S. GAAP basis. Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts 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 the 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 the Company’s insurance operations on a consolidated basis and believes that a presentation of these financial measures is vitally important to an understanding of the underlying profitability drivers and trends of the Company’s insurance business. The most comparable U.S. GAAP financial measures for adjusted earnings and adjusted earnings per share (basic or diluted) are 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 for adjusted net investment gains and losses 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 Corporate and other. 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 is 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 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. Adjusted book value per common share is adjusted book value at the period end divided by the ending outstanding common shares for the period presented. The Company considers adjusted book value and adjusted book value per common share important as they exclude AOCI, which fluctuates due to market movements that are outside management’s control. The most comparable U.S. GAAP financial measures for adjusted book value and adjusted book value per common share are total book value and total book value per common share, respectively.

•Adjusted return on equity excluding foreign currency impact is adjusted earnings excluding the 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 for adjusted return on equity excluding foreign currency impact is ROE as determined using net earnings and average total shareholders’ equity.

•U.S. dollar-denominated investment income excluding foreign currency impact represents amounts excluding foreign currency impact on U.S. dollar-denominated investment income 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


		In Millions	Per Diluted Share
	Three Months Ended March 31,
			2022		2021		2022		2021
Net earnings			$	1,032	$	1,293	$	1.58	$	1.87
Items impacting net earnings:
Adjusted net investment (gains) losses (1)			(134)		(304)		(.21)		(.44)
Other and non-recurring (income) loss			1		6		.00		.01
Income tax (benefit) expense on items excluded from adjusted earnings			28		62		.04		.09

Adjusted earnings			927		1,058		1.42		1.53
Current period foreign currency impact (2)			37		N/A		.06		N/A
Adjusted earnings excluding current period foreign currency impact			$	963	$	1,058	$	1.48	$	1.53

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

(2) 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


	Three Months Ended March 31,
(In millions)		2022		2021
Net investment (gains) losses		$	(122)	$	(307)
Items impacting net investment (gains) losses:
Amortized hedge costs		(26)		(19)
Amortized hedge income		11		17
Net interest cash flows from derivatives associated with certain investment strategies		(9)		(8)
Interest rate component of the change in fair value of foreign currency swaps on notes payable		13		14
Adjusted net investment (gains) losses		$	(134)	$	(304)

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 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 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

•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.

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

Other items excluded from adjusted earnings include integration costs related to the Company's acquisition of Zurich North America's U.S. Corporate Life and Pensions business; these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services. These integration costs are excluded from adjusted earnings for one year following the acquisition and amounted to $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 19.1% for the three-month period ended March 31, 2022, compared with 19.4% for the same period in 2021. The combined effective tax rate differs from the U.S. statutory rate primarily due to solar, historic and foreign tax credits. For additional information, see the Critical Accounting Estimates - Income Taxes section of Item 7. MD&A in the 2021 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 the risk factor entitled "Tax rates applicable to the Company may change" in Item 1A. Risk Factors of the 2021 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 the weighted average Japanese yen/U.S. dollar foreign exchange rate for the reporting period, except realized gains and losses on securities 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 the spot Japanese yen/U.S. dollar foreign exchange rate at the end of the reporting period.

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. In addition, the Parent Company, other business units that are not individually reportable, and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S. are included in Corporate and other. See Item 1. Business in the 2021 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)		2022		2021
Net earned premiums		$	2,724	$	3,123
Net investment income: (1)
Yen-denominated investment income		299		328
U.S. dollar-denominated investment income		406		397
Net investment income		705		724
Amortized hedge costs related to certain foreign currency exposure management strategies		26		19
Adjusted net investment income		680		705
Other income (loss)		9		13
Total adjusted revenues		3,413		3,841
Benefits and claims, net		1,827		2,135
Adjusted expenses:
Amortization of deferred policy acquisition costs		154		172
Insurance commissions		161		187
Insurance and other expenses		410		460
Total adjusted expenses		725		818
Total benefits and adjusted expenses		2,551		2,954
Pretax adjusted earnings		$	862	$	887
Weighted-average yen/dollar exchange rate		116.18		105.88


		In Dollars						In Yen
Percentage change over previous period:	Three Months Ended March 31,						Three Months Ended March 31,
			2022		2021				2022		2021
Net earned premiums			(12.8)	%	(.9)	%			(4.3)	%	(3.6)	%
Adjusted net investment income			(3.5)		9.8				5.9		6.9
Total adjusted revenues			(11.1)		1.0				(2.5)		(1.8)
Pretax adjusted earnings			(2.8)		3.7				6.8		.9

(1) Net interest cash flows from derivatives associated with certain investment strategies of $(10) and $(8) for the three-month periods ended March 31, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three-month period ended March 31, 2022, Aflac Japan's net earned premiums decreased, in yen terms, mainly due to limited-pay products reaching premium paid-up status and constrained sales from the impact of pandemic conditions. In yen terms, adjusted net investment income increased in the three-month period ended March 31, 2022, primarily due to higher alternative and floating rate income as well as the impact of a weaker yen on U.S. dollar-denominated investment income. The increase in pretax adjusted earnings in yen for the quarter was primarily due to continued favorable claim trends and higher adjusted net investment income.

Annualized premiums in force decreased 4.6% to ¥1.35 trillion as of March 31, 2022, compared with ¥1.41 trillion as of March 31, 2021. The decrease in annualized premiums in force in yen was driven primarily by limited-pay products reaching premium paid-up status and lower sales during the COVID-19 pandemic. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $11.0 billion at March 31, 2022, compared with $12.7 billion at March 31, 2021.

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						Three Months
			2022		2021				2022	2021
Adjusted net investment income			5.9	%	6.9	%			.3	8.5	%
Total adjusted revenues			(2.5)		(1.8)				(3.5)	(1.5)
Pretax adjusted earnings			6.8		.9				2.5	2.1

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:		2022		2021
Benefits and claims, net		53.5	%	55.6	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		4.5		4.5
Insurance commissions		4.7		4.9
Insurance and other expenses		12.0		12.0
Total adjusted expenses		21.2		21.3
Pretax adjusted earnings		25.3		23.1
Ratios to total premiums:
Benefits and claims, net		67.1	%	68.4	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		5.7		5.5

In the three-month period ended March 31, 2022, the benefit ratio to total premiums decreased, compared with the same period in the prior year. This is primarily due to the continued change in the mix of first and third sector business and lower benefits in Aflac Japan's third sector business. In the three-month period ended March 31, 2022, the adjusted expense ratio decreased slightly compared to 2021 reflecting the decrease in total adjusted revenues and an offsetting decrease in total adjusted expenses. In total, the pretax adjusted profit margin increased in the three-month period ended March 31, 2022 primarily due to lower benefit ratios and higher adjusted net investment income.

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)			2022			2021				2022			2021
New annualized premium sales			$	103		$	132			¥	11.9		¥	14.0
Increase (decrease) over prior period			(22.4)		%	2.6		%		(14.8)		%	(.2)		%

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
		2022		2021
Cancer		53.0	%	45.4	%
Medical		31.4		43.3
Income support		1.1		.6
Ordinary life:
WAYS		.7		.7
Child endowment		.3		.3
Other ordinary life (1)		9.0		8.9
Other		4.5		.8
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 14.9% in the first quarter of 2022, compared with the first quarter of 2021, reflecting ongoing pandemic conditions and a first quarter of 2021 that included the launch of a new medical product.

Sales of Aflac Japan cancer products in the Japan Post Group channel experienced a material decline beginning in August 2019. Japan Post Group resumed proactive sales of cancer insurance policies in April 2021 and Aflac Japan continues to strengthen the strategic alliance. In April 2022, approximately 10,000 employees of Japan Post Co. were transferred to Japan Post Insurance. Japan Post Group has informed Aflac Japan that the transferred employees' responsibilities will include sales of Japan Post Insurance products and Aflac Japan cancer products but will not include sales of other financial products. The Company expects continued collaboration to further position both companies for long-term growth and a gradual improvement of Japan Post Group cancer insurance sales in the intermediate term. For example, during 2021 Aflac Japan observed an increase in the number of proposals to potential customers in the Japan Post Group channel, and the Japan Post Group continues to conduct a nationwide campaign to improve certain sales process practices. For additional information, see the risk factor entitled "Sales of the Company's products and services are dependent on its ability to attract, retain and support a network of qualified sales associates, brokers and employees in the U.S. and sales associates and other distribution partners in Japan," in Item 1A. Risk Factors in the 2021 Annual Report.

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

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


	2022		2021
Independent corporate and individual	48.9	%	54.3	%
Affiliated corporate (1)	46.5		40.6
Bank	4.6		5.1
Total	100.0	%	100.0	%

(1) Includes Japan Post

During the three-month period ended March 31, 2022, Aflac Japan recruited 6 new sales agencies. At March 31, 2022, Aflac Japan was represented by approximately 7,700 sales agencies, with approximately 110,000 licensed sales associates employed by those agencies. The number of sales agencies has declined in recent years due to Aflac Japan's focus on supporting agencies with strong management frameworks, high productivity and more producing agents.

At March 31, 2022, 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)		2022		2021
Yen-denominated:
Fixed maturity securities:
Japan government and agencies		$	0	$	1,181
Private placements		307		196
Other fixed maturity securities		17		107
Equity securities		91		117
Other investments		3		2
Total yen-denominated		$	418	$	1,603

U.S. dollar-denominated:
Fixed maturity securities:
Other fixed maturity securities		$	85	$	606


Collateralized loan obligations		67		117

Commercial mortgage and other loans:
Transitional real estate loans		507		61

Middle market loans		311		783
Other investments		48		56
Total U.S. dollar-denominated		$	1,018	$	1,623
Total Aflac Japan purchases		$	1,436	$	3,226

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 2021 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
		2022			2021
Total purchases for the period (in millions) (1)		$	1,385		$	3,168
New money yield (1), (2)		3.90		%	2.72		%
Return on average invested assets (3)		2.54			2.47
Portfolio book yield, including U.S. dollar-denominated investments, end of period (1)		2.62		%	2.58		%

(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 increase in the Aflac Japan new money yield in the three-month period ended March 31, 2022 was primarily due to increased allocations to higher yielding floating rate asset classes. See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Investments and Hedging Activities sections 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)		2022			2021
Net earned premiums		$	1,413		$	1,422
Adjusted net investment income (1)		184			176
Other income		42			30
Total adjusted revenues		1,639			1,628
Benefits and claims		622			556
Adjusted expenses:
Amortization of deferred policy acquisition costs		168			139
Insurance commissions		140			139
Insurance and other expenses		384			347
Total adjusted expenses		692			626
Total benefits and adjusted expenses		1,314			1,182
Pretax adjusted earnings		$	325		$	445
Percentage change over previous period:
Net earned premiums		(.6)		%	(4.1)		%
Adjusted net investment income		4.5			(.6)
Total adjusted revenues		.7			(3.5)
Pretax adjusted earnings		(27.0)			36.5

(1) Net interest cash flows from derivatives associated with certain investment strategies of $1 for the three-month period ended March 31, 2022, 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, 2022, net earned premiums for Aflac U.S. decreased primarily due to lower persistency. Adjusted net investment income increased in the three-month period ended March 31, 2022, primarily impacted by higher variable net investment income. Other income increased in the three-month period ended March 31, 2022 due to an increase in fee income. The decrease in pretax adjusted earnings in the three-month period ended March 31, 2022, was driven by higher incurred benefits as benefits approach pre-pandemic levels, and elevated adjusted expenses.

Annualized premiums in force decreased 1.4% to $5.9 billion at March 31, 2022, compared with $6.0 billion at March 31, 2021.

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


	Three Months Ended March 31,
Ratios to total adjusted revenues:		2022		2021
Benefits and claims		37.9	%	34.2	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		10.3		8.5
Insurance commissions		8.5		8.5
Insurance and other expenses		23.4		21.3
Total adjusted expenses		42.2		38.5
Pretax adjusted earnings		19.8		27.3
Ratios to total premiums:
Benefits and claims		44.0	%	39.1	%
Adjusted expenses:
Amortization of deferred policy acquisition costs		11.9		9.8

For the three-month period ended March 31, 2022, the benefit ratio to total premiums increased compared with the same period in 2021, reflecting higher incurred claims, partially offset by reserve releases related to lower persistency. The adjusted expense ratio increased in the three-month period ended March 31, 2022, when compared with the same period in 2021, primarily due to higher DAC amortization associated with lower persistency and planned spending reflecting ongoing investments in the U.S. platform. The pretax adjusted profit margin decreased in the three-month period ended March 31, 2022, compared with the same period in 2021, primarily due to the higher adjusted expense and benefit ratios.

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)		2022			2021
New annualized premium sales		$	299		$	251
Increase (decrease) over prior period		19.0		%	(22.1)		%

New annualized premium sales for accident insurance, the leading Aflac U.S. product category, increased 14.1%; disability sales increased 21.5%; critical care insurance sales (including cancer insurance) increased 11.6%; hospital indemnity insurance sales increased 18.6%; and dental/vision sales increased 47.8% in the first quarter of 2022, compared with the first quarter of 2021. The increase in sales for Aflac U.S. in the first quarter of 2022 reflects continued improvement in pandemic conditions in the U.S and investment in growth initiatives. For the full year of 2022, Aflac U.S. expects this trend of increasing sales to continue.

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
		2022		2021
Accident		25.3	%	26.3	%
Disability		23.3		23.1
Critical care(1)		21.2		22.6
Hospital indemnity		16.7		16.7
Dental/vision		5.6		4.6
Life		7.9		6.7
Total		100.0	%	100.0	%

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

In the first quarter of 2022, the Aflac U.S. sales force included an average of approximately 6,100 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. Aflac U.S. believes that during 2021 and continuing into 2022, constraints in the labor market have limited its recruiting of new sales agents, and that limitations on face-to-face sales opportunities during the COVID-19 pandemic suppressed the development of newly recruited agents into business producers and the productivity of veteran agents and brokers. Aflac U.S. believes that the above factors have acted as a headwind to sales and to growth in the number of average weekly producers. Aflac U.S. remains focused on mitigating and reversing these trends as the U.S. economy continues to recover from the pandemic.

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

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)		2022		2021
Fixed maturity securities:
Other fixed maturity securities		$	232	$	246
Infrastructure debt		9		0
Collateralized loan obligations		0		11
Equity securities		9		0
Other investments:
Transitional real estate loans		107		24
Commercial mortgage loans		0		34
Middle market loans		166		58
Limited partnerships		5		6
Total Aflac U.S. Purchases		$	528	$	379

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 2021 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
		2022			2021
Total purchases for period (in millions) (1)		$	523		$	373
New money yield (1), (2)		4.60		%	3.22		%
Return on average invested assets (3)		4.61			4.69
Portfolio book yield, end of period (1)		4.95		%	5.12		%

(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 increase in the Aflac U.S. new money yield for the three-month period ended March 31, 2022 was primarily due to increased allocations to higher yielding floating rate asset classes. See Notes 3 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.

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)		2022		2021
Net earned premiums		$	41	$	48
Net investment income (loss) (1)		4		16
Amortized hedge income related to certain foreign currency management strategies		11		17
Adjusted net investment income		15		33
Other income		18		2
Total adjusted revenues		74		83
Benefits and claims, net		39		43
Adjusted expenses:
Interest expense		40		44
Other adjusted expenses		39		22
Total adjusted expenses		79		66
Total benefits and adjusted expenses		118		109
Pretax adjusted earnings		$	(44)	$	(26)

(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $12 for the three-month period ended March 31, 2022 is included as a reduction to net investment income. Tax credits on these investments of $16 for the three-month period ended March 31, 2022 have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

In the three-month period ended March 31, 2022, the decrease in total adjusted revenues was primarily driven by a decline in adjusted net investment income, partially offset by an increase in other income due to the receipt of interest on a tax refund and a gain on the sale of a parcel of non-core real estate. The decline in adjusted net investment income was primarily due to the impact of federal tax credit investments discussed below and lower amortized hedge income as a result of changing market conditions. The decrease in pretax adjusted earnings for the three-month period ended March 31, 2022, primarily reflects lower adjusted revenues and increases in other adjusted expenses.

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

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, 2022
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	74,352	$	13,720	$	1,893	$	89,965
Held to maturity, fixed maturity securities, at amortized cost (1)	20,672		0		0		20,672
Equity securities	677		217		521		1,415
Commercial mortgage and other loans:
Transitional real estate loans (1)	4,359		1,071		109		5,539
Commercial mortgage loans (1)	1,210		653		8		1,871
Middle market loans (1)	4,457		445		0		4,902
Other investments:
Policy loans	203		21		0		224
Short-term investments (2)	469		291		987		1,747
Limited partnerships	1,623		179		162		1,964
Other	0		25		0		25
Total investments	108,022		16,622		3,680		128,324
Cash and cash equivalents	1,626		583		2,066		4,275
Total investments and cash	$	109,648	$	17,205	$	5,746	$	132,599

(1) Net of allowance for credit losses

(2) Includes securities lending collateral


	December 31, 2021
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	81,793	$	14,910	$	1,993	$	98,696
Held to maturity, fixed maturity securities, at amortized cost (1)	22,000		0		0		22,000
Equity securities	714		226		663		1,603
Commercial mortgage and other loans:
Transitional real estate loans (1)	4,226		1,020		45		5,291
Commercial mortgage loans (1)	1,217		669		8		1,894
Middle market loans (1)	4,297		304		0		4,601
Other investments:
Policy loans	216		20		0		236
Short-term investments (2)	590		302		834		1,726
Limited partnerships	1,534		169		155		1,858
Other	0		22		0		22
Total investments	116,587		17,642		3,698		137,927
Cash and cash equivalents	2,053		681		2,317		5,051
Total investments and cash	$	118,640	$	18,323	$	6,015	$	142,978

(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, 2022						December 31, 2021
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.0	%		0.9	%		1.0	%		.9	%
AA		5.2			5.3			5.1			5.2
A		68.5			68.5			68.9			68.5
BBB		22.9			22.9			22.5			22.8
BB or lower		2.4			2.4			2.5			2.6
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of March 31, 2022, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of March 31, 2022.


(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
KLM Royal Dutch Airlines		B		$	139		$	120		$	(19)
Banco de Chile		A		163			149			(14)
Kommunal Landspensjonskasse (KLP)		BBB		123			113			(10)
Lloyds Banking Group PLC		A		188			178			(10)
JPMORGAN CHASE & CO		A		224			215			(9)
ORACLE CORP		BBB		195			186			(9)
Heathrow Funding Ltd.		BBB		82			73			(9)
DANSKE BANK A/S		BBB		135			126			(9)
Intesa Sanpaolo Spa		BBB		127			119			(8)
Nippon Prologis REIT Inc.		A		82			74			(8)

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, 2022
(In millions)	Par Value		Amortized Cost (1)		Fair Value		Unrealized Gain (Loss)
Investcorp Capital Limited	$	352	$	352	$	355	$	3
Pemex Project Funding Master Trust	245		245		248		3
Commerzbank	204		152		224		72
KLM Royal Dutch Airlines	163		139		120		(19)
Telecom Italia SpA	163		163		191		28
Autostrade Per Litalia Spa	163		162		175		13
Apache Corporation	138		116		156		40
IKB Deutsche Industriebank AG	106		50		94		44
Arconic Inc.	100		76		107		31
Generalitat de Catalunya	65		26		78		52
Other Issuers	281		284		298		14
Subtotal (2)	1,980		1,765		2,046		281

High yield corporate bonds	830		754		802		48
Middle market loans	4,722		4,586		4,632		46
Grand Total	$	7,532	$	7,105	$	7,480	$	375

(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 middle market loans primarily to U.S. corporate borrowers, most of which have below-investment-grade ratings. The objectives of this program 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, 2022
(In millions)	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		% of Total
Government and agencies	$	48,466	$	6,120	$	(348)	$	54,238	47.4	%
Municipalities	2,751		454		(31)		3,174		2.7
Mortgage- and asset-backed securities	1,335		57		(26)		1,366		1.3
Public utilities	8,063		1,222		(46)		9,239		7.9
Electric	6,571		1,009		(29)		7,551		6.4
Natural Gas	270		41		(3)		308		.3
Other	580		84		(8)		656		.6
Utility/Energy	642		88		(6)		724		.6
Sovereign and Supranational	1,410		217		(8)		1,619		1.4
Banks/financial institutions	9,824		1,056		(194)		10,686		9.6
Banking	5,693		691		(113)		6,270		5.6
Insurance	1,853		255		(40)		2,069		1.8
Other	2,278		110		(41)		2,347		2.2
Other corporate	30,287		4,225		(284)		34,228		29.7
Basic Industry	2,714		498		(27)		3,186		2.7
Capital Goods	3,317		359		(27)		3,649		3.2
Communications	3,057		541		(14)		3,584		3.0
Consumer Cyclical	2,594		353		(13)		2,934		2.5
Consumer Non-Cyclical	6,730		818		(63)		7,486		6.6
Energy	3,137		572		(14)		3,695		3.1
Other	1,220		149		(24)		1,345		1.2
Technology	4,066		333		(62)		4,337		4.0
Transportation	3,452		602		(40)		4,012		3.4
Total fixed maturity securities	$	102,136	$	13,351	$	(937)	$	114,550	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, 2022						December 31, 2021
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Publicly issued securities:
Fixed maturity securities		$	84,260		$	94,175		$	88,552		$	103,034
Equity securities		1,236			1,235			950			950
Total publicly issued		85,496			95,410			89,502			103,984
Privately issued securities: (2)
Fixed maturity securities (3)		17,876			20,375			18,817			22,531
Equity securities		179			180			653			653
Total privately issued		18,055			20,555			19,470			23,184
Total investment securities		$	103,551		$	115,965		$	108,972		$	127,168

(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, 2022				December 31, 2021
Privately issued reverse-dual currency securities		$	4,500			$	4,784
Publicly issued collateral structured as reverse-dual currency securities		1,500				1,596
Total reverse-dual currency securities		$	6,000			$	6,380
Reverse-dual currency securities as a percentage of total investment securities		5.8		%		5.9		%

(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 2021 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).

The following table presents metrics related to Aflac Japan's U.S. dollar-denominated hedge program and the Parent Company's enterprise corporate hedging program, including associated amortized hedge costs/income, for the three-month periods ended March 31. See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs/income.


	Three Months
	2022	2021
Aflac Japan:
FX Forwards
FX forward (sell USD, buy yen) notional at end of period (in billions) (1)	$4.5	$6.4
Weighted average remaining tenor (in months) (2)	9.9	9.7
Amortized hedge income (cost) for period (in millions)	$(13)	$(17)
FX Options
FX option notional at the end of period (in billions) (1)	$13.5	$11.5
Weighted average remaining tenor (in months) (2)	6.6	4.6
Amortized hedge income (cost) for period (in millions)	$(13)	$(3)
Corporate and Other (Parent Company):
FX Forwards
FX forward (buy USD, sell yen) notional at end of period (in billions) (1)	$5.0	$5.0
Weighted average remaining tenor (in months) (2)	10.9	11.5
Amortized hedge income (cost) for period (in millions)	$12	$18
FX Options
FX option notional at the end of period (in billions) (1)	$1.9	$1.9
Weighted average remaining tenor (in months) (2)	7.6	7.6
Amortized hedge income (cost) for period (in millions)	$(1)	$(1)

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

(2) 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/income have fluctuated in recent periods due to changes in the previously mentioned factors.

Aflac Japan’s U.S. Dollar-Denominated Hedge Program (U.S. Dollar 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 favorable capital treatment under the Japan solvency margin ratio (SMR) calculations. 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, 2022				December 31, 2021
(In millions)	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value
Available-for-sale securities:
Fixed maturity securities (excluding bank loans)	$	16,543	$	18,715	$	17,615	$	20,478

Equity securities	22		22		24		24
Commercial mortgage and other loans:
Transitional real estate loans (floating rate)	4,359		4,406		4,226		4,293
Commercial mortgage loans	1,211		1,172		1,217		1,265
Middle market loans (floating rate)	4,457		4,504		4,297		4,352
Other investments	1,622		1,622		1,534		1,534
Total U.S. Dollar Program	28,214		30,441		28,913		31,946
Available-for-sale securities:
Fixed maturity securities - economically converted to yen	2,340		3,231		2,236		3,328
Total U.S. dollar-denominated investments in Aflac Japan	$	30,554	$	33,672	$	31,149	$	35,274

(1) Net of allowance for credit losses

The 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. The Company uses one-sided foreign currency put options to mitigate the settlement risk on U.S. dollar-denominated assets related to extreme foreign currency rate changes. From time to time, Aflac Japan also maintains a collar program on a portion of its U.S. Dollar Program to mitigate against more extreme moves in foreign exchange and therefore support SMR. As of March 31, 2022, there were no collars in Aflac Japan, and none of the Company's foreign currency options hedging Aflac Japan's U.S. dollar-denominated assets were in-the-money.

In 2021, the Company moved to a strategy that contains one-sided put options, fewer foreign currency forwards and no collars. The Company believes that the new strategy will reduce its exposure to pricing volatility and the related risk of negative settlements should there be a material weakening in the yen. Depending on further developments, including the possibility of further market volatility, there may be additional costs associated with maintaining the options program. The Company is continually evaluating other adjustments, including the possibility of changing the level of hedging employed with the U.S. dollar-denominated investments.

As of March 31, 2022, the fair value of Aflac Japan's unhedged U.S. dollar-denominated portfolio was $9.9 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 following table presents the settlements associated with the Company's currency derivatives used for hedging Aflac Japan’s U.S. dollar-denominated investments.


	Three Months Ended March 31,
(In millions)	2022			2021
Net cash inflows (outflows)		$	(619)		$	108

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 $10.0 billion as of March 31, 2022, with hedging instruments comprised of $3.1 billion of yen-denominated debt and $6.9 billion of foreign currency forwards and options, compared with $10.2 billion as of December 31, 2021, with hedging instruments comprised of $3.3 billion of yen-denominated debt and $6.9 billion of foreign currency forwards and options.

The Company 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, 2022 and 2021, 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 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. This activity is reported in Corporate and Other. The Company continually evaluates the program’s efficacy.

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 Factors 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 2021 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, 2022			December 31, 2021			% Change
Aflac Japan		$	5,842		$	6,233		(6.3)	%	(1)
Aflac U.S.		3,240			3,292			(1.6)
Total		$	9,082		$	9,525		(4.7)	%

(1) Aflac Japan’s deferred policy acquisition costs decreased .3% in yen during the three months ended March 31, 2022.

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

POLICY LIABILITIES

The following table presents policy liabilities by segment.


(In millions)	March 31, 2022			December 31, 2021			% Change
Aflac Japan		$	88,089		$	93,613		(5.9)	%	(1)
Aflac U.S.		11,976			11,916			.5
Other		266			276			(3.6)
Intercompany eliminations(2)		(688)			(733)			(6.1)
Total		$	99,643		$	105,072		(5.2)	%

(1) Aflac Japan’s policy liabilities increased .1% in yen during the three months ended March 31, 2022.

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

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 2021 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 March 2022, Japan's Diet passed legislation that extended the government's fiscal support of the LIPPC through March 2027. 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 for both of the three-month periods ended March 31, 2022 and 2021 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, 2022 and 2021 were immaterial.

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 ROE. 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 in 2021, unallocated proceeds of which contribute to total cash but are not intended to support holding company liquidity. The Company remains committed to prudent liquidity and capital management. At March 31, 2022, the Company held $4.3 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion.

Aflac Japan and Aflac U.S. generate cash flows from their operations and 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, 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)	2022		2021
Management fees paid by subsidiaries	$	33	$	32
Dividends declared or paid by subsidiaries	514		427

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

Aflac Japan Remittances


(In millions of dollars and billions of yen)	2022		2021
Aflac Japan management fees paid to Parent Company	$	15	$	15

Aflac Japan dividends declared or paid to Parent Company (in dollars)	339		377
Aflac Japan dividends declared or paid to Parent Company (in yen)	¥	41.1	¥	41.0

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-denominated 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.

The Company believes that its balance of cash and cash equivalents and cash generated by operations will be sufficient to satisfy both its short-term and long-term cash requirements and plans for cash, including material cash requirements from known contractual obligations and returning capital to shareholders through share repurchases and dividends. For additional information, see the Liquidity and Capital Resources section of Item 7. MD&A in the 2021 Annual Report.

In addition to cash and cash 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 2021, 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 2024. The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available. Additionally, as of March 31, 2022, the Parent Company and Aflac had four lines of credit with third parties and ten intercompany lines of credit. The Company was in compliance with all of the covenants of its notes payable and lines of credit at March 31, 2022. For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

The Company's consolidated financial statements convey its financing arrangements during the periods presented. The Company has not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein. As of March 31, 2022, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations. The Company has not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards, including securities lending transactions. 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 2021 Annual Report for more information on the Company's securities lending and derivative activities. See Note 15 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet. With the exception of disclosed activities in those referenced footnotes and the Risk Factors in the 2021 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 consistently generates positive cash flows from operations, and has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments in order to meet short-term cash needs.

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)	2022		2021
Operating activities	$	1,260	$	1,366
Investing activities	(1,210)		(969)
Financing activities	(737)		(470)
Exchange effect on cash and cash equivalents	(89)		(78)
Net change in cash and cash equivalents	$	(776)	$	(151)

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 Corporate and other. 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 an 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 Federal Home Loan Bank of Atlanta (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 2022, Aflac U.S. borrowed and repaid $171 million under this program. As of March 31, 2022, Aflac U.S. had outstanding borrowings of $471 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

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

Cash returned to shareholders through treasury stock purchases and dividends was $750 million during the three-month period ended March 31, 2022, compared with $869 million during the three-month period ended March 31, 2021.

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)	2022		2021
Treasury stock purchases	$	500	$	650
Number of shares purchased:
Share repurchase program	8,007		13,440
Other	343		378
Total shares purchased	8,350		13,818

Treasury Stock Issued


(In millions of dollars and thousands of shares)	2022		2021
Stock issued from treasury:
Cash financing	$	9	$	9
Noncash financing	17		19
Total stock issued from treasury	$	26	$	28
Number of shares issued	526		810

As of March 31, 2022, a remaining balance of 47.8 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Cash dividends paid to shareholders were $.40 per share in the first quarter of 2022, compared with $.33 per share in the first quarter of 2021. The following table presents the dividend activity for the three-month periods ended March 31.


(In millions)	2022		2021
Dividends paid in cash	$	250	$	219
Dividends through issuance of treasury shares	9		8
Total dividends to shareholders	$	259	$	227

In April 2022, the board of directors declared the second quarter cash dividend of $.40 per share, an increase of 21.2% compared with the same period in 2021. The dividend is payable on June 1, 2022 to shareholders of record at the close of business on May 18, 2022.

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 2021 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.

As of March 31, 2022, Aflac Japan's SMR remains high and reflects a strong capital and surplus position. The Company is committed to maintaining strong capital levels, consistent with maintaining current insurance financial strength and credit ratings.

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 Risk-based capital (RBC) formula is used by insurance regulators to help identify inadequately capitalized insurance companies. The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations. As of March 31, 2022, 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 2022 in excess of $1.1 billion 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 Financial Accounting Standards Board (FASB). In this MD&A, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification™ (ASC). The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations. The estimates that the Company deems to be most critical to an understanding of its results of operations and financial condition are those related to the valuation of investments and derivatives, DAC, liabilities for future policy benefits and unpaid policy claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 93% of the Company's assets and 80% of its liabilities are reported as of March 31, 2022, 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, 2022. For additional information, see the Critical Accounting Estimates section of Item 7. MD&A included in the 2021 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 2021 Annual Report. There have been no material changes to the Company's market risk exposures from the market risk exposures previously disclosed in the 2021 Annual Report.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

During the first fiscal quarter of 2022, the Company executed internal controls associated with new processes supporting the implementation of Accounting Standards Update (ASU) 2018-12 for long-duration insurance contracts (LDTI). These controls provide assurance over the reasonableness of the estimated impact to the Company's accumulated other comprehensive income and retained earnings that is expected upon adoption of LDTI on January 1, 2023, as disclosed in Note 1 of the Notes to the Consolidated Financial Statements. The Company will continue to refine and maturate the internal controls associated with LDTI until adoption on January 1, 2023. Except for the change in controls over the Company's implementation of LDTI, 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 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A.Risk Factors

Major public health issues, including COVID-19 and any resulting economic effects could have an adverse impact on the Company's financial condition and results of operations and other aspects of its business.

The Company continues to closely monitor developments related to COVID-19 to assess its impact on the Company's business. Due to the evolving nature of this event, including fluctuations in infection, hospitalization and death rates in the United States, Japan and other regions of the world, COVID-19 could continue to impact the Company's business, financial condition, results of operations, capital position, liquidity or prospects in a number of ways. The pandemic may cause changes to estimates of future earnings, capital deployment and other guidance the Company has provided to the markets in the "2022 Outlook" section of Item 7. MD&A in the 2021 Annual Report.

The continuing effects of the pandemic and the effort by governmental entities, public health authorities and private entities to contain the impact of COVID-19 in the U.S. and Japan, among other factors, result in continuing uncertainty about the severity and duration of the pandemic’s effects on the U.S., Japan and global economies and on the Company's business. The extent to which the pandemic will continue to impact the Company's business, results of operations or financial condition, as well as those of its customers, agents, brokers and other distribution partners, vendors and counterparties, will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, including its variants, and the actions taken to contain or treat its and their impact.

As a result of the COVID-19 pandemic and its effects on the U.S. economy, Aflac U.S. has experienced lower sales and may experience elevated lapse rates due to factors including the proportionately higher concentration of Aflac U.S. policies in force being associated with small businesses that may be disproportionately negatively impacted by the economic uncertainty surrounding COVID-19. Such results may also occur due to economic and other factors affecting larger businesses and individuals. For example, lapse rates experienced by Aflac U.S. during the quarter ended March 31, 2022 were higher than recent historical norms within the large business customer base.

Policies issued by Aflac Japan and Aflac U.S. are primarily sold and enrolled in person through face-to-face interaction. Likewise, recruiting of new agents and brokers largely occurs through in-person contact. The ability of individual agents and agencies, strategic alliance partners, brokers and other distribution partners to make sales in Japan and the U.S. and the ability to conduct agent and broker recruiting has been significantly reduced by efforts to mitigate the effects of the pandemic, including social distancing orders, requirements or guidelines issued by government or public health authorities, and adoption of social distancing techniques and remote working by employees, which may hinder sales of the Company’s products in Japan and the U.S. The Company cannot predict with certainty the continuing impact of these events on its distribution channels and financial results, but the impact to date has been more acute for Aflac U.S. due to the higher number of confirmed COVID-19 cases and deaths in the U.S. to date compared with Japan, both in absolute terms and in proportion to national populations, as well as the historically lower rate of persistency in the Aflac U.S. business. The Company also considers that most Aflac U.S. business customers, and most of the independent agents in its agency channel, are small businesses who may lack the financial resources to weather an economic downturn and may be disproportionately negatively impacted by the economic uncertainty surrounding COVID-19. These factors may continue to negatively impact sales throughout 2022. See the risk factors entitled “Sales of the Company's products and services are dependent on its ability to attract, retain and support a network of qualified sales associates, brokers and employees in the U.S. and sales associates and other distribution partners in Japan” and “Difficult conditions in global capital markets and the economy, including those caused by COVID-19, could have a material adverse effect on the

Company's investments, capital position, revenue, profitability, and liquidity and harm the Company's business” in Item 1A. Risk Factors in the 2021 Annual Report for more information.

Further, the Company's operations, as well as those of its vendors, service providers and counterparties, may also be adversely affected by the COVID-19 pandemic or the mitigation efforts outlined above. In both the U.S. and Japan, the Company has over 50% of its employees working remotely. The Company has begun to implement return to work plans for Aflac Japan and Aflac U.S. that are adaptable and based upon multiple factors including government orders, guidelines issued by public health authorities, the location and job responsibilities of specific Company personnel, rates of COVID-19 vaccinations, cases and deaths in various localities and other factors. The Company may nevertheless experience operational disruptions when employees return to work.

The assumptions and estimates that the Company uses in establishing premiums and reserves depend on the Company's judgment regarding the likelihood of future events and are inherently uncertain, including without limitation in regard to the effects of COVID-19. See the risk factor entitled “If future policy benefits, claims or expenses exceed those anticipated in establishing premiums and reserves, the Company's financial results would be adversely affected” in Item 1A. Risk Factors and the "Executive Summary" section of Item 7. MD&A in the 2021 Annual Report for more information.

For more information on the effects of the COVID-19 pandemic on markets and investments, see the risk factor entitled, “Difficult conditions in global capital markets and the economy, including those caused by the COVID-19, could have a material adverse effect on the Company's investments, capital position, revenue, profitability, and liquidity and harm the Company's business” in Item 1A. Risk Factors in the 2021 Annual Report.

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

Issuer Purchases of Equity Securities

During the first three months of 2022, 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	1,933,400		$	61.87	1,933,400	53,895,617
February 1 - February 28	3,183,212		63.58		2,845,206	51,050,411
March 1 - March 31	3,233,866		61.93		3,228,600	47,821,811






Total	8,350,478	(1)	$	62.55	8,007,206	47,821,811

(1) During the first three months of 2022, 343,272 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.

Item 6. Exhibits


(a)	EXHIBIT INDEX
	3.0	-	Articles of Incorporation, as amended – incorporated by reference from Form 10-Q for June 30, 2008, Exhibit 3.0.
	3.1	-	Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated February 11, 2022, Exhibit 3.1.
	10.1*	-	U.S. Form of Employee Restricted Stock Award Agreement under the Aflac Incorporated Long-Term Incentive Plan, as amended and restated February 14, 2017 – incorporated by reference from Form 8-K dated February 11, 2022, Exhibit 10.1.
	10.2*	-	Japan Form of Employee Restricted Stock Award Agreement under the Aflac Incorporated Long-Term Incentive Plan, as amended and restated February 14, 2017 – incorporated by reference from Form 8-K dated February 11, 2022, Exhibit 10.2.
	31.1	-	Certification of CEO dated April 29, 2022, 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, 2022, 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, 2022, 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.

Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 6 of this report

Defined Terms

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


ALM			Asset-Liability Matching
AOCI			Accumulated Other Comprehensive Income
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
CDS			Credit Default Swap
CML			Commercial Mortgage Loan
CSA			Credit Support Annex
DAC			Deferred Policy Acquisition Costs
DSCR			Debt Service Coverage Ratios
EPS			Earnings Per Share
FASB			Financial Accounting Standard Board
FHLB			Federal Home Loan Bank of Atlanta
FSA			Japanese Financial Services Agency
ISDA			International Swaps and Derivatives Association, Inc.
ISO			Incentive Stock Option
Japan Post Group			Japan Post Holdings, Japan Post Co. and Japan Post Insurance, collectively
Japan Post Holdings			Japan Post Holdings Co., Ltd.
Japan Post Co.			Japan Post Co. Ltd
Japan Post Insurance			Japan Post Insurance Co., Ltd.
JGB			Japan Government Bond
LDTI			Long-Duration Targeted Improvements
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
MML			Middle Market Loan
NAIC			National Association of Insurance Commissioners
NOLHGA			National Organization of Life and Health Guaranty Associations
NQSO			Non-qualifying Stock Option
NRSRO			Nationally Recognized Statistical Rating Organization
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
SOFR			Secured Overnight Financing Rate
The Plan			Aflac Incorporated Long-Term Incentive Plan
TIBOR			Tokyo Interbank Market Rate
TDR			Troubled Debt Restructuring
TRE			Transitional Real Estate Loan
TTM			Telegraphic Transfer Middle Rate
U.S. GAAP			U.S. Generally Accepted Accounting Principles
VIE			Variable Interest Entity

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 earned 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 agents 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 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.

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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, 2022						/s/ Max K. Brodén
						(Max K. Brodén)
						Executive Vice President; Chief Financial Officer

April 29, 2022						/s/ June Howard
						(June Howard)
						Senior Vice President, Financial Services; Chief Accounting Officer

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