17000000330000000000P364DP5YP5YP364DP364D134000000134000000false--12-31Q22019000000497773007000000774660000000.260.260.270.270.100.101900000000190000000000152000000002930000000089000000006000000000060000000000500000000025000000000300000000001520000000029300000000890000000060000000000600000000005000000000250000000000.04750.04000.04000.014880.011590.01750.009320.06450.06900.036250.036250.03250.028750.021080.00320.00470.009630.04750.040.04000.014880.011590.01750.009320.06450.06900.036250.036250.03250.028750.021080.00320.00470.00963P3MP3MP3MP3M0.00710.00180.02840.02750.00710.00180.02840.02750.01200.00190.00380.00010.02200.01980.00380.00010.02200.01980.01100.00110.00710.00180.02840.02750.00710.00180.02840.02750.02110.00280.00380.00010.02200.01980.00380.00010.02200.01980.01870.003000000000000.002250.00500.000850.00305000000000055000000000500000001000000000001000000002500000007000000

0000004977 us-gaap:FixedMaturitiesMember afl:BanksAndFinancialInstitutionsMember 2019-12-31

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 June 30, ~~2019~~2020



☐	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~~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	¨ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~740,383,335~~712,912,378 shares of the issuer's common stock were outstanding as of July ~~18, 2019.~~20, 2020.

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, ~~2019~~2020

Table of Contents



PART I.		FINANCIAL INFORMATION:	Page

	Item 1.	Financial Statements (Unaudited)

		~~Review by Independent Registered Public Accounting Firm~~	1

		~~Report of Independent Registered Public Accounting Firm~~	2

		Consolidated Statements of Earnings Three Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	31

		Consolidated Statements of Comprehensive Income (Loss) Three Months Ended June 30, ~~2019~~2020 and ~~2018~~2019 Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	42

		Consolidated Balance Sheets June 30, ~~2019,~~2020, and December 31, ~~2018~~2019	53

		Consolidated Statements of Shareholders' Equity Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019 Three Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	64

		Consolidated Statements of Cash Flows Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	86

		Notes to the Consolidated Financial Statements	97

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	6667

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	96101

	Item 4.	Controls and Procedures	96102

PART II.		OTHER INFORMATION:

	Item 1.	Legal Proceedings	97103

	Item 1A.	Risk Factors	97103

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98104

	Item 6.	Exhibits	99105

Glossary of Selected Terms			106

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

~~Review by Independent Registered Public Accounting Firm~~

The June 30, 2019, and 2018, consolidated financial statements included in this filing have been reviewed by KPMG LLP, an independent registered public accounting firm, in accordance with established professional standards and procedures for such a review.

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

~~Report of Independent Registered Public Accounting Firm~~

~~To the Shareholders and Board of Directors~~

~~Aflac Incorporated:~~

~~Results of Review of Interim Financial Information~~

We have reviewed the consolidated balance sheet of Aflac Incorporated and subsidiaries (the Company) as of June 30, 2019, the related consolidated statements of earnings and comprehensive income (loss) for the three-month and six-month periods ended June 30, 2019 and 2018, the related consolidated statements of shareholders’ equity for the three-month periods ended March 31 and June 30, 2019 and 2018, the related consolidated statements of cash flows for the six-month periods ended June 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~Basis for Review Results~~

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

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

~~/s/ KPMG LLP~~

~~Atlanta, Georgia~~

~~July 26, 2019~~

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(In millions, except for share and per-share amounts - Unaudited)	2019				2018				2019				2018				2020				2019				2020					2019
Revenues:
Net premiums, principally supplemental health insurance		$	4,681			$	4,706			$	9,373			$	9,450			$	4,664			$	4,681			$	9,346				$	9,373
Net investment income		878				862				1,756				1,699				870				878				1,774					1,756
Realized investment gains (losses):
Other-than-temporary impairment losses realized and loan loss reserves		(2		)		(5		)		(4		)		(12		)
Other gains (losses)		(64		)		8				9				(119		)
Total realized investment gains (losses)		(66		)		3				5				(131		)
Net investment gains (losses)																		(170		)		(66		)		(633		)			5
Other income (loss)		18				18				34				36				43				18				82					34
Total revenues		5,511				5,589				11,168				11,054				5,407				5,511				10,569					11,168
Benefits and expenses:
Benefits and claims, net		2,964				3,031				5,932				6,073				2,897				2,964				5,837					5,932
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		309				303				649				617				289				309				622					649
Insurance commissions		329				338				661				676				332				329				668					661
Insurance and other expenses		743				732				1,460				1,463				756				743				1,536			⁽¹⁾		1,460
Interest expense		57				54				115				111				63				57				117					115
Total acquisition and operating expenses		1,438				1,427				2,885				2,867				1,440				1,438				2,943					2,885
Total benefits and expenses		4,402				4,458				8,817				8,940				4,337				4,402				8,780					8,817
Earnings before income taxes		1,109				1,131				2,351				2,114				1,070				1,109				1,789					2,351
Income taxes		292				299				606				564				265				292				419					606
Net earnings		$	817			$	832			$	1,745			$	1,550			$	805			$	817			$	1,370				$	1,745
Net earnings per share:
Basic		$	1.10			$	1.08			$	2.33			$	2.00			$	1.12			$	1.10			$	1.90				$	2.33
Diluted		1.09				1.07				2.32				1.98				1.12				1.09				1.89					2.32
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		745,153				772,949				748,271				775,734				717,889				745,153				721,128					748,271
Diluted		748,849				777,807				752,302				780,814				719,764				748,849				723,638					752,302
Cash dividends per share		$	.27			$	.26			$	.54			$	.52			$	.28			$	.27			$	.56				$	.54

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

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(In millions - Unaudited)	2019				2018				2019				2018				2020				2019				2020				2019
Net earnings		$	817			$	832			$	1,745			$	1,550			$	805			$	817			$	1,370			$	1,745
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		417				(493		)		416				332				73				417				159				416
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period		2,046				(506		)		5,242				(2,233		)		3,274				2,046				(1,395		)		5,242
Reclassification adjustment for realized (gains) losses on fixed maturity securities included in net earnings		(25		)		28				(43		)		26
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings																		75				(25		)		145				(43		)
Unrealized gains (losses) on derivatives during period		(1		)		(2		)		(4		)		4				(1		)		(1		)		(5		)		(4		)
Pension liability adjustment during period		(2		)		2				5				0				0				(2		)		0				5
Total other comprehensive income (loss) before income taxes		2,435				(971		)		5,616				(1,871		)		3,421				2,435				(1,096		)		5,616
Income tax expense (benefit) related to items of other comprehensive income (loss)		552				(138		)		1,403				(469		)		859				552				(383		)		1,403
Other comprehensive income (loss), net of income taxes		1,883				(833		)		4,213				(1,402		)		2,562				1,883				(713		)		4,213
Total comprehensive income (loss)		$	2,700			$	(1	)		$	5,958			$	148			$	3,367			$	2,700			$	657			$	5,958

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)	June 30, 2020 (Unaudited)				December 31, 2019
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (allowance for credit losses of $38 in 2020, amortized cost $85,050 in 2020 and amortized cost $76,063 in 2019)		$	95,896			$	86,950
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,127 in 2020 and amortized cost of $3,308 in 2019)		4,063				4,312
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $9 in 2020 (fair value $29,293 in 2020 and $37,594 in 2019)		23,509				30,085
Equity securities, at fair value		749				802
Commercial mortgage and other loans, net of allowance for credit losses of $242 in 2020 (includes $9,117 in 2020 and $7,956 in 2019 of consolidated variable interest entities)		10,717				9,569
Other investments (includes $589 in 2020 and $494 in 2019 of consolidated variable interest entities)		1,771				1,477
Cash and cash equivalents		5,528				4,896
Total investments and cash		142,233				138,091
Receivables		894				828
Accrued investment income		782				772
Deferred policy acquisition costs		10,222				10,128
Property and equipment, at cost less accumulated depreciation		584				581
Other		2,372				2,368
Total assets		$	157,087			$	152,768
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	92,992			$	90,335
Unpaid policy claims		4,773				4,659
Unearned premiums		3,854				4,243
Other policyholders’ funds		7,484				7,317
Total policy liabilities		109,103				106,554
Income taxes		5,228				5,370
Payables for return of cash collateral on loaned securities		2,275				1,876
Notes payable and lease obligations		7,771				6,569
Other		3,290				3,440
Total liabilities		127,667				123,809
Commitments and contingent liabilities (Note 13)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2020 and 2019; issued 1,350,735 shares in 2020 and 1,349,309 shares in 2019		135				135
Additional paid-in capital		2,358				2,313
Retained earnings		35,204				34,291
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,469		)		(1,623		)
Unrealized gains (losses) on fixed maturity securities		8,532				8,548
Unrealized gains (losses) on derivatives		(36		)		(33		)
Pension liability adjustment		(277		)		(277		)
Treasury stock, at average cost		(15,027		)		(14,395		)
Total shareholders’ equity		29,420				28,959
Total liabilities and shareholders’ equity		$	157,087			$	152,768

(In millions, except for share and per-share amounts) June 30,
2019
(Unaudited) December 31,
2018
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value
(amortized cost $77,466 in 2019 and $73,007 in 2018) $ 87,836
$ 78,429

Fixed maturity securities available for sale - consolidated variable interest entities, at fair value
(amortized cost $3,729 in 2019 and $3,849 in 2018) 4,599
4,466

Fixed maturity securities held to maturity, at amortized cost
(fair value $39,035 in 2019 and $36,722 in 2018) 31,007
30,318

Equity securities, at fair value 1,087
987

Commercial mortgage and other loans
(includes $6,233 in 2019 and $5,528 in 2018 of consolidated variable interest entities) 7,622
6,919

Other investments
(includes $410 in 2019 and $328 in 2018 of consolidated variable interest entities) 1,427
787

Cash and cash equivalents 3,019
4,337

Total investments and cash 136,597
126,243

Receivables 883
851

Accrued investment income 785
773

Deferred policy acquisition costs 10,128
9,875

Property and equipment, at cost less accumulated depreciation ⁽¹⁾
562
443

Other 2,445
2,221

Total assets $ 151,400
$ 140,406

Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits $ 90,117
$ 86,368

Unpaid policy claims 4,706
4,584

Unearned premiums 4,763
5,090

Other policyholders’ funds 7,403
7,146

Total policy liabilities 106,989
103,188

Income taxes 5,243
4,020

Payables for return of cash collateral on loaned securities 1,557
1,052

Notes payable and lease obligations⁽¹⁾
6,231
5,778

Other 3,139
2,906

Total liabilities 123,159
116,944

Commitments and contingent liabilities (Note 12)

Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000
shares in 2019 and 2018; issued 1,349,044 shares in 2019 and 1,347,540
shares in 2018 135
135

Additional paid-in capital 2,247
2,177

Retained earnings 33,130
31,788

Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) (1,455 ) (1,847 )
Unrealized gains (losses) on fixed maturity securities 8,055
4,234

Unrealized gains (losses) on derivatives (27 ) (24 )
Pension liability adjustment (209 ) (212 )
Treasury stock, at average cost (13,635 ) (12,789 )
Total shareholders’ equity 28,241
23,462

Total liabilities and shareholders’ equity $ 151,400
$ 140,406

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, 2019	$	135	$	2,313	$	34,291		$	6,615		$	(14,395	)	$	28,959
Cumulative effect of change in accounting principle, Accounting Standards Update (ASU) 2016-13, net of tax ⁽¹⁾	0		0		(56		)	0			0			(56		)
Cumulative effect of change in accounting principle, ASU 2019-04, net of tax ⁽¹⁾	0		0		0			848			0			848
Balance at January 1, 2020	$	135	$	2,313	$	34,235		$	7,463		$	(14,395	)	$	29,751
Net earnings	0		0		566			0			0			566
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			80			0			80
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0			(3,353		)	0			(3,353		)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0			(2		)	0			(2		)
Pension liability adjustment during period, net of income taxes	0		0		0			0			0			0
Dividends to shareholders ($.28 per share)	0		0		(202		)	0			0			(202		)
Exercise of stock options	0		5		0			0			0			5
Share-based compensation	0		7		0			0			0			7
Purchases of treasury stock	0		0		0			0			(476		)	(476		)
Treasury stock reissued	0		9		0			0			17			26
Balance at March 31, 2020	$	135	$	2,334	$	34,599		$	4,188		$	(14,854	)	$	26,402
Net earnings	0		0		805			0			0			805
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			74			0			74
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0			2,489			0			2,489
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			0			0			0
Dividends to shareholders ($.28 per share)	0		0		(200		)	0			0			(200		)
Exercise of stock options	0		1		0			0			0			1
Share-based compensation	0		16		0			0			0			16
Purchases of treasury stock	0		0		0			0			(189		)	(189		)
Treasury stock reissued	0		7		0			0			16			23
Balance at June 30, 2020	$	135	$	2,358	$	35,204		$	6,750		$	(15,027	)	$	29,420

⁽¹⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, ~~2019 related to leases.~~2020.

See the accompanying Notes to the Consolidated Financial ~~Statements.~~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, 2018 $ 135
$ 2,177
$ 31,788
$ 2,151
$ (12,789 ) $ 23,462
Net earnings 0
0
928
0
0
928
Unrealized foreign currency translation
gains (losses) during period, net of
income tax 0
0
0
(1 ) 0
(1 )
Unrealized gains (losses) on fixed maturity
securities during period, net of income
taxes and reclassification adjustments 0
0
0
2,327
0
2,327
Unrealized gains (losses) on derivatives
during period, net of income taxes 0
0
0
(2 ) 0
(2 )
Pension liability adjustment during period,
net of income taxes 0
0
0
6
0
6
Dividends to shareholders
($.27 per share) 0
0
(203 ) 0
0
(203 )
Exercise of stock options 0
11
0
0
0
11
Share-based compensation 0
8
0
0
0
8
Purchases of treasury stock 0
0
0
0
(517 ) (517 )
Treasury stock reissued 0
12
0
0
18
30
Balance at March 31, 2019 $ 135
$ 2,208
$ 32,513
$ 4,481
$ (13,288 ) $ 26,049
Net earnings 0
0
817
0
0
817
Unrealized foreign currency translation
gains (losses) during period, net of
income tax 0
0
0
393
0
393
Unrealized gains (losses) on fixed maturity
securities during period, net of income
taxes and reclassification adjustments 0
0
0
1,494
0
1,494
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
($.27 per share) 0
0
(200 ) 0
0
(200 )
Exercise of stock options 0
12
0
0
0
12
Share-based compensation 0
15
0
0
0
15
Purchases of treasury stock 0
0
0
0
(358 ) (358 )
Treasury stock reissued 0
12
0
0
11
23
Balance at June 30, 2019 $ 135
$ 2,247
$ 33,130
$ 6,364
$ (13,635 ) $ 28,241

~~See the accompanying Notes to the Consolidated Financial Statements.~~

(continued)

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)



(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, 2018	$	135	$	2,177	$	31,788		$	2,151		$	(12,789	)	$	23,462
Net earnings	0		0		928			0			0			928
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			(1		)	0			(1		)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0			2,327			0			2,327
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0			(2		)	0			(2		)
Pension liability adjustment during period, net of income taxes	0		0		0			6			0			6
Dividends to shareholders ($.27 per share)	0		0		(203		)	0			0			(203		)
Exercise of stock options	0		11		0			0			0			11
Share-based compensation	0		8		0			0			0			8
Purchases of treasury stock	0		0		0			0			(517		)	(517		)
Treasury stock reissued	0		12		0			0			18			30
Balance at March 31, 2019	$	135	$	2,208	$	32,513		$	4,481		$	(13,288	)	$	26,049
Net earnings	0		0		817			0			0			817
Unrealized foreign currency translation gains (losses) during period, net of income tax	0		0		0			393			0			393
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0			1,494			0			1,494
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 ($.27 per share)	0		0		(200		)	0			0			(200		)
Exercise of stock options	0		12		0			0			0			12
Share-based compensation	0		15		0			0			0			15
Purchases of treasury stock	0		0		0			0			(358		)	(358		)
Treasury stock reissued	0		12		0			0			11			23
Balance at June 30, 2019	$	135	$	2,247	$	33,130		$	6,364		$	(13,635	)	$	28,241

(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, 2017 $ 135
$ 2,052
$ 29,895
$ 4,028
$ (11,512 ) $ 24,598
Cumulative effect of change in
accounting principles, net of
income tax⁽¹⁾
0
0
(226 ) 226
0
0
Net earnings 0
0
717
0
0
717
Unrealized foreign currency translation
gains (losses) during period, net of
income tax 0
0
0
447
0
447
Unrealized gains (losses) on fixed maturity
securities during period, net of income
taxes and reclassification adjustments⁽¹⁾
0
0
0
(984 ) 0
(984 )
Unrealized gains (losses) on derivatives
during period, net of income taxes 0
0
0
2
0
2
Pension liability adjustment during period,
net of income taxes 0
0
0
(34 ) 0
(34 )
Dividends to shareholders
($.26 per share) 0
0
(203 ) 0
0
(203 )
Exercise of stock options 0
14
0
0
0
14
Share-based compensation 0
10
0
0
0
10
Purchases of treasury stock 0
0
0
0
(309 ) (309 )
Treasury stock reissued 0
13
0
0
16
29
Balance at March 31, 2018 $ 135
$ 2,089
$ 30,183
$ 3,685
$ (11,805 ) $ 24,287
Net earnings 0
0
832
0
0
832
Unrealized foreign currency translation
gains (losses) during period, net of
income tax 0
0
0
(138 ) 0
(138 )
Unrealized gains (losses) on fixed maturity
securities during period, net of income
taxes and reclassification adjustments ⁽¹⁾
0
0
0
(730 ) 0
(730 )
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
34
0
34
Dividends to shareholders
($.26 per share) 0
0
(206 ) 0
0
(206 )
Exercise of stock options 0
7
0
0
0
7
Share-based compensation 0
15
0
0
0
15
Purchases of treasury stock 0
0
0
0
(306 ) (306 )
Treasury stock reissued 0
6
0
0
(2 ) 4
Balance at June 30, 2018 $ 135
$ 2,117
$ 30,809
$ 2,852
$ (12,113 ) $ 23,800

⁽¹⁾~~See Note 1 of the Notes to the Consolidated Financial Statements in the Company's 2018 Annual Report on Form 10-K~~

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows


	Six Months Ended June 30,								Six Months Ended June 30,
(In millions - Unaudited)	2019				2018				2020				2019
Cash flows from operating activities:
Net earnings		$	1,745			$	1,550			$	1,370			$	1,745
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums		(17		)		(1		)		(65		)		(17		)
Capitalization of deferred policy acquisition costs		(712		)		(716		)		(604		)		(712		)
Amortization of deferred policy acquisition costs		649				617				622				649
Increase in policy liabilities		1,019				1,346				936				1,019
Change in income tax liabilities		(268		)		(180		)		(117		)		(268		)
Realized investment (gains) losses		(5		)		131
Net investment (gains) losses										633				(5		)
Other, net		(54		)		60				(174		)		(54		)
Net cash provided (used) by operating activities		2,357				2,807				2,601				2,357
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		2,105				3,869				1,981				2,105
Equity securities		154				216				93				154
Held-to-maturity fixed maturity securities		203				878				2				203
Commercial mortgage and other loans		888				358				685				888
Costs of investments acquired:
Available-for-sale fixed maturity securities		(4,352		)		(6,798		)		(2,691		)		(4,352		)
Equity securities		(181		)		(233		)		(150		)		(181		)
Commercial mortgage and other loans		(1,534		)		(2,705		)		(2,108		)		(1,534		)
Other investments, net		(616		)		(175		)		(293		)		(616		)
Settlement of derivatives, net		(14		)		(36		)		21				(14		)
Cash received (pledged or returned) as collateral, net		495				3,110				459				495
Other, net		125				73				(119		)		125
Net cash provided (used) by investing activities		(2,727		)		(1,443		)		(2,120		)		(2,727		)
Cash flows from financing activities:
Purchases of treasury stock		(847		)		(601		)		(637		)		(847		)
Proceeds from borrowings		268				0				1,545				268
Principal payments under debt obligations										(350		)		0
Dividends paid to shareholders		(389		)		(396		)		(388		)		(389		)
Change in investment-type contracts, net		(34		)		9				(17		)		(34		)
Treasury stock reissued		26				12				21				26
Other, net		(2		)		(12		)		(22		)		(2		)
Net cash provided (used) by financing activities		(978		)		(988		)		152				(978		)
Effect of exchange rate changes on cash and cash equivalents		30				(20		)		(1		)		30
Net change in cash and cash equivalents		(1,318		)		356				632				(1,318		)
Cash and cash equivalents, beginning of period		4,337				3,491				4,896				4,337
Cash and cash equivalents, end of period		$	3,019			$	3,847			$	5,528			$	3,019
Supplemental disclosures of cash flow information:
Income taxes paid		$	874			$	744			$	536			$	874
Interest paid		93				90				97				93
Noncash interest		22				21				19				22
Impairment losses and loan loss reserves included in realized investment losses		4				12
Noncash financing activities:
Lease obligations		1				10				22				1
Treasury stock issued for:
Associate stock bonus		8				5				8				8
Shareholder dividend reinvestment		14				8				14				14
Share-based compensation grants		5				2				6				5

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Notes to the Consolidated Financial Statements

(Interim period data – Unaudited)


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States (U.S.) and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the United States and, effective April 1, 2018, through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan. Prior to April 1, 2018, the Company's insurance business was marketed in Japan as a branch of Aflac. The Company’s operations consist of two reportable business segments: Aflac ~~U.S., which includes Aflac,~~Japan and Aflac U.S. The Parent Company's primary insurance subsidiaries are Aflac Life Insurance Japan ~~which includes ALIJ.~~Ltd. (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) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. Additionally, Aflac U.S. markets and administers group products through Continental American; Tier One Insurance Company ~~(CAIC)~~(TOIC) and Argus Dental & Vision, Inc. (Argus), ~~branded as~~which provides a platform for Aflac ~~Group Insurance. The Company's insurance operations~~Dental and Vision in the ~~United States and Japan service the two markets for the Company's insurance business.~~U.S. (collectively, Aflac U.S.). Aflac Japan's revenues, including ~~realized~~net gains and losses on its investment portfolio, accounted for ~~68%~~67% and ~~70%~~68% of the Company's total revenues in the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The percentage of the Company's total assets attributable to Aflac Japan was ~~85%~~83% at June 30, ~~2019,~~2020, compared with 84% at December 31, ~~2018.~~2019.

Basis of Presentation

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In these Notes to the Consolidated Financial Statements, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification^TM (ASC). The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations. The most significant items on the Company's balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy claims, and income taxes. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders. As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is inherent in these estimates, the Company believes the amounts provided are adequate.

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

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the consolidated statements of earnings and comprehensive income (loss) for the three-month and six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, the consolidated statement of shareholders' equity for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 and June 30, ~~2019~~2020 and ~~2018,~~2019, and the consolidated statement of cash flows for the six-month periods ended June 30, ~~2019~~2020 and ~~2018.~~2019. 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, ~~2018 (2018~~2019 (2019 Annual Report).

COVID-19: On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The impact of COVID-19 on the Company continues to evolve, and its future effects remain uncertain. The Company continues to closely monitor the effects and risks of COVID-19 to assess its impact on the Company's business, financial condition, results of operations, liquidity and capital position.

Liquidity and Capital Resources

The Company entered the crisis having maintained capital ratios in Japan and the U.S. at a level designed to absorb a degree of market volatility. To further support liquidity and capital resources, the Parent Company, in March 2020, issued 4 series of senior notes totaling ¥57.0 billion and, in April 2020, issued $1 billion in senior notes through public debt offerings under its U.S. shelf registration statement. The Company has available liquidity in its unsecured revolving credit facilities of $1.0 billion and ¥100.0 billion and currently has no borrowings under

either of these facilities. In April 2020, Aflac increased its internal limit for Federal Home Loan Bank of Atlanta (FHLB) borrowings to $800 million, $300 million of which the Company has designated to be used for short-term liquidity needs and subject to qualified collateral availability and other conditions. The Company continues to evaluate other sources of liquidity including reinvestment cash flows and selling investments.

Loan Modifications

On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, which provides relief from certain requirements under GAAP, was signed into law. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40 in certain situations. On April 7, 2020, certain regulatory banking agencies, in consultation with the FASB, issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus(Interagency statement) applicable for all entities, which offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are treated as TDRs. The Company will apply GAAP relief under Section 4013 of the CARES Act and the Interagency statement with respect to certain qualifying loan modifications. For loan modifications that qualify under the CARES Act, TDR accounting and reporting is suspended through the period of the modification; however, the Company will continue to apply its existing non-accrual policies including consideration of the loan's past due status which is determined on the basis of the contractual terms of the loan. Once a loan has been contractually modified, the past due status is generally based on the updated terms including payment deferrals. As of June 30, 2020, loan modifications did not have a material impact on the Company's results of operations. See Note 3 of Notes to the Consolidated Financial Statements for additional details.

Reclassifications: Certain reclassifications have been made to prior-year amounts to conform to current-year reporting classifications. These reclassifications had no impact on net earnings or total shareholders' equity.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements



Standard	Description	Date of Adoption	Effect on Financial Statements or Other Significant Matters
Accounting ~~Standard Update (ASU) 2018-15~~Standards Update( ASU) 2020-04 ~~Intangibles - Goodwill and Other - Internal-Use Software, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	In ~~August 2018,~~March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying U.S. GAAP to ~~align~~contracts, hedging relationships, and other transactions affected by the ~~requirements for capitalizing implementation costs incurred~~reference rate reform if certain criteria are met. The amendments in ~~a hosting arrangement~~this ASU only apply to contracts, hedging relationships, and other transactions that ~~is a service contract with~~reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. An entity may elect to apply the ~~requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.~~	~~Early adopted~~amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments generally expire on December 31 2022, i.e., they do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and hedging relationships evaluated for periods after December 31, 2022.	April 1, 2020	The adoption of the new guidance did not have an impact on the Company’s financial statements. The Company will continue to evaluate the impacts of reference rate reform on contract modifications and hedging relationships through December 31, 2022.
ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments	In April 2019, the FASB issued Codification improvements to clarify and correct certain areas of guidance amended as part of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities; ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; and ASU 2017-12, Derivative and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The most significant of these improvements to the Company was related to the Codification improvement to ASU 2017-12 and the clarification that a one-time reclassification of assets that are eligible to be hedged under the last-of-layer method (i.e., certain pre-payable securities) from held-to-maturity to available-for-sale is allowed under the new hedge accounting guidance and would not impact the Company’s ability to continue to classify other bonds as held-to-maturity. The other amendments related to ASU 2017-12 and 2016-01 are either not significant, or were previously implemented as part of the related ASU adoptions. Applicable amendments related to ASU 2016-13 are discussed within the recent adoption of that update below.	January 1, ~~2019~~2020	The adoption of this guidance ~~did not have~~resulted in a ~~significant impact~~reclassification of $6.9 billion (at amortized cost) of pre-payable fixed-maturity securities from the held-to-maturity to the available-for-sale category. The reclassification resulted in recording in accumulated other comprehensive income a net unrealized gain of $848 million on an after-tax basis, based on the ~~Company’s financial position, results~~securities’ fair values on the reclassification date. The reclassification impacted the adoption of ~~operations or disclosures~~ASU 2016-13 (see ASU 2016-13 below for additional details).



Standard	Description	Date of Adoption	~~Effect on Financial Statements or Other Significant Matters~~
~~ASU 2016-02~~ ~~Leases~~ ~~as clarified and amended by:~~ ~~ASU 2018-01,Leases: Land Easement Practical Expedient for Transition to Topic 842,~~ ~~ASU 2018-10~~, ~~Codification Improvements to Topic 842, Leases,~~ ~~ASU 2018-11, Leases, Targeted Improvements,~~ ~~and~~ ~~ASU 2018-20~~, ~~Leases: Narrow-Scope Improvements for Lessors~~	In February 2016, the FASB issued updated guidance for accounting for leases (“Leases Update”). Per the Leases Update, lessees are required to recognize all leases on the balance sheet with the exception of short-term leases. A lease liability will be recorded for the obligation of a lessee to make lease payments arising from a lease. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Leases Update provided a number of optional practical expedients. The Company elected the "package of practical expedients," which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. Under the Leases Update, lessor accounting is largely unchanged. In January 2018, an amendment was issued to the Leases Update which provided an entity with the option to elect a transition practical expedient to not evaluate land easements that exist or expired before the entity's adoption of the Leases Update and that were not previously accounted for as leases. In July 2018, the FASB issued two amendments to the Leases Update which clarified, corrected errors in, or made minor improvements to the Leases Update and provided entities with an optional transition method to adopt the Leases Update by recording a cumulative-effect adjustment to beginning retained earnings. Additionally, the amendments provided lessors with a practical expedient to not separate nonlease components from associated lease components and instead account for those components as a single component under certain conditions. In December 2018, an amendment to the Leases Update was issued to clarify: 1) lessor accounting for all sales (and other similar) taxes; 2) the handling of certain lessor costs when the amount of those costs is not readily determinable; and 3) lessor allocation of certain variable payments to the lease and non-lease components.	~~January 1, 2019~~	The Company has operating and finance leases for office space and equipment. The Company elected the short-term lease exemption for all classes of leases which allows the Company to not recognize right-of-use assets and lease liabilities on the consolidated balance sheet and allows the Company to recognize the lease expense for short-term leases on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components and applied it to all classes of leases where the non-lease components are not significant. Some of the Company's leases include options to extend or terminate the lease and the lease terms may include such options when it is reasonably certain that the Company will exercise that option. Certain leases also include options to purchase the leased property. The leases within scope of the Leases Update increased the Company's right-of-use assets and lease liabilities recorded in its consolidated balance sheet by $134 million. ~~As of January 1, 2019, the Company did not have land easements, but has elected the practical expedient as a safe harbor.~~ ~~The Company elected the optional transition method and as a safe harbor, the practical expedient provided to lessors.~~ ~~The Company has made an accounting policy election to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price.~~ ~~The adoption of the Leases Update and related amendments did not have a significant impact on the Company's financial position, results of operations, or disclosures.~~

~~Accounting Pronouncements Pending Adoption~~



~~Standard~~	~~Description~~	Effect on Financial Statements or Other Significant Matters
ASU 2018-17 Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities	In October 2018, the FASB issued targeted improvements which provide that indirect interests held through related parties under common control should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ~~The amendments are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted.~~	January 1, 2020	The adoption of this guidance isdid not ~~expected to~~ have a significant impact on the ~~Company’s~~Company's financial position, results of operations, or disclosures.
~~ASU 2018-14~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~	In August 2018, the FASB issued amendments to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Accordingly, six disclosures requirements were removed, two added and two clarified. The amendments are effective for public business entities for fiscal years beginning after December 15, 2020. Early adoption is permitted.	~~The adoption of this guidance is not expected to have a significant impact on the Company’s financial position, results of operations, or disclosures.~~
ASU 2018-13 Fair Value Measurement, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	In August 2018, the FASB issued amendments to the disclosure requirements on fair value measurements. The amendments remove, modify, and add certain disclosures. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Further, an entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date.	January 1, 2020	The adoption of this guidance isdid not ~~expected to~~ have a significant impact on the Company’s financial position, results of operations, or disclosures.
ASU 2017-04 Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment	In January 2017, the FASB issued amendments simplifying the subsequent measurement of goodwill. An entity, under this update, is no longer required to perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, the entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.	January 1, 2020	The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as clarified and amended by: ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05, Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments- Credit Losses	In June 2016, the FASB issued amendments that require a financial asset (or a group of financial assets) measured at amortized cost to be presented net of an allowance for credit losses (Credit Losses ASU) in order to reflect the amount expected to be collected on the financial asset(s). The measurement of expected credit losses is amended by replacing the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information. Credit losses on available-for-sale debt securities is measured in a manner similar to prior U.S. GAAP; however, the amendments require that credit losses be presented as an allowance rather than as a write-down. Other amendments include changes to the balance sheet presentation and interest income recognition of purchased financial assets with a more-than-insignificant credit deterioration since origination (PCD financial assets).	January 1, 2020	The Company recorded a cumulative effect adjustment with a decrease to beginning 2020 retained earnings of $56 million, net of taxes. See Note 3 of the Notes to the Consolidated Financial Statements for credit loss disclosures. The following line items in the consolidated balance sheets were most significantly impacted by the adoption of the new accounting standard: • Fixed maturity securities held to maturity, at amortized cost • Commercial mortgage and other loans • Reinsurance recoverable, included within Other assets

Accounting Pronouncements Pending Adoption



Standard	Description	Effect on Financial Statements or Other Significant Matters
ASU 2020-01 Clarifying the interactions between Topic 321, Topic 323, and Topic 815	In January 2020, the FASB issued amendments clarifying that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, the amendments clarify that for the purpose of applying certain derivative guidance in Topic 815, an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in Topic 815 to determine the accounting for those forward contracts and purchased options. The amendments are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted.	The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2018-12 Financial Services - Insurance, Targeted Improvements to the Accounting for Long-Duration Contracts as clarified and amended by: ASU 2019-09 Financial Services - Insurance (Topic 944): Effective Date	In August 2018, the FASB issued amendments that will significantly change how insurers account for long-duration contracts. The amendments will change existing recognition, measurement, presentation, and disclosure requirements. Issues addressed in the new guidance include: 1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures. In November 2019, the FASB issued an amendment extending the effective date for public business entities that meet the definition of an SEC filer, excluding entities eligible to be small reporting companies as defined by the SEC, by one year. The amendments are now effective for ~~public business entities~~the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2020.~~2021. Early application of the amendments is permitted.	The Company is thoroughly evaluating the impact of adoption and expects that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures. The Company anticipates that the requirement to update assumptions for liability for future policy benefits will have a significant impact on its results of operations, systems, processes and controls while the requirement to update the discount rate will have a significant impact on its equity. The Company has no products with market risk benefits. The Company does not expect to early adopt the updated ~~standard.~~
~~ASU 2017-04~~ ~~Intangibles - Goodwill~~standard and ~~Other: Simplifying the Test for Goodwill Impairment~~	~~In January 2017, the FASB issued amendments simplifying the subsequent measurement of goodwill. An entity, under this update, is no longer required to perform~~has tentatively selected a hypothetical purchase price allocation to measure goodwill impairment. Instead, the entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments are effective for public business entities that are SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests performed on testing dates after January 1, 2017.	~~The adoption of this guidance is not expected to have a significant impact on the Company's financial position, results of operations, or disclosures.~~



~~Standard~~	~~Description~~	~~Effect on Financial Statements or Other Significant Matters~~
~~ASU 2016-13~~ ~~Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~ ~~as clarified and amended by:~~ ~~ASU 2019-04,Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~, ~~and~~ ~~ASU 2019-05,~~ ~~Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief~~	In June 2016, the FASB issued amendments that require a financial asset (or a group of financial assets) measured at amortized cost to be presented net of an allowance for credit losses (Credit Losses ASU) in order to reflect the amount expected to be collected on the financial asset(s). The measurement of expected credit losses is amended by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information. Credit losses on available-for-sale debt securities will be measured in a manner similar to current U.S. GAAP; however, the amendments require that credit losses be presented as an allowance rather than as a write-down. Other amendments include changes to the balance sheet presentation and interest income recognition of purchased financial assets with a more-than-insignificant credit deterioration since origination (PCD financial assets). The Credit Losses ASU is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Companies may early adopt this guidance as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments will be adopted following a modified-retrospective approach resulting in a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption. Two exceptions to this adoption method are for PCD financial assets and debt securities for which other-than-temporary impairment (OTTI) will have been recognized before the effective date. Loans purchased with credit deterioration accounted for under current U.S. GAAP as "purchased credit impaired" (PCI) financial assets will be classified as PCD financial assets atmodified retrospective transition and PCD guidance will be applied prospectively. Debt securities that have experienced OTTI before the effective date will follow a prospective adoption method which allows an entity to maintain the same amortized cost basis before and after the effective date. In April 2019, the Credit Losses ASU was amended to allow entities to make a policy election about presentation and disclosure of accrued interest receivable and the related credit losses, whereby entities that write off uncollectible accrued interest receivable in a timely manner can make a policy election not to measure an allowance on the accrued interest receivable. Other amendments made within this Update clarify and address stakeholders’ specific issues about certain aspects of the Credit Losses ASU. ~~In May 2019, the FASB granted a targeted transition relief by allowing to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost.~~ ~~These amendments will be effective upon adoption of the Credit Losses ASU.~~	The Company has identified the following financial instruments in scope of the new guidance: certain fixed maturity securities, loans and loan receivables, reinsurance recoverable, as well as certain other receivable balances and off-balance sheet arrangements. The Company currently expects loans and loan receivables and held-to-maturity fixed maturity securities to be the asset classes most significantly impacted upon adoption of the guidance. (See Notes 3 and 7). The Company is in the process of review and validation of credit models and methodologies and validating inputs, while continuing to develop policies, systems and controls that will be required to implement the Current Expected Credit Losses guidance.The Company also continues to evaluate the impact of adoption of this guidance on its financial position, results of operations, and disclosures. The Company plans to adopt this ASU on January 1, 2020. method.

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

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position, or results of operations or disclosures, see Note 1 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report.


2.	BUSINESS SEGMENT INFORMATION

The Company consists of ~~two~~2 reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. In addition, operating business units that are not individually reportable and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S. are included in Corporate and other.

The Company does not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, the Company evaluates and manages its business segments using a financial performance measure called pretax adjusted earnings. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding ~~realized~~net investment gains and losses, except for amortized hedge costs/income related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect Aflac’s underlying business performance. The Company excludes income taxes related to operations to arrive at pretax adjusted earnings. Information regarding operations by reportable segment and Corporate and other, follows:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2019			2018		2019		2018			2020			2019			2020			2019
Revenues:
Aflac Japan:
Net earned premiums	$	3,172		$	3,227	$	6,352	$	6,490		$	3,158		$	3,172		$	6,308		$	6,352
Net investment income, less amortized hedge costs	609			606		1,219		1,194
Adjusted net investment income ^(1),(2)											633			609			1,276			1,219
Other income	11			11		22		22			12			11			22			22
Total Aflac Japan	3,792			3,844		7,593		7,706
Total adjusted revenue Aflac Japan											3,803			3,792			7,606			7,593
Aflac U.S.:
Net earned premiums	1,459			1,426		2,920		2,853			1,458			1,459			2,941			2,920
Net investment income	180			182		357		357			172			180			348			357
Other income	2			2		4		4			26			2			54			4
Total Aflac U.S.	1,641			1,610		3,281		3,214
Total adjusted revenue Aflac U.S.											1,656			1,641			3,343			3,281
Corporate and other(3)	95			85		191		164			100			95			204			191
Total adjusted revenues	5,528			5,539		11,065		11,084			5,559			5,528			11,153			11,065
Realized investment gains (losses) ^(1),(2),(3)	(17		)	50		103		(30		)
Net investment gains (losses) ^(1),(2),(3)											(152		)	(17		)	(584		)	103
Total revenues	$	5,511		$	5,589	$	11,168	$	11,054		$	5,407		$	5,511		$	10,569		$	11,168

⁽¹⁾Amortized hedge costs of ~~$62~~$50 and ~~$55~~$62 for the three-month periods and ~~$124~~$105 and ~~$110~~$124 for the six-month periods ended June 30, ~~2019,~~2020, and ~~2018,~~2019, respectively, related to certain foreign currency exposure management strategies have been reclassified from ~~realized~~net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

⁽²⁾ ~~Amortized hedge income of $20 and $7 for the three-month periods and $40~~and $9 for the six-month periods ended June 30, 2019, and 2018, respectively, related to certain foreign currency exposure management strategies has been reclassified from realized investment gains (losses) and reported as an increase to net investment income when analyzing operations.

⁽³⁾Net interest cash flows from derivatives associated with certain investment strategies of ~~$(7) for the three-month period~~$6 and $(14) for the six-month period ended June 30, 2019 and an immaterial amount for the three- and six-month periods in 2018, respectively, have been reclassified from realized investment gains (losses) and included in adjusted earnings as a component of net investment income.

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2019 2018 2019 2018
Pretax earnings:
Aflac Japan $ 831
$ 836
$ 1,666
$ 1,654

Aflac U.S. 338
340
661
677

Corporate and other (26 ) (38 ) (45 ) (84 )
    Pretax adjusted earnings 1,143
1,138
2,282
2,247

Realized investment gains (losses) ^{(1),(2),(3),(4)}
(34 ) 35
70
(63 )
Other income (loss) 0
(42 ) (1 ) (70 )
    Total earnings before income taxes $ 1,109
$ 1,131
$ 2,351
$ 2,114

Income taxes applicable to pretax adjusted earnings $ 297
$ 303
$ 587
$ 592

Effect of foreign currency translation on after-tax
adjusted earnings (4 ) 7
(13 ) 29

⁽¹⁾~~Amortizedhedge costs of $62 and $55~~$(7) for the three-month periods and ~~$124~~an immaterial amount and ~~$110~~$(14) for the six-month periods ended June 30, ~~2019,~~2020 and 2018, respectively, related to certain foreign currency management strategies have been reclassified from realized investment gains (losses) and reported as a deduction from pretax adjusted earnings when analyzing operations.

⁽²⁾ ~~Amortized hedge income of $20 and $7 for the three-month periods and $40 and $9 for the six-month periods ended June 30,~~ 2019, and 2018, respectively, related to certain foreign currency management strategies has been reclassified from realized investment gains (losses) and reported as an increase in pretax adjusted earnings when analyzing operations.

⁽³⁾ ~~Net interest cash flows from derivatives associated with certain investment strategies of $(7)for the three-month period and $(14) for the six-month period ended June 30, 2019 and and an immaterial amount for the three- and six-month periods in 2018,~~ respectively, have been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings as a component of net investment income.

⁽³⁾ Amortized hedge income of $27and $20 for the three-month periods $56and $40 for the six-month periods ended June 30, 2020, and 2019, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2020			2019			2020			2019
Pretax adjusted earnings:
Aflac Japan ^(1),(2)	$	839		$	831		$	1,694		$	1,666
Aflac U.S.	426			338			752			661
Corporate and other ^(3),(4)	(30		)	(26		)	(28		)	(45		)
Pretax adjusted earnings ⁽⁵⁾	1,235			1,143			2,418			2,282
Net investment gains (losses) ^{(1),(2),(3),(4)}	(166		)	(34		)	(614		)	70
Other income (loss)	1			0			(15		)	(1		)
Total earnings before income taxes	$	1,070		$	1,109		$	1,789		$	2,351
Income taxes applicable to pretax adjusted earnings	$	315		$	297		$	615		$	587
Effect of foreign currency translation on after-tax adjusted earnings	5			(4		)	14			(13		)

⁽¹⁾Amortizedhedge costs of $50 and$62 for the three-month periods and $105 and $124 for the six-month periods ended June 30, 2020, and 2019, 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 $6 and $(7) for the three-month periods and an immaterial amount and $(14) for the six-month periods ended June 30, 2020 and 2019, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

⁽³⁾ Amortized hedge income of $27 and $20 for the three-month periods and $56 and $40 for the six-month periods ended June 30, 2020, and 2019, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

⁽⁴⁾A gain of $14 and $17 for ~~the~~ three-month periods and $30 and $33 for the six-month periods ended June 30, ~~2019,~~2020, and ~~2018,~~2019, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable ~~have~~has been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings when analyzing ~~operations~~operations.

⁽⁵⁾Includes $44 and $34 for the three-month periods and $77 and $66 for the six-month periods ended June 30, 2020, and 2019, respectively, of interest expense on debt.

Assets were as follows:


(In millions)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets:
Aflac Japan		$	128,329		$	118,342		$	130,156		$	127,523
Aflac U.S.		20,881			19,100			21,776			20,945
Corporate and other		2,190			2,964			5,155			4,300
Total assets		$	151,400		$	140,406		$	157,087		$	152,768


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.


	June 30, 2019												June 30, 2020
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies		$	32,154		$	5,800		$	0		$	37,954	$	32,004	$	0	$	4,199	$	45	$	36,158
Municipalities		525			120			1			644		994		0		226		8		1,212
Mortgage- and asset-backed securities		237			29			0			266		334		0		28		1		361
Public utilities		1,865			392			0			2,257		4,550		0		643		15		5,178
Sovereign and supranational		762			60			0			822		1,035		0		46		5		1,076
Banks/financial institutions		6,126			700			106			6,720		7,412		0		529		319		7,622
Other corporate		5,333			932			22			6,243		7,798		0		1,054		153		8,699
Total yen-denominated		47,002			8,033			129			54,906		54,127		0		6,725		546		60,306
U.S. dollar-denominated:
U.S. government and agencies		195			11			0			206		309		0		20		0		329
Municipalities		1,198			133			0			1,331		1,119		0		161		0		1,280
Mortgage- and asset-backed securities		143			7			0			150		175		0		10		0		185
Public utilities		3,941			634			27			4,548		3,880		0		899		15		4,764
Sovereign and supranational		257			73			0			330		240		0		68		7		301
Banks/financial institutions		2,880			566			14			3,432		2,876		0		722		6		3,592
Other corporate		25,579			2,492			539			27,532		25,451		38		4,086		297		29,202
Total U.S. dollar-denominated		34,193			3,916			580			37,529		34,050		38		5,966		325		39,653
Total securities available for sale		$	81,195		$	11,949		$	709		$	92,435	$	88,177	$	38	$	12,691	$	871	$	99,959


	December 31, 2018												December 31, 2019
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies		$	30,637		$	3,700		$	140		$	34,197	$	30,929	$	5,169	$	0	$	36,098
Municipalities		385			32			9			408		516		116		3		629
Mortgage- and asset-backed securities		155			22			0			177		229		25		0		254
Public utilities		1,732			280			4			2,008		1,855		406		0		2,261
Sovereign and supranational		826			123			0			949		680		50		0		730
Banks/financial institutions		5,440			502			238			5,704		6,152		700		86		6,766
Other corporate		4,852			649			44			5,457		5,323		944		24		6,243
Total yen-denominated		44,027			5,308			435			48,900		45,684		7,410		113		52,981
U.S dollar-denominated:
U.S. government and agencies		137			9			1			145		293		9		0		302
Municipalities		1,343			120			8			1,455		1,077		141		0		1,218
Mortgage- and asset-backed securities		155			8			1			162		149		7		0		156
Public utilities		4,772			496			105			5,163		3,804		725		10		4,519
Sovereign and supranational		251			60			0			311		239		73		0		312
Banks/financial institutions		2,860			389			35			3,214		2,879		646		4		3,521
Other corporate		23,311			1,343			1,109			23,545		25,246		3,255		248		28,253
Total U.S. dollar-denominated		32,829			2,425			1,259			33,995		33,687		4,856		262		38,281
Total securities available for sale		$	76,856		$	7,733		$	1,694		$	82,895	$	79,371	$	12,266	$	375	$	91,262


	June 30, 2019												June 30, 2020
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			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		$	22,611		$	6,606		$	0		$	29,217	$	22,531	$	3	$	22,528	$	5,502	$	0	$	28,030
Municipalities		836			274			0			1,110		364		0		364		117		0		481
Mortgage- and asset-backed securities		19			1			0			20
Public utilities		2,762			386			0			3,148		46		1		45		14		0		59
Sovereign and supranational		1,188			192			0			1,380		554		5		549		143		0		692
Banks/financial institutions		978			110			12			1,076
Other corporate		2,613			477			6			3,084		23		0		23		8		0		31
Total yen-denominated		31,007			8,046			18			39,035		23,518		9		23,509		5,784		0		29,293
Total securities held to maturity		$	31,007		$	8,046		$	18		$	39,035	$	23,518	$	9	$	23,509	$	5,784	$	0	$	29,293


	December 31, 2018												December 31, 2019
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies		$	21,712		$	5,326		$	0		$	27,038	$	22,241	$	6,050	$	0	$	28,291
Municipalities		359			110			0			469		821		262		0		1,083
Mortgage- and asset-backed securities		14			1			0			15		16		1		0		17
Public utilities		2,727			254			8			2,973		2,535		419		0		2,954
Sovereign and supranational		1,551			289			0			1,840		1,123		197		0		1,320
Banks/financial institutions		1,445			158			20			1,583		916		105		3		1,018
Other corporate		2,510			332			38			2,804		2,433		485		7		2,911
Total yen-denominated		30,318			6,470			66			36,722		30,085		7,519		10		37,594
Total securities held to maturity		$	30,318		$	6,470		$	66		$	36,722	$	30,085	$	7,519	$	10	$	37,594


(In millions)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Equity securities, carried at fair value through net earnings:	Fair Value			Fair Value			Fair Value			Fair Value
Equity securities:
Yen-denominated		$	679		$	641		$	609		$	658
U.S. dollar-denominated		408			346			140			144
Total equity securities		$	1,087		$	987		$	749		$	802

The methods of determining the fair values of the Company's investments in fixed maturity securities and equity securities are described in Note 5.

During the ~~first and~~ second ~~quarters~~quarter of ~~2019 and 2018, respectively,~~2020, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category. During the first quarter of 2020, as a result of the adoption of ASU 2019-04 discussed in Note 1, the Company reclassified $6.9 billion (at amortized cost) of pre-payable fixed-maturity securities from the held-to-maturity category to the available-for-sale category. This reclassification resulted in recording in accumulated other comprehensive income a net unrealized gain of $848 million on an after-tax basis. During the first quarter and second quarter of 2019, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at June 30, ~~2019,~~2020, were as follows:


(In millions)	Amortized Cost			Fair Value			Amortized Cost ⁽¹⁾			Fair Value
Available for sale:
Due in one year or less		$	1,093		$	1,153		$	957		$	994
Due after one year through five years		8,423			8,478			8,899			9,108
Due after five years through 10 years		9,887			10,961			12,751			14,450
Due after 10 years		61,412			71,427			65,023			74,861
Mortgage- and asset-backed securities		380			416			509			546
Total fixed maturity securities available for sale		$	81,195		$	92,435		$	88,139		$	99,959
Held to maturity:
Due in one year or less		$	139		$	140		$	0		$	0
Due after one year through five years		1,284			1,367			0			0
Due after five years through 10 years		726			815			107			123
Due after 10 years		28,839			36,693			23,402			29,170
Mortgage- and asset-backed securities		19			20			0			0
Total fixed maturity securities held to maturity		$	31,007		$	39,035		$	23,509		$	29,293

⁽¹⁾Net of allowance for credit losses

Economic maturities are used for certain debt instruments with no stated maturity where the expected maturity date ~~created by~~is based on the combination of features in the financial ~~instrument. Expected maturities may differ from contractual maturities because some issuers have~~instrument such as the right to call or prepay obligations ~~with~~ or ~~without call or prepayment penalties.~~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:

June 30, 2019

December 31, 2018

June 30, 2020

December 31, 2019

(In millions)

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Japan National Government⁽¹⁾

A+

$53,298

$65,321

A+

$51,207

$59,945

A+

$53,145

$62,513

A+

$51,726

$62,584

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

~~Realized~~Net Investment Gains and Losses

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2019			2018			2019			2018			2020			2019			2020			2019
Realized investment gains (losses):
Fixed maturity securities:
Available for sale:
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales	$	32		$	12		$	44		$	22		$	14		$	32		$	21		$	44
Gross losses from sales	(3		)	(71		)	(11		)	(73		)	(46		)	(3		)	(46		)	(11		)
Foreign currency gains (losses) on sales and redemptions	(4		)	29			9			24			(20		)	(4		)	(34		)	9
Other-than-temporary impairment losses	0			(2		)	0			(2		)
Total fixed maturity securities	25			(32		)	42			(29		)
Total sales and redemptions													(52		)	25			(59		)	42
Equity securities	(11		)	18			47			(28		)	31			(11		)	(118		)	47
Loan receivables:
Loan loss reserves	(2		)	(3		)	(4		)	(10		)
Total loan receivables	(2		)	(3		)	(4		)	(10		)
Loan loss reserves ⁽¹⁾													0			(2		)	0			(4		)
Credit losses:
Fixed maturity securities available for sale													(12		)	0			(75		)	0
Fixed maturity securities held to maturity													0			0			1			0
Commercial mortgage and other loans													(127		)	0			(164		)	0
Loan commitments													(35		)	0			(81		)	0
Reinsurance recoverables and other													(2		)	0			(2		)	0
Total credit losses													(176		)	0			(321		)	0
Derivatives and other:
Derivative gains (losses)	122			(172		)	122			(28		)	120			122			35			122
Foreign currency gains (losses)	(200		)	192			(202		)	(36		)	(93		)	(200		)	(170		)	(202		)
Total derivatives and other	(78		)	20			(80		)	(64		)	27			(78		)	(135		)	(80		)
Total realized investment gains (losses)	$	(66	)	$	3		$	5		$	(131	)
Total net investment gains (losses)													$	(170	)	$	(66	)	$	(633	)	$	5

⁽¹⁾U.S. GAAP guidance adopted as of January 1, 2020 has superseded these losses, included for comparative purposes only.

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the three-month period ended June 30, 2020, that relate to equity securities still held at the June 30, 2020 reporting date, were $31 million. The unrealized holding losses, net of gains, recorded as a component of realized investment gains and losses for the three-month period ended June 30, 2019, that relates to equity securities still held at the June 30, 2019, reporting date was $13 million. The unrealized holding gains, net ~~of losses, recorded as a component of realized~~ investment gains and losses for the six-month period ended June 30, ~~2019,~~2020, that ~~relates~~relate to equity securities still held at the June 30, ~~2019,~~2020 reporting date, ~~was $34~~were $118 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)	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
Unrealized gains (losses) on securities available for sale		$	11,240			$	6,039			$	11,820			$	11,891
Deferred income taxes		(3,185		)		(1,805		)		(3,288		)		(3,343		)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities		$	8,055			$	4,234			$	8,532			$	8,548

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 period ended June 30, 2020 and available-for-sale and held-to-maturity investments for prior periods that were in an unrealized loss position, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	June 30, 2019																		June 30, 2020
	Total						Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities:
Fixed maturity securities available for sale:
Japan government and agencies:
Yen-denominated																				$	2,196		$	45		$	2,196		$	45		$	0		$	0
Municipalities:
Yen-denominated																				144			8			131			7			13			1
Mortgage- and asset- backed securities:
Yen-denominated		$	14		$	1		$	14		$	1		$	0		$	0		36			1			36			1			0			0
Public utilities:
U.S. dollar-denominated		597			27			116			5			481			22			301			15			181			8			120			7
Yen-denominated																				799			15			799			15			0			0
Sovereign and supranational:
U.S. dollar-denominated																				35			7			35			7			0			0
Yen-denominated																				219			5			219			5			0			0
Banks/financial institutions:
U.S. dollar-denominated		284			14			110			5			174			9			60			6			23			1			37			5
Yen-denominated		1,862			118			1,862			118			0			0			3,584			319			2,753			205			831			114
Other corporate:
U.S. dollar-denominated		7,957			539			2,125			143			5,832			396			3,625			297			1,329			70			2,296			227
Yen-denominated		713			28			713			28			0			0			1,647			153			1,394			128			253			25
Total		$	11,427		$	727		$	4,940		$	300		$	6,487		$	427		$	12,646		$	871		$	9,096		$	492		$	3,550		$	379


	December 31, 2018																		December 31, 2019
	Total						Less than 12 months						12 months or longer						Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities:
U.S. government and agencies:
U.S. dollar-denominated		$	67		$	1		$	67		$	1		$	0		$	0
Japan government and agencies:
Municipalities:
Yen-denominated		3,604			140			3,604			140			0			0			$	80		$	3		$	80		$	3		$	0		$	0
Municipalities:
U.S. dollar-denominated		515			8			515			8			0			0
Yen-denominated		148			9			148			9			0			0
Mortgage- and asset- backed securities:
U.S. dollar-denominated		74			1			74			1			0			0
Public utilities:
U.S. dollar-denominated		1,585			105			892			48			693			57			306			10			69			2			237			8
Yen-denominated		604			12			604			12			0			0
Banks/financial institutions:
U.S. dollar-denominated		625			35			340			19			285			16			79			4			18			0			61			4
Yen-denominated		3,057			258			3,057			258			0			0			1,828			89			1,828			89			0			0
Other corporate:
U.S. dollar-denominated		12,899			1,109			5,782			407			7,117			702			4,261			248			792			53			3,469			195
Yen-denominated		1,306			82			1,306			82			0			0			636			31			636			31			0			0
Total		$	24,484		$	1,760		$	16,389		$	985		$	8,095		$	775		$	7,190		$	385		$	3,423		$	178		$	3,767		$	207

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

However, the Company has identified certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit allowance has been calculated. As of June 30, 2020, the Company recorded an allowance of $38 million. Refer to the Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

The Company classifies its transitional real estate loans (TREs), commercial mortgage loans (CMLs) and middle market loans (MMLs) as held-for-investment and includes them in the commercial mortgage and other loans line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for ~~loan~~credit losses.

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

(In millions) June 30, 2019 December 31, 2018
Commercial mortgage and other loans:
Transitional real estate loans $ 4,592
$ 4,394

Commercial mortgage loans 1,161
1,065

Middle market loans 1,900
1,487

Total gross commercial mortgage and other loans 7,653
6,946

Allowance for loan loss (31 ) (27 )
Total net commercial mortgage and other loans $ 7,622
$ 6,919



(In millions)	June 30, 2020					December 31, 2019
	Amortized Cost			% of Total		Amortized Cost				% of Total
Commercial Mortgage and other loans:
Transitional real estate loans:
Office	$	2,112		19.3	%	$	1,800			18.7	%
Retail	173			1.6		131				1.4
Apartments/Multi-Family	2,076			18.9		2,085				21.7
Industrial	176			1.6		256				2.7
Hospitality	1,078			9.8		1,036				10.8
Other	78			0.7		164				1.7
Total transitional real estate loans	5,693			51.9		5,472				57.0
Commercial mortgage loans:
Office	405			3.7		410				4.3
Retail	344			3.1		348				3.5
Apartments/Multi-Family	596			5.5		569				5.9
Industrial	395			3.6		383				4.0
Total commercial mortgage loans	1,740			15.9		1,710				17.7
Middle market loans	3,526			32.2		2,432				25.3
Total commercial mortgage and other loans	$	10,959		100.0	%	$	9,614			100.0	%
Allowance for credit losses	(242		)			(45		)	⁽¹⁾
Total net commercial mortgage and other loans	$	10,717				$	9,569

⁽¹⁾U.S. GAAP guidance adopted as of January 1, 2020 has superseded these losses, included for comparative purposes only.

Commercial mortgage and transitional real estate loans were secured by properties entirely within the ~~United States.~~U.S. (with the largest concentrations in California (20%), Texas (13%) and Florida (10%)). Middle market loans are issued only to companies domiciled within the ~~United States~~U.S. and Canada.

Transitional Real Estate Loans

Transitional real estate loans are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date. This loan portfolio ~~has guidelines that limit the average loan-to-value at origination~~is generally considered to be ~~70% or lower with individual loan-to-value limits at origination of 80% or less.~~investment grade. As of June 30, ~~2019,~~2020, the Company had ~~$767~~$729 million in outstanding commitments to fund transitional real estate loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

Commercial mortgage loans are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio ~~has guidelines that limit the average loan-to-value at origination to be 65% or lower with individual loan-to-value limits at origination of 70% or less.~~is generally considered higher quality investment grade loans. As of June 30, ~~2019,~~2020, the Company had ~~$95 million in~~no outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

Middle market loans are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for middle market loans included ~~an unfunded amount of $130~~$19 millionand ~~$56~~$99 million ~~as of June 30, 2019, and December 31, 2018, respectively,~~for a short term credit facility that is reflected in other liabilities on the consolidated balance ~~sheets.~~sheets, as of June 30, 2020, and December 31, 2019, respectively.

As of June 30, ~~2019,~~2020, the Company had commitments of approximately ~~$489 million~~$2.5 billion of which $2.2 billion was a result of a new agreement with an external manager during the first quarter of 2020 to fund ~~potential~~ future ~~loan originations related to this investment program.~~middle market loans. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

~~Allowance for Loan~~Credit Losses

The Company's allowance for loan losses is established using both general and specific allowances. The general allowance is used for loans grouped by similar risk characteristics where a loan-specific or market-specific risk has not been identified, but for whichEffective January 1, 2020, the Company ~~estimates probable incurred~~adopted ASC 326: Financial Instruments - Credit Losses. The newly adopted accounting standard requires the Company to estimate an expected lifetime credit loss on financial assets including short-term receivables, held-to-maturity fixed maturity securities, loan receivables, loan commitments and reinsurance recoverables. For the Company’s available-for-sale fixed maturity securities, the newly adopted guidance requires an entity to evaluate estimated credit losses only when the fair value of the available-for-sale fixed maturity security is below its amortized cost basis. Credit loss changes are recorded as a component of net investment gains and losses for the Company’s held-to-maturity and available-for-sale securities, loan receivables, loan commitments and reinsurance recoverables. The Company’s off-balance sheet credit exposure is primarily attributable to loan commitments that are not unconditionally cancelable. The Company considers the contractual period of exposure to credit risk, the likelihood that funding will occur, the risk of loss, and the current conditions and expectations of future economic conditions to develop the estimate of expected credit losses. The ~~specific allowance is used on an individual~~Company records the estimate of expected credit losses for certain loan ~~basis when it is probable that~~commitments within other liabilities in the consolidated balance sheet.

Write-offs and partial write-offs are recorded as a ~~loss has been incurred. There was no specific~~reduction to the amortized cost of the loan ~~loss reserve~~or fixed maturity security balance and a reduction to the credit allowance.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $22.3 billion amortized cost as of June 30, ~~2019,~~2020 that meet the requirements for zero-credit-loss expectation and ~~December 31, 2018. The following table presents~~therefore these asset classes have been excluded from the ~~rollforward of the general allowance for loan losses by portfolio segment during the six-month period ended June 30.~~

(In millions) Commercial Mortgage Loans Transitional Real Estate Loans Middle Market Loans Total
Allowance for loan losses at December 31, 2018 $ (1 ) $ (17 ) $ (9 ) $ (27 )
Addition to (release of) allowance for credit losses 0
(1 ) (3 ) (4 )
Allowance for loan losses at June 30, 2019 $ (1 ) $ (18 ) $ (12 ) $ (31 )

current expected credit loss measurement.

The Company has elected not to measure an allowance on accrued interest income for all asset types, because the uncollectible accrued interest receivable is written off in a timely manner. The Company writes off accrued interest when it is more than ninety days past due. The Company has elected to write off accrued interest by reversing interest income, which is a component of net investment income, in the consolidated statement of earnings.

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).

The Company records due premium receivable net of current expected credit losses in the receivables line item in the consolidated balance sheet, utilizing an aging methodology based on historical loss information, adjusted for current conditions and reasonable and supportable forecasts. Changes in the estimated credit losses related to premium receivable are recorded in net premiums in the consolidated statement of earnings.

Credit Quality Indicators

For TREs, the Company’s key credit quality ~~indicators used by the Company in establishing the general and specific loan loss reserves, as well as in determining whether or not a loan should be impaired, include~~indicator is loan-to-value ~~and debt service coverage ratios for CMLs and TREs and ratings for our middle market loan portfolio.~~(LTV). Given that ~~transitional real estate~~TRE loans involve properties undergoing renovation or construction, loan-to-value provides the most insight oninto the credit risk of the ~~property.~~loan. The Company monitors the performance of the loans ~~are monitored and reviewed~~ periodically, but not less frequently than quarterly.

AsFor 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 ~~June 30, 2019,~~the underlying property compared to the required debt service of the loan.

For MMLs and ~~December 31, 2018,~~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 ~~had no loans that were past due in regards to principal and/or interest payments. Additionally,~~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 ~~held no loans that were~~uses external credit ratings focused on ~~nonaccrual status or considered impaired~~the reinsurer’s financial strength and credit worthiness. The Company's counterparties are rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly.

The following tables present as of June 30, ~~2019,~~2020 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.



Transitional Real Estate Loans
(In millions)	2020		2019		2018		2017		2016		Prior		Total
Loan-to-Value Ratio:
0%-59.99%	$	45	$	523	$	417	$	157	$	20	$	57	$	1,219
60%-69.99%	191		790		839		437		0		0		2,257
70%-79.99%	131		816		971		224		14		0		2,156
80% or greater	25		36		0		0		0		0		61
Total	$	392	$	2,165	$	2,227	$	818	$	34	$	57	$	5,693



Commercial Mortgage Loans
(In millions)	2020		2019		2018		2017		2016		Prior		Total		Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%	$	32	$	404	$	101	$	69	$	594	$	0	$	1,200	2.59
60%-69.99%	16		224		70		0		148		0		458		1.92
70%-79.99%	0		33		0		0		23		0		56		1.79
80% or greater	0		0		0		0		26		0		26		1.63
Total	48		661		171		69		791		0		1,740		2.37
Weighted Average DSCR	1.91		2.50		2.23		2.59		2.31		0		2.37



Middle Market Loans
(In millions)	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Credit Ratings:
BBB	$	38	$	121	$	57	$	57	$	13	$	0	$	24	$	310
BB	150		214		235		90		30		24		80		823
B	184		767		303		266		120		41		219		1,900
CCC	21		103		129		58		33		17		90		451
CC	0		1		0		39		0		0		2		42
Total	$	393	$	1,206	$	724	$	510	$	196	$	82	$	415	$	3,526

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 loan-to-value 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 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 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.

A TDR involves a situation where the Company grants a concession to a borrower that the Company would not otherwise have considered due to the borrower’s financial difficulties. The Company has elected to apply Section 4013 of the CARES Act, or the Interagency statement which temporarily suspends TDR accounting guidance for loan modifications, such as extensions or deferrals, related to COVID-19. The relief provided by the CARES Act applies to loan modifications made between March 1, 2020 and the earlier of (i) December 31, ~~2018.~~ 2020 or (ii) 60 days after the end of the COVID-19 national emergency, as determined by the Executive Branch, whereas the Interagency statement does not specify a time horizon.

The Company ~~had no troubled debt restructurings~~granted certain loan modifications in its MML and TRE portfolios due to COVID-19 during the six months ended June 30, ~~2019~~2020. The nature of the modifications varied in scope and ~~2018.~~significance, but generally a small proportion of modifications qualified as TDR. The Company continues to evaluate loan modifications in our MML and TRE portfolios. As of June 30, 2020, the amortized cost of modified loans where Section 4013 of the CARES Act or the Interagency statement is applicable was immaterial.

The Company had an immaterial amount of TDRs during the six months ended June 30, 2020. The Company had no TDRs during 2019. For certain TDRs, modifications resulted in write-offs for certain loans where the modified loan resulted in a forgiveness of existing principal and are included in the rollforward of the allowance for credit losses below.

As of June 30, 2020 and December 31, 2019, the Company had an immaterial amount (cost basis) of loans and fixed maturities on nonaccrual status.

The following table presents the roll forward of the allowance for credit losses by portfolio segment during the six-month period ended June 30, 2020.



(in millions)	Transitional Real Estate Loans			Commercial Mortgage Loans			Middle Market Loans			Held to Maturity Securities			Available for Sale Securities			Reinsurance Recoverables
Balance at December 31, 2019 ⁽¹⁾	$	(22	)	$	(3	)	$	(20	)	$	0		$	0		$	0
Transition impact to retained earnings	(2		)	(8		)	(33		)	(10		)	0			(11		)
(Addition to) release of allowance for credit losses	(42		)	(31		)	(90		)	1			(74		)	0
Write-offs, net of recoveries	0			0			9			0			36			0
Balance at June 30, 2020	$	(66	)	$	(42	)	$	(134	)	$	(9	)	$	(38	)	$	(11	)

⁽¹⁾U.S. GAAP guidance adopted as of January 1, 2020 has superseded these losses, included for comparative purposes only.

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. During the first quarter of 2020, the Company entered into a loan commitment with an external manager that met the requirements to recognize a credit loss on over $2.2 billion of loan commitments over the next few years. The estimate of credit losses for loan commitments as of June 30, 2020 was $95 million.

Other Investments

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


(In millions)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Other investments:
Policy loans		$	246		$	232		$	263		$	250
Short-term investments ⁽¹⁾		677			152			763			628
Limited partnerships		471			377			718			569
Other		33			26			27			30
Total other investments		$	1,427		$	787		$	1,771		$	1,477

⁽¹⁾Includes securities lending collateral

As of June 30, ~~2019,~~2020, the Company had ~~$881 million~~$1.3 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

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

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

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

The Company's risk of loss related to its interests in any of its VIEs is limited to the carrying value of the related investments held in the VIE.

VIEs - Consolidated

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

Investments in Consolidated Variable Interest Entities


	June 30, 2019						December 31, 2018						June 30, 2020						December 31, 2019
(In millions)	Cost or Amortized Cost			Fair Value			Cost or Amortized Cost			Fair Value			Amortized Cost ⁽¹⁾			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	3,729		$	4,599		$	3,849		$	4,466		$	3,127		$	4,063		$	3,308		$	4,312
Equity securities		187			187			160			160
Commercial mortgage and other loans		6,233			6,259			5,528			5,506			9,117			9,049			7,956			8,015
Other investments ⁽¹⁾		410			410			328			328
Other assets ⁽²⁾		201			201			182			182
Other investments ⁽²⁾														589			589			494			494
Other assets ⁽³⁾														87			87			169			169
Total assets of consolidated VIEs		$	10,760		$	11,656		$	10,047		$	10,642		$	12,920		$	13,788		$	11,927		$	12,990
Liabilities:
Other liabilities ⁽²⁾		$	107		$	107		$	102		$	102
Other liabilities ⁽³⁾														$	255		$	255		$	126		$	126
Total liabilities of consolidated VIEs		$	107		$	107		$	102		$	102		$	255		$	255		$	126		$	126

⁽¹⁾Net of allowance for credit losses

⁽²⁾ Consists entirely of alternative investments in limited partnerships

⁽²⁾⁽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


	June 30, 2019						December 31, 2018						June 30, 2020						December 31, 2019
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	4,309		$	4,961		$	4,575		$	4,982		$	5,982		$	6,837		$	4,129		$	4,884
Fixed maturity securities, held to maturity		2,019			2,389			2,007			2,254			0			0			1,848			2,236
Other investments ⁽¹⁾		61			61			49			49			129			129			75			74
Total investments in VIEs not consolidated		$	6,389		$	7,411		$	6,631		$	7,285		$	6,111		$	6,966		$	6,052		$	7,194

⁽¹⁾ Consists entirely of alternative investments in limited partnerships

The Company holds alternative investments in limited partnerships that have been determined to be VIEs. These partnerships invest in private equity and structured investments. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment. The Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them. The Company classifies these investments as Other investments in the consolidated balance sheets.

Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations from the VIEs that are irrevocably and unconditionally guaranteed by their corporate parents or sponsors. These VIEs are the primary financing vehicles used by their corporate sponsors to raise financing in the capital markets. The variable interests created by these VIEs are principally or solely a result of the debt instruments issued by them. The Company does not have the power to direct the activities that most significantly impact the entity's economic performance, nor does it have the obligation to absorb losses of the entity or the right to receive benefits from the entity. As such, the Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them.

Securities Lending and Pledged Securities

The Company lends fixed maturity and public equity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. The Company receives cash or other securities as collateral for such loans. The Company's security lending policy requires that the fair value of the securities received as collateral be 102% or more of the fair value of the loaned securities and that unrestricted cash received as collateral be 100% or more of the fair value of the loaned securities. The securities loaned continue to be carried as investment assets on the Company's balance sheet during the terms of the loans and are

not reported as sales. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral. For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge, the collateral is not reflected on the consolidated financial statements.

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

																							Securities Lending Transactions Accounted for as Secured Borrowings
June 30, 2019
Remaining Contractual Maturity of the Agreements
									June 30, 2020								December 31, 2019
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		Greater than 90 days		Total		Overnight and Continuous⁽¹⁾		Up to 30 days		30-90 days		Total		Overnight and Continuous⁽¹⁾		Up to 30 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	605	$	2,539	$	3,144	$	0	$	1,720	$	155	$	1,875	$	0	$	1,013	$	1,013
Public utilities	56		0		0		56		25		0		0		25		35		0		35
Sovereign and supranational									5		0		0		5		2		0		2
Banks/financial institutions	78		0		0		78		38		0		0		38		48		0		48
Other corporate	804		0		0		804		332		0		0		332		778		0		778
Equity securities	14		0		0		14
Total borrowings	$	952	$	605	$	2,539	$	4,096	$	400	$	1,720	$	155	$	2,275	$	863	$	1,013	$	1,876
Gross amount of recognized liabilities for securities lending transactions	Gross amount of recognized liabilities for securities lending transactions						$	1,557	Gross amount of recognized liabilities for securities lending transactions						$	2,275					$	1,876
Amounts related to agreements not included in offsetting disclosure in Note 4							$	2,539

⁽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.

Securities Lending Transactions Accounted for as Secured Borrowings
December 31, 2018
Remaining Contractual Maturity of the Agreements
(In millions)
Overnight
and
Continuous⁽¹⁾
Up to 30
days Greater
than 90
days Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies $ 0
$ 387
$ 1,190
$ 1,577
Municipalities 5
0
0
5
Public utilities 27
0
0
27
Banks/financial institutions 74
0
0
74
Other corporate 549
0
0
549
Equity securities 10
0
0
10
Total borrowings $ 665
$ 387
$ 1,190
$ 2,242
Gross amount of recognized liabilities for securities lending transactions $ 1,052
Amounts related to agreements not included in offsetting disclosure in Note 4 $ 1,190

⁽¹⁾~~The related loaned security, under the Company's U.S.~~In connection with securities lending, ~~program, can be returned~~in addition to cash collateral received, the Company received from counterparties securities collateral of $4,731 million and $4,759 million at June 30, 2020 and December 31, 2019, respectively, which may not be sold or re-pledged, unless the ~~transferee's discretion; therefore, they are classified as Overnight and Continuous~~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 June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

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


4.	DERIVATIVE INSTRUMENTS

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

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

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

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

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

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

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

bond purchase commitments at the inception of investments in consolidated VIEs

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

Derivative Types

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

From time to time, the Company may also enter into foreign currency forwards and options ~~are used in fair value hedging relationships~~ to ~~mitigate the foreign exchange risk associated with U.S. dollar-denominated investments supporting yen-denominated liabilities.~~

~~Prior to April 1, 2018, foreign currency forwards and options (through a collar strategy, as discussed above) hedged~~hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, Aflac ~~agreed~~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 ~~used~~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 ~~created~~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.


		June 30, 2019									December 31, 2018									June 30, 2020									December 31, 2019
(In millions)				Asset Derivatives			Liability Derivatives						Asset Derivatives			Liability Derivatives						Asset Derivatives			Liability Derivatives						Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value			Fair Value			Notional Amount			Fair Value			Fair Value			Notional Amount			Fair Value			Fair Value			Notional Amount			Fair Value			Fair Value
Cash flow hedges:
Foreign currency swaps - VIE		$	75		$	0		$	6		$	75		$	1		$	4		$	75		$	0		$	13		$	75		$	0		$	8
Total cash flow hedges		75			0			6			75			1			4			75			0			13			75			0			8
Fair value hedges:
Foreign currency forwards		842			0			19			2,086			0			34			62			0			0			964			0			38
Foreign currency options		10,901			0			2			9,070			3			1			8,689			0			2			11,573			0			5
Interest rate swaptions		1,500			0			3			500			0			1			243			0			0			243			0			0
Total fair value hedges		13,243			0			24			11,656			3			36			8,994			0			2			12,780			0			43
Net investment hedge:
Foreign currency forwards																				4,994			122			2			4,952			72			2
Foreign currency options																				2,732			1			0			2,000			0			0
Total net investment hedge																				7,726			123			2			6,952			72			2
Non-qualifying strategies:
Foreign currency swaps		2,800			88			107			2,800			103			129			2,250			73			29			2,800			72			78
Foreign currency swaps - VIE		2,587			201			101			2,587			181			101			2,657			87			242			2,587			169			118
Foreign currency forwards		16,081			222			109			16,057			126			117			17,110			177			391			19,821			166			337
Foreign currency options		1,042			0			0			430			0			0			9,149			0			0			9,553			0			0
Interest rate swaps		4,750			15			0			4,750			3			0			2,000			14			0			7,120			3			0
Interest rate swaptions																				7			0			0			7			0			0
Forward bond purchase commitment - VIE																				52			0			1			0			0			0
Total non-qualifying strategies		27,260			526			317			26,624			413			347			33,225			351			663			41,888			410			533
Total derivatives		$	40,578		$	526		$	347		$	38,355		$	417		$	387		$	50,020		$	474		$	680		$	61,695		$	482		$	586

Cash Flow Hedges

For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the USD variable rate interest and principal payments to fixed rate JPY interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is ~~seven~~approximately 6 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
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 Realized Gains (Losses) Recognized for Fair Value Hedge			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 June 30, 2020:																	Three Months Ended June 30, 2020:
Foreign currency forwards																	Fixed maturity securities	$	0		$	(1	)	$	1		$	(1	)	$	0
Foreign currency options																	Fixed maturity securities	(2		)	(1		)	(1		)	1			0
Total gains (losses)																	Total gains (losses)	$	(2	)	$	(2	)	$	0		$	0		$	0
Six Months Ended June 30, 2020:																	Six Months Ended June 30, 2020:
Foreign currency forwards																	Fixed maturity securities	$	(16	)	$	(8	)	$	(8	)	$	9		$	1
Foreign currency options																	Fixed maturity securities	(2		)	(1		)	(1		)	1			0
Total gains (losses)																		$	(18	)	$	(9	)	$	(9	)	$	10		$	1
Three Months Ended June 30, 2019:	Three Months Ended June 30, 2019:																Three Months Ended June 30, 2019:
Foreign currency forwards	Fixed maturity securities	$	6		$	(14	)	$	20		$	(21	)	$	(1	)	Fixed maturity securities	$	6		$	(14	)	$	20		$	(21	)	$	(1	)
Interest rate swaptions	Fixed-maturity securities	(2		)	(2		)	0			0			0			Fixed maturity securities	(2		)	(2		)	0			0			0
Total gains (losses)	Total gains (losses)	$	4		$	(16	)	$	20		$	(21	)	$	(1	)		4			(16		)	20			(21		)	(1		)
Six Months Ended June 30, 2019:	Six Months Ended June 30, 2019:																Six Months Ended June 30, 2019:
Foreign currency forwards	Fixed maturity securities	$	15		$	(24	)	$	39		$	(39	)	$	0		Fixed maturity securities	$	15		$	(24	)	$	39		$	(39	)	$	0
Foreign currency options	Fixed maturity securities	(4		)	(4		)	0			0			0			Fixed maturity securities	(4		)	(4		)	0			0			0
Interest rate swaptions	Fixed maturity securities	(3		)	(3		)	0			0			0			Fixed maturity securities	(3		)	(3		)	0			0			0
Total gains (losses)		$	8		$	(31	)	$	39		$	(39	)	$	0			$	8		$	(31	)	$	39		$	(39	)	$	0
Three Months Ended June 30, 2018:
Foreign currency forwards	Fixed maturity securities	$	(215	)	$	(30	)	$	(185	)	$	186		$	1
Foreign currency options	Fixed maturity securities	(2		)	(2		)	0			0			0
Total gains (losses)		(217		)	(32		)	(185		)	186			1
Six Months Ended June 30, 2018:
Foreign currency forwards	Fixed maturity securities	$	199		$	(69	)	$	268		$	(278	)	$	(10	)
Foreign currency options	Fixed maturity securities	(3		)	(3		)	0			0			0
Total gains (losses)		$	196		$	(72	)	$	268		$	(278	)	$	(10	)

⁽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 ~~realized~~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 ~~realized~~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 and six-month periods ended June 30, 2020 and 2019, ~~those~~ 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)				Carrying Amount of the Hedged Assets/(Liabilities)⁽¹⁾					Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)
		June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Fixed maturity securities		$	5,084	$	6,593	$	269	$	294		$	4,540	$	4,633	$	245	$	256

⁽¹⁾The balance includes hedging adjustment on discontinued hedging relationships of ~~$269~~$245 in ~~2019~~2020 and ~~$294~~$256 in ~~2018.~~2019.

The total notional amount of the Company's interest rate swaptions was ~~$1,500~~$243 in ~~2019~~2020 and ~~$500~~$243 in ~~2018.~~2019. The hedging adjustment related to these derivatives was immaterial.

Net Investment Hedge

The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative ~~hedges and, prior to April 1, 2018,~~hedges. Beginning in July 2019, certain foreign currency forwards and options ~~have been~~were designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and six-month periods ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

Non-qualifying Strategies

For the Company's derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within ~~realized investment~~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 June 30, ~~2019,~~2020, the Parent Company had $2.3 billion notional amount of cross-currency interest rate swap agreements related to certain of its ~~$350 million~~U.S. dollar-denominated senior notes ~~due February 2022, $700 million senior~~to effectively convert a portion of the interest on the notes ~~due June 2023, $750 million senior notes due November 2024 and $450 million senior notes due March 2025.~~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 ~~2018~~2019 Annual Report.

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

InPrior to July 2019, in order to economically mitigate currency risk of future yen dividends from Aflac Japan while lowering consolidated hedge costs associated with Aflac Japan's U.S. dollar investment hedging, the Parent Company entered into offsetting hedge positions using foreign exchange forwards. This activity is reported in the Corporate and other segment. As of July 1, 2019, the Parent Company designates these foreign exchange forward contracts as accounting hedges of its net investment in Aflac Japan.

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 ~~realized~~net investment gains (losses) and other comprehensive income (loss) from all derivatives and hedging instruments.


	Three Months Ended June 30,																											Three Months Ended June 30,
	2019														2018													2020														2019
(In millions)	Net Investment Income ⁽¹⁾				Realized Investment Gains (Losses)						Other Comprehensive Income (Loss)⁽²⁾				Net Investment Income ⁽¹⁾			Realized Investment Gains (Losses)						Other Comprehensive Income (Loss)⁽²⁾				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			$	0					$	0			$	0		$	0					$	(2	)		$	0			$	0					$	(2	)		$	0			$	0					$	0
Total cash flow hedges		0				0			⁽³	⁾		0				0			0			⁽³	⁾		(2		)		0				0			⁽³	⁾		(2		)		0				0			⁽³	⁾		0
Fair value hedges:
Foreign currency forwards ⁽⁴⁾⁽³⁾						(15		)											(29		)												(1		)												(15		)
Foreign currency options ⁽⁴⁾⁽³⁾						0													(2		)												(1		)												0
Interest rate swaptions ⁽⁴⁾⁽³⁾		(1		)		0						(1		)		0			0						0				(1		)		0						1				(1		)		0						(1		)
Total fair value hedges		(1		)		(15		)				(1		)		0			(31		)				0				(1		)		(2		)				1				(1		)		(15		)				(1		)
Net investment hedge:
Non-derivative hedging instruments						0						(54		)					0						55								0						(28		)						0						(54		)
Foreign currency forwards																																	101						(50		)						0						0
Foreign currency options						0						0							0						0								(7		)				0								0						0
Total net investment hedge						0						(54		)					0						55								94						(78		)						0						(54		)
Non-qualifying strategies:
Foreign currency swaps						0													50														31														0
Foreign currency swaps - VIE						13													(36		)												(30		)												13
Foreign currency forwards						114													(154		)												30														114
Foreign currency options						0													(1		)												(3		)												0
Interest rate swaps						10													0														2														10
Forward bond purchase commitment- VIE																																	(2		)												0
Total non- qualifying strategies						137													(141		)												28														137
Total		$	(1	)		$	122					$	(55	)		$	0		$	(172	)				$	53			$	(1	)		$	120					$	(79	)		$	(1	)		$	122					$	(55	)

⁽¹⁾~~Net investment income (loss) includes net interest on swaps.~~

⁽²⁾Cash flow hedge items 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) on derivatives and net investment hedge items are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

⁽³⁾⁽²⁾ Impact of cash flow hedges reported as ~~realized~~net investment gains (losses) includes an immaterial amount of gains or losses reclassified from accumulated other comprehensive income (loss) into earnings. It also includes an immaterial amount excluded from effectiveness testing during the three-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

⁽⁴⁾⁽³⁾Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)



	Six Months Ended June 30,
	2020														2019
(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		$	(1	)		$	0					$	(6	)		$	(1	)		$	0					$	(2	)
Total cash flow hedges		(1		)		0			⁽³	⁾		(6		)		(1		)		0			⁽³	⁾		(2		)
Fair value hedges:
Foreign currency forwards⁽³⁾						(7		)												(24		)
Foreign currency options⁽³⁾						(1		)												(4		)
Interest rate swaptions⁽³⁾		(1		)		0						1				(1		)		0						(2		)
Total fair value hedges		(1		)		(8		)				1				(1		)		(28		)				(2		)
Net investment hedge:
Non-derivative hedging instruments						0						(21		)						0						(54		)
Foreign currency forwards						152						(75		)						0						0
Foreign currency options						(1		)				0								0						0
Total net investment hedge						151						(96		)						0						(54		)
Non-qualifying strategies:
Foreign currency swaps						81														44
Foreign currency swaps - VIE						(225		)												(3		)
Foreign currency forwards						(6		)												93
Foreign currency options						(5		)												0
Interest rate swaps						49														16
Forward bond purchase commitment - VIE						(2		)												0
Total non-qualifying strategies						(108		)												150
Total		$	(2	)		$	35					$	(101	)		$	(2	)		$	122					$	(58	)

Six Months Ended June 30,
2019 2018
(In millions)
Net Investment Income⁽¹⁾
Realized Investment
Gains (Losses)
Other
Comprehensive
Income (Loss)⁽²⁾
Net Investment Income⁽¹⁾
Realized Investment
Gains (Losses)
Other
Comprehensive
Income (Loss)⁽²⁾
Qualifying hedges:
  Cash flow hedges:
       Foreign currency swaps - VIE $ (1 ) $ 0
$ (2 ) $ 0
$ 1
$ 4

  Total cash flow hedges (1 ) 0
⁽³
⁾
(2 ) 0
1
⁽³
⁾
4

  Fair value hedges:
       Foreign currency forwards⁽⁴⁾

(24 )
(79 )
       Foreign currency options⁽⁴⁾

(4 )
(3 )
       Interest rate swaptions⁽⁴⁾
(1 ) 0
(2 ) 0
0
0

  Total fair value hedges (1 ) (28 ) (2 ) 0
(82 ) 0

  Net investment hedge:
       Non-derivative hedging
         instruments

0
(54 )
0
(29 )
       Foreign currency options
0
0

0
(8 )
  Total net investment hedge
0
(54 )
0
(37 )
  Non-qualifying strategies:
       Foreign currency swaps

44

(60 )
       Foreign currency swaps - VIE

(3 )

88

       Foreign currency forwards

93

25

       Foreign currency options

0

0

       Interest rate swaps

16

0

  Total non-qualifying strategies

150

53

          Total $ (2 ) $ 122
$ (58 ) $ 0
$ (28 ) $ (33 )

⁽¹⁾~~Net investment income (loss) includes net interest on swaps.~~

⁽³⁾⁽²⁾ Impact of cash flow hedges reported as ~~realized~~net investment gains (losses) includes an immaterial amount of gains or losses reclassified from accumulated other comprehensive income (loss) into earnings. It also includes an immaterial amount excluded from effectiveness testing during the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

⁽⁴⁾⁽³⁾Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)

As of June 30, ~~2019,~~2020, deferred gains and losses on derivative instruments recorded in accumulated other comprehensive income that are expected to be reclassified to earnings during the next twelve months were immaterial.

Credit Risk Assumed through Derivatives

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

The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; 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 June 30, ~~2019, there were 17 counterparties to~~2020, all of the Company's derivative ~~agreements, with four comprising 66% of the aggregate notional amount. As of June 30, 2019, all~~agreement counterparties were investment grade.

The Company engages in over-the-counter (OTC) bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annexes (CSAs) provisions, which generally provide for two-way collateral postings at the first dollar of exposure. The Company mitigates the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction. In addition, a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of Aflac’s financial strength rating. The actual amount of payments that the Company could be required to make depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade.

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

Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately ~~$54~~$339 million and ~~$139~~$301 million as of June 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, ~~2019,~~2020, the Company estimates that it would be required to post a maximum of ~~$39~~$151 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 ~~Asset~~Assets


June 30, 2019
June 30, 2020																								June 30, 2020
										Gross Amounts Not Offset in Balance Sheet																							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			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		$	310		$	0		$	310		$	(141	)	$	(101	)		$	(62	)		$	6		$	373		$	0		$	373		$	(200	)	$	(6	)		$	(162	)		$	5
OTC - cleared		15			0			15			0			0				(7		)		8			14			0			14			0			0				(10		)		4
Total derivative assets subject to a master netting agreement or offsetting arrangement		325			0			325			(141		)	(101		)		(69		)		14			387			0			387			(200		)	(6		)		(172		)		9
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		201						201														201			87						87														87
Total derivative assets not subject to a master netting agreement or offsetting arrangement		201						201														201			87						87														87
Total derivative assets		526			0			526			(141		)	(101		)		(69		)		215			474			0			474			(200		)	(6		)		(172		)		96
Securities lending and similar arrangements		1,536			0			1,536			0			0				(1,536		)		0			2,260			0			2,260			0			0				(2,260		)		0
Total		$	2,062		$	0		$	2,062		$	(141	)	$	(101	)		$	(1,605	)		$	215		$	2,734		$	0		$	2,734		$	(200	)	$	(6	)		$	(2,432	)		$	96


December 31, 2018
December 31, 2019																								December 31, 2019
										Gross Amounts Not Offset in Balance Sheet																							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			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		$	231		$	0		$	231		$	(152	)	$	(23	)		$	(55	)		$	1		$	310		$	0		$	310		$	(190	)	$	(7	)		$	(113	)		$	0
OTC - cleared		3			0			3			0			0				(3		)		0			3			0			3			0			0				0				3
Total derivative assets subject to a master netting agreement or offsetting arrangement		234			0			234			(152		)	(23		)		(58		)		1			313			0			313			(190		)	(7		)		(113		)		3
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		183						183														183			169						169														169
Total derivative assets not subject to a master netting agreement or offsetting arrangement		183						183														183			169						169														169
Total derivative assets		417			0			417			(152		)	(23		)		(58		)		184			482			0			482			(190		)	(7		)		(113		)		172
Securities lending and similar arrangements		1,029			0			1,029			0			0				(1,029		)		0			1,860			0			1,860			0			0				(1,860		)		0
Total		$	1,446		$	0		$	1,446		$	(152	)	$	(23	)		$	(1,087	)		$	184		$	2,342		$	0		$	2,342		$	(190	)	$	(7	)		$	(1,973	)		$	172

Offsetting of Financial Liabilities and Derivative Liabilities


June 30, 2019
June 30, 2020																								June 30, 2020
										Gross Amounts Not Offset in Balance Sheet																							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			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		$	240		$	0		$	240		$	(141	)	$	(17	)		$	(76	)		$	6		$	425		$	0		$	425		$	(200	)	$	(188	)		$	0		$	37
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		240			0			240			(141		)	(17		)		(76		)		6			425			0			425			(200		)	(188		)		0			37
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		107						107														107			255						255													255
Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		107						107														107			255						255													255
Total derivative liabilities		347			0			347			(141		)	(17		)		(76		)		113			680			0			680			(200		)	(188		)		0			292
Securities lending and similar arrangements		1,557			0			1,557			(1,536		)	0				0				21			2,275			0			2,275			(2,260		)	0				0			15
Total		$	1,904		$	0		$	1,904		$	(1,677	)	$	(17	)		$	(76	)		$	134		$	2,955		$	0		$	2,955		$	(2,460	)	$	(188	)		$	0		$	307


December 31, 2018
December 31, 2019																								December 31, 2019
										Gross Amounts Not Offset in Balance Sheet																							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			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		$	285		$	0		$	285		$	(152	)	$	(37	)		$	(68	)		$	28		$	459		$	0		$	459		$	(190	)	$	(222	)		$	(32	)		$	15
OTC - cleared																									1			0			1			0			0				(1		)		0
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		285			0			285			(152		)	(37		)		(68		)		28			460			0			460			(190		)	(222		)		(33		)		15
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		102						102														102			126						126														126
Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		102						102														102			126						126														126
Total derivative liabilities		387			0			387			(152		)	(37		)		(68		)		130			586			0			586			(190		)	(222		)		(33		)		141
Securities lending and similar arrangements		1,052			0			1,052			(1,029		)	0				0				23			1,876			0			1,876			(1,860		)	0				0				16
Total		$	1,439		$	0		$	1,439		$	(1,181	)	$	(37	)		$	(68	)		$	153		$	2,462		$	0		$	2,462		$	(2,050	)	$	(222	)		$	(33	)		$	157

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 ~~2018~~2019 Annual Report.


5.	FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

U.S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs create three valuation hierarchy levels. Level 1 valuations reflect quoted market prices for identical assets or liabilities in active markets. Level 2 valuations reflect quoted market prices for similar assets or liabilities in an active market, quoted market prices for identical or similar assets or liabilities in non-active markets or model-derived valuations in which all significant valuation inputs are observable in active markets. Level 3 valuations reflect valuations in which one or more of the significant inputs are not observable in an active market.

The following tables present the fair value hierarchy levels of the Company's assets and liabilities that are measured and carried at fair value on a recurring basis.


	June 30, 2019												June 30, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies		$	36,573		$	1,587		$	0		$	38,160		$	34,980		$	1,507		$	0		$	36,487
Municipalities		0			1,975			0			1,975			0			2,492			0			2,492
Mortgage- and asset-backed securities		0			233			183			416			0			358			188			546
Public utilities		0			6,601			204			6,805			0			9,620			322			9,942
Sovereign and supranational		0			1,152			0			1,152			0			1,377			0			1,377
Banks/financial institutions		0			10,128			24			10,152			0			11,190			24			11,214
Other corporate		0			33,576			199			33,775			0			37,658			243			37,901
Total fixed maturity securities		36,573			55,252			610			92,435			34,980			64,202			777			99,959
Equity securities		949			73			65			1,087			587			76			86			749
Other investments		677			0			0			677			763			0			0			763
Cash and cash equivalents		3,019			0			0			3,019			5,528			0			0			5,528
Other assets:
Foreign currency swaps		0			88			201			289			0			73			87			160
Foreign currency forwards		0			222			0			222			0			299			0			299
Foreign currency options														0			1			0			1
Interest rate swaps		0			15			0			15			0			14			0			14
Total other assets		0			325			201			526			0			387			87			474
Total assets		$	41,218		$	55,650		$	876		$	97,744		$	41,858		$	64,665		$	950		$	107,473
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	107		$	107		$	214		$	0		$	29		$	255		$	284
Foreign currency forwards		0			128			0			128			0			393			0			393
Foreign currency options		0			2			0			2			0			2			0			2
Interest rate swaptions		0			3			0			3
Forward bond purchase commitment														0			1			0			1
Total liabilities		$	0		$	240		$	107		$	347		$	0		$	425		$	255		$	680


	December 31, 2018												December 31, 2019
(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			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		$	32,993		$	1,349		$	0		$	34,342		$	34,878		$	1,522		$	0		$	36,400
Municipalities		0			1,863			0			1,863			0			1,847			0			1,847
Mortgage- and asset-backed securities		0			162			177			339			0			232			178			410
Public utilities		0			7,062			109			7,171			0			6,556			224			6,780
Sovereign and supranational		0			1,260			0			1,260			0			1,042			0			1,042
Banks/financial institutions		0			8,895			23			8,918			0			10,264			23			10,287
Other corporate		0			28,789			213			29,002			0			34,234			262			34,496
Total fixed maturity securities		32,993			49,380			522			82,895			34,878			55,697			687			91,262
Equity securities		874			67			46			987			642			80			80			802
Other investments		152			0			0			152			628			0			0			628
Cash and cash equivalents		4,337			0			0			4,337			4,896			0			0			4,896
Other assets:
Foreign currency swaps		0			103			182			285			0			72			169			241
Foreign currency forwards		0			126			0			126			0			238			0			238
Foreign currency options		0			3			0			3
Interest rate swaps		0			3			0			3			0			3			0			3
Total other assets		0			235			182			417			0			313			169			482
Total assets		$	38,356		$	49,682		$	750		$	88,788		$	41,044		$	56,090		$	936		$	98,070
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	132		$	102		$	234		$	0		$	78		$	126		$	204
Foreign currency forwards		0			151			0			151			0			377			0			377
Foreign currency options		0			1			0			1			0			5			0			5
Interest rate swaptions		0			1			0			1
Total liabilities		$	0		$	285		$	102		$	387		$	0		$	460		$	126		$	586

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


	June 30, 2019															June 30, 2020
(In millions)	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value			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		$	22,611		$	28,852		$	365		$	0		$	29,217		$	22,528		$	27,781		$	249		$	0		$	28,030
Municipalities		836			0			1,110			0			1,110			364			0			481			0			481
Mortgage and asset-backed securities		19			0			7			13			20
Public utilities		2,762			0			3,148			0			3,148			45			0			59			0			59
Sovereign and supranational		1,188			0			1,380			0			1,380			549			0			692			0			692
Banks/financial institutions		978			0			1,076			0			1,076
Other corporate		2,613			0			3,084			0			3,084			23			0			31			0			31
Commercial mortgage and other loans		7,622			0			0			7,663			7,663			10,717			0			0			10,650			10,650
Other investments ⁽¹⁾		33			0			33			0			33			27			0			27			0			27
Total assets		$	38,662		$	28,852		$	10,203		$	7,676		$	46,731		$	34,253		$	27,781		$	1,539		$	10,650		$	39,970
Liabilities:
Other policyholders’ funds		$	7,403		$	0		$	0		$	7,320		$	7,320		$	7,484		$	0		$	0		$	7,393		$	7,393
Notes payable (excluding leases)		6,098			0			5,763			278			6,041			7,618			0			8,200			276			8,476
Total liabilities		$	13,501		$	0		$	5,763		$	7,598		$	13,361		$	15,102		$	0		$	8,200		$	7,669		$	15,869

⁽¹⁾ Excludes policy loans of ~~$246~~$263 and equity method investments of ~~$471,~~$718, at carrying value


	December 31, 2018															December 31, 2019
(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			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		$	21,712		$	27,030		$	8		$	0		$	27,038		$	22,241		$	27,937		$	354		$	0		$	28,291
Municipalities		359			0			469			0			469			821			0			1,083			0			1,083
Mortgage and asset-backed securities		14			0			0			15			15			16			0			7			10			17
Public utilities		2,727			0			2,973			0			2,973			2,535			0			2,954			0			2,954
Sovereign and supranational		1,551			0			1,840			0			1,840			1,123			0			1,320			0			1,320
Banks/financial institutions		1,445			0			1,583			0			1,583			916			0			1,018			0			1,018
Other corporate		2,510			0			2,804			0			2,804			2,433			0			2,911			0			2,911
Commercial mortgage and other loans		6,919			0			0			6,893			6,893			9,569			0			0			9,648			9,648
Other investments ⁽¹⁾		26			0			26			0			26			30			0			30			0			30
Total assets		$	37,263		$	27,030		$	9,703		$	6,908		$	43,641		$	39,684		$	27,937		$	9,677		$	9,658		$	47,272
Liabilities:
Other policyholders’ funds		$	7,146		$	0		$	0		$	7,067		$	7,067		$	7,317		$	0		$	0		$	7,234		$	7,234
Notes payable (excluding leases)		5,765			0			5,606			270			5,876			6,408			0			6,663			272			6,935
Total liabilities		$	12,911		$	0		$	5,606		$	7,337		$	12,943		$	13,725		$	0		$	6,663		$	7,506		$	14,169

⁽¹⁾ Excludes policy loans of ~~$232~~$250 and equity method investments of ~~$377,~~$569, at carrying value

Fair Value of Financial Instruments

Fixed maturity and equity securities

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

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities to reflect the impact of the persistent economic environment and the changing regulatory framework. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the ~~CDS~~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;~~ issuer

2) issuer-specific CDS ~~spreads;~~ spreads

3) bonds or CDS spreads of comparable issuers with similar characteristics such as rating, geography, or ~~sector; 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.

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

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

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


	June 30, 2019												June 30, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	36,573		$	1,587		$	0		$	38,160		$	34,980		$	1,507		$	0		$	36,487
Total government and agencies		36,573			1,587			0			38,160			34,980			1,507			0			36,487
Municipalities:
Third party pricing vendor		0			1,975			0			1,975			0			2,492			0			2,492
Total municipalities		0			1,975			0			1,975			0			2,492			0			2,492
Mortgage- and asset-backed securities:
Third party pricing vendor		0			233			0			233			0			358			0			358
Broker/other		0			0			183			183			0			0			188			188
Total mortgage- and asset-backed securities		0			233			183			416			0			358			188			546
Public utilities:
Third party pricing vendor		0			6,601			0			6,601			0			9,620			0			9,620
Broker/other		0			0			204			204			0			0			322			322
Total public utilities		0			6,601			204			6,805			0			9,620			322			9,942
Sovereign and supranational:
Third party pricing vendor		0			1,152			0			1,152			0			1,377			0			1,377
Total sovereign and supranational		0			1,152			0			1,152			0			1,377			0			1,377
Banks/financial institutions:
Third party pricing vendor		0			9,970			0			9,970			0			11,190			0			11,190
Broker/other		0			158			24			182			0			0			24			24
Total banks/financial institutions		0			10,128			24			10,152			0			11,190			24			11,214
Other corporate:
Third party pricing vendor		0			33,576			0			33,576			0			37,658			0			37,658
Broker/other		0			0			199			199			0			0			243			243
Total other corporate		0			33,576			199			33,775			0			37,658			243			37,901
Total securities available for sale		$	36,573		$	55,252		$	610		$	92,435		$	34,980		$	64,202		$	777		$	99,959
Equity securities, carried at fair value:
Third party pricing vendor		$	949		$	73		$	0		$	1,022		$	587		$	76		$	0		$	663
Broker/other		0			0			65			65			0			0			86			86
Total equity securities		$	949		$	73		$	65		$	1,087		$	587		$	76		$	86		$	749


	June 30, 2019												June 30, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	28,852		$	365		$	0		$	29,217		$	27,781		$	249		$	0		$	28,030
Total government and agencies		28,852			365			0			29,217			27,781			249			0			28,030
Municipalities:
Third party pricing vendor		0			1,110			0			1,110			0			481			0			481
Total municipalities		0			1,110			0			1,110			0			481			0			481
Mortgage- and asset-backed securities:
Third party pricing vendor		0			7			0			7
Broker/other		0			0			13			13
Total mortgage- and asset-backed securities		0			7			13			20
Public utilities:
Third party pricing vendor		0			3,148			0			3,148			0			59			0			59
Total public utilities		0			3,148			0			3,148			0			59			0			59
Sovereign and supranational:
Third party pricing vendor		0			1,380			0			1,380			0			692			0			692
Total sovereign and supranational		0			1,380			0			1,380			0			692			0			692
Banks/financial institutions:
Third party pricing vendor		0			1,076			0			1,076
Total banks/financial institutions		0			1,076			0			1,076
Other corporate:
Third party pricing vendor		0			3,084			0			3,084			0			31			0			31
Total other corporate		0			3,084			0			3,084			0			31			0			31
Total securities held to maturity		$	28,852		$	10,170		$	13		$	39,035		$	27,781		$	1,512		$	0		$	29,293


	December 31, 2018												December 31, 2019
(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			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		$	32,993		$	1,349		$	0		$	34,342		$	34,878		$	1,522		$	0		$	36,400
Total government and agencies		32,993			1,349			0			34,342			34,878			1,522			0			36,400
Municipalities:
Third party pricing vendor		0			1,863			0			1,863			0			1,847			0			1,847
Total municipalities		0			1,863			0			1,863			0			1,847			0			1,847
Mortgage- and asset-backed securities:
Third party pricing vendor		0			162			0			162			0			232			0			232
Broker/other		0			0			177			177			0			0			178			178
Total mortgage- and asset-backed securities		0			162			177			339			0			232			178			410
Public utilities:
Third party pricing vendor		0			7,062			0			7,062			0			6,556			0			6,556
Broker/other		0			0			109			109			0			0			224			224
Total public utilities		0			7,062			109			7,171			0			6,556			224			6,780
Sovereign and supranational:
Third party pricing vendor		0			1,260			0			1,260			0			1,042			0			1,042
Total sovereign and supranational		0			1,260			0			1,260			0			1,042			0			1,042
Banks/financial institutions:
Third party pricing vendor		0			8,895			0			8,895			0			10,264			0			10,264
Broker/other		0			0			23			23			0			0			23			23
Total banks/financial institutions		0			8,895			23			8,918			0			10,264			23			10,287
Other corporate:
Third party pricing vendor		0			28,789			0			28,789			0			34,234			0			34,234
Broker/other		0			0			213			213			0			0			262			262
Total other corporate		0			28,789			213			29,002			0			34,234			262			34,496
Total securities available for sale		$	32,993		$	49,380		$	522		$	82,895		$	34,878		$	55,697		$	687		$	91,262
Equity securities, carried at fair value:
Third party pricing vendor		$	874		$	67		$	0		$	941		$	642		$	80		$	0		$	722
Broker/other		0			0			46			46			0			0			80			80
Total equity securities		$	874		$	67		$	46		$	987		$	642		$	80		$	80		$	802


	December 31, 2018												December 31, 2019
(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			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	27,030		$	8		$	0		$	27,038		$	27,937		$	354		$	0		$	28,291
Total government and agencies		27,030			8			0			27,038			27,937			354			0			28,291
Municipalities:
Third party pricing vendor		0			469			0			469			0			1,083			0			1,083
Total municipalities		0			469			0			469			0			1,083			0			1,083
Mortgage- and asset-backed securities:
Third party pricing vendor														0			7			0			7
Broker/other		0			0			15			15			0			0			10			10
Total mortgage- and asset-backed securities		0			0			15			15			0			7			10			17
Public utilities:
Third party pricing vendor		0			2,973			0			2,973			0			2,954			0			2,954
Total public utilities		0			2,973			0			2,973			0			2,954			0			2,954
Sovereign and supranational:
Third party pricing vendor		0			1,840			0			1,840			0			1,320			0			1,320
Total sovereign and supranational		0			1,840			0			1,840			0			1,320			0			1,320
Banks/financial institutions:
Third party pricing vendor		0			1,583			0			1,583			0			1,018			0			1,018
Total banks/financial institutions		0			1,583			0			1,583			0			1,018			0			1,018
Other corporate:
Third party pricing vendor		0			2,804			0			2,804			0			2,911			0			2,911
Total other corporate		0			2,804			0			2,804			0			2,911			0			2,911
Total securities held to maturity		$	27,030		$	9,677		$	15		$	36,722		$	27,937		$	9,647		$	10		$	37,594

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 Company uses pricing models to determine the estimated fair value of derivatives.~~ Inputs used to value derivatives include, but are not limited to, interest rates, credit spreads, foreign currency forward and spot rates, and interest volatility. The 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 fair ~~values~~value of ~~the~~ foreign currency ~~forwards~~forward and options associated with certain investments; the foreign currency forwards and options used to hedge foreign exchange risk from the Company's net investment in Aflac Japan and economically hedge certain portions of forecasted cash flows denominated in yen; and the foreign currency swaps associated with certain senior notes are ~~based on the amounts the Company would expect to receive or pay. The determination of the fair value of these derivatives is~~ based on observable market inputs, therefore they are classified as Level 2.

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 volatilities. Their fair values are also classified as Level 2.

For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. As a result, the fair value measurements incorporate the credit risk of the collateral associated with the VIE. ~~The Company receives valuations from a third party pricing vendor for these derivatives.~~ Based on an analysis of these derivatives and a review of the methodology employed by the pricing vendor, the Company determined that due to the long duration of these swaps and the need to extrapolate from short-term observable data to derive and measure long-term inputs, certain inputs, assumptions and judgments are required to value future cash flows that cannot be corroborated by current inputs or current observable market data. As a result, the derivatives associated with the Company's consolidated VIEs are classified as Level 3 of the fair value hierarchy.

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

Commercial mortgage and other loans

Commercial mortgage and other loans include transitional real estate loans, commercial mortgage loans and middle market loans. The Company's loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U.S. Treasury or London Interbank Offered Rate (LIBOR) yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. ~~These spreads are provided by the applicable asset managers based on their knowledge of the current loan pricing environment and market conditions.~~ The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments have been assigned a Level 3 within the fair value hierarchy.

Other 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

During the three- and six-month periods ended June 30, 2019 and 2018, respectively, there were no transfers between Level 1 and 2 for assets and liabilities that are measured and carried at fair value on a recurring basis.

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

Three Months Ended
June 30, 2019
Fixed Maturity Securities Equity
Securities
Derivatives ⁽¹⁾

(In millions) Mortgage-
and
Asset-
Backed
Securities Public
Utilities Banks/
Financial
Institutions Other
Corporate Foreign
Currency
Swaps Credit
Default
Swaps Total
Balance, beginning of period $ 178
$ 85
$ 23
$ 284
$ 46
$ 70
$ 0
$ 686

Realized investment gains (losses) included
in earnings
0
0
0
0
0
24
0
24

Unrealized gains (losses) included in other
comprehensive income (loss)
5
5
1
6
0
0
0
17

Purchases, issuances, sales and settlements:
Purchases 0
0
0
25
0
0
0
25

Issuances 0
0
0
0
19
0
0
19

Sales 0
0
0
0
0
0
0
0

Settlements 0
(2 ) 0
0
0
0
0
(2 )
Transfers into Level 3 0
116
⁽²⁾
0
0
0
0
0
116

Transfers out of Level 3 0
0
0
(116 )
⁽²⁾
0
0
0
(116 )
Balance, end of period $ 183
$ 204
$ 24
$ 199
$ 65
$ 94
$ 0
$ 769

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
$ 24
$ 0
$ 24



Three Months Ended June 30, 2020
	Fixed Maturity Securities													Equity Securities			Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities				Banks/ Financial Institutions		Other Corporate							Foreign Currency Swaps			Total
Balance, beginning of period	$	188		$	298			$	23	$	245			$	82		$	(146	)	$	690
Realized investment gains (losses) included in earnings	0			0				0		0				0			(20		)	(20		)
Unrealized gains (losses) included in other comprehensive income (loss)	1			0				0		1				0			(2		)	0
Purchases, issuances, sales and settlements:
Purchases	0			13				1		12				5			0			31
Issuances	0			0				0		0				0			0			0
Sales	0			0				0		0				(1		)	0			(1		)
Settlements	(1		)	(4		)		0		0				0			0			(5		)
Transfers into Level 3	0			15			⁽²⁾	0		0				0			0			15
Transfers out of Level 3	0			0				0		(15		)	⁽²⁾	0			0			(15		)
Balance, end of period	$	188		$	322			$	24	$	243			$	86		$	(168	)	$	695
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		$	(20	)	$	(20	)

⁽¹⁾ Derivative assets and liabilities are presented net

⁽²⁾ Transfer due to sector classification change



Three Months Ended June 30, 2019
	Fixed Maturity Securities												Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities				Banks/ Financial Institutions		Other Corporate							Foreign Currency Swaps		Total
Balance, beginning of period	$	178	$	85			$	23	$	284			$	46		$	70	$	686
Realized investment gains (losses) included in earnings	0		0				0		0				0			24		24
Unrealized gains (losses) included in other comprehensive income (loss)	5		5				1		6				0			0		17
Purchases, issuances, sales and settlements:
Purchases	0		0				0		25				0			0		25
Issuances	0		0				0		0				19			0		19
Sales	0		0				0		0				0			0		0
Settlements	0		(2		)		0		0				0			0		(2		)
Transfers into Level 3	0		116			⁽²⁾	0		0				0			0		116
Transfers out of Level 3	0		0				0		(116		)	⁽²⁾	0			0		(116		)
Balance, end of period	$	183	$	204			$	24	$	199			$	65		$	94	$	769
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		$	24	$	24

⁽¹⁾ Derivative assets and liabilities are presented net

⁽²⁾ Transfer due to sector classification change


Three Months Ended June 30, 2018
Six Months Ended June 30, 2020																									Six Months Ended June 30, 2020
	Fixed Maturity Securities												Equity Securities		Derivatives ⁽¹⁾										Fixed Maturity Securities														Equity Securities			Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities			Banks/ Financial Institutions			Other Corporate						Foreign Currency Swaps			Credit Default Swaps			Total			Mortgage- and Asset- Backed Securities				Public Utilities				Banks/ Financial Institutions		Other Corporate							Foreign Currency Swaps			Total
Balance, beginning of period	$	186		$	83		$	24		$	143		$	16		$	154		$	1		$	607		$	178			$	224			$	23	$	262			$	80		$	43		$	810
Realized investment gains (losses) included in earnings	0			0			0			0			0			(42		)	(1		)	(43		)
Net investment gains (losses) included in earnings																									0				0				0		0				0			(205		)	(205		)
Unrealized gains (losses) included in other comprehensive income (loss)	(8		)	(1		)	(1		)	(1		)	0			(2		)	0			(13		)	2				(9		)		0		(16		)		0			(6		)	(29		)
Purchases, issuances, sales and settlements:
Purchases	0			24			0			56			1			0			0			81			0				96				1		12				7			0			116
Issuances	0			0			0			0			0			0			0			0			0				0				0		0				0			0			0
Sales	0			0			0			0			0			0			0			0			0				0				0		0				(1		)	0			(1		)
Settlements	0			0			0			(2		)	0			0			0			(2		)	(1		)		(4		)		0		0				0			0			(5		)
Transfers into Level 3	0			0			0			0			0			0			0			0			9			⁽²⁾	15			⁽³⁾	0		0				0			0			24
Transfers out of Level 3	0			0			0			0			0			0			0			0			0				0				0		(15		)	⁽³⁾	0			0			(15		)
Balance, end of period	$	178		$	106		$	23		$	196		$	17		$	110		$	0		$	630		$	188			$	322			$	24	$	243			$	86		$	(168	)	$	695
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		$	(42	)	$	(1	)	$	(43	)	$	0			$	0			$	0	$	0			$	0		$	(205	)	$	(205	)

⁽¹⁾ Derivative assets and liabilities are presented net

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

⁽³⁾ Transfer due to sector classification change

																																											Six Months Ended June 30, 2019
	Fixed Maturity Securities												Equity Securities		Derivatives ⁽¹⁾								Fixed Maturity Securities												Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities				Banks/ Financial Institutions		Other Corporate						Foreign Currency Swaps			Credit Default Swaps		Total			Mortgage- and Asset- Backed Securities		Public Utilities				Banks/ Financial Institutions		Other Corporate						Foreign Currency Swaps			Total
Balance, beginning of period	$	177	$	109			$	23	$	213			$	46	$	80		$	0	$	648		$	177	$	109			$	23	$	213			$	46	$	80		$	648
Realized investment gains (losses) included in earnings	0		0				0		0				0		16			0		16
Net investment gains (losses) included in earnings																							0		0				0		0				0		16			16
Unrealized gains (losses) included in other comprehensive income (loss)	6		6				1		7				0		(2		)	0		18			6		6				1		7				0		(2		)	18
Purchases, issuances, sales and settlements:
Purchases	0		0				0		88				19		0			0		107			0		0				0		88				19		0			107
Issuances	0		0				0		0				0		0			0		0			0		0				0		0				0		0			0
Sales	0		0				0		(2		)		0		0			0		(2		)	0		0				0		(2		)		0		0			(2		)
Settlements	0		(2		)		0		0				0		0			0		(2		)	0		(2		)		0		0				0		0			(2		)
Transfers into Level 3	0		116			⁽²⁾	0		25			⁽²⁾	0		0			0		141			0		116			⁽²⁾	0		25			⁽²⁾	0		0			141
Transfers out of Level 3	0		(25		)	⁽²⁾	0		(132		)	^{(2), (3)}	0		0			0		(157		)	0		(25		)	⁽²⁾	0		(132		)	^(2),(3)	0		0			(157		)
Balance, end of period	$	183	$	204			$	24	$	199			$	65	$	94		$	0	$	769		$	183	$	204			$	24	$	199			$	65	$	94		$	769
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	$	16		$	0	$	16		$	0	$	0			$	0	$	0			$	0	$	16		$	16

⁽¹⁾ Derivative assets and liabilities are presented net

⁽²⁾ Transfer due to sector classification change

⁽³⁾ Transfer due to availability of observable market inputs

Six Months Ended
June 30, 2018
Fixed Maturity Securities Equity
Securities
Derivatives ⁽¹⁾

(In millions) Mortgage-
and
Asset-
Backed
Securities Public
Utilities Banks/
Financial
Institutions Other
Corporate Foreign
Currency
Swaps Credit
Default
Swaps Total
Balance, beginning of period $ 175
$ 68
$ 25
$ 146
$ 16
$ 22
$ 1
$ 453

Realized investment gains (losses) included
in earnings
0
0
0
0
0
84
(1 ) 83

Unrealized gains (losses) included in other
comprehensive income (loss)
3
(2 ) (2 ) (3 ) 0
4
0
0

Purchases, issuances, sales and settlements:
Purchases 0
40
0
56
1
0
0
97

Issuances 0
0
0
0
0
0
0
0

Sales 0
0
0
0
0
0
0
0

Settlements 0
0
0
(3 ) 0
0
0
(3 )
Transfers into Level 3 0
0
0
0
0
0
0
0

Transfers out of Level 3 0
0
0
0
0
0
0
0

Balance, end of period $ 178
$ 106
$ 23
$ 196
$ 17
$ 110
$ 0
$ 630

Changes in unrealized gains (losses) relating
to Level 3 assets and liabilities still held at
the end of the period included in earnings $ 0
$ 0
$ 0
$ 0
$ 0
$ 84
$ (1 ) $ 83

⁽¹⁾ ~~Derivative assets and liabilities are presented net~~

Fair Value Sensitivity

Level 3 Significant Unobservable Input Sensitivity

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

June 30, 2019

June 30, 2020

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

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

183

Consensus pricing

Offered quotes

N/A

^(a)

188

Consensus pricing

Offered quotes

N/A

^(a)

Public utilities

204

Discounted cash flow

Credit spreads

N/A

^(a)

322

Discounted cash flow

Credit spreads

N/A

^(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(a)

Consensus pricing

Offered quotes

N/A

^(a)

Other corporate

199

Discounted cash flow

Credit spreads

N/A

^(a)

243

Discounted cash flow

Credit spreads

N/A

^(a)

Equity securities

Net asset value

Offered quotes

N/A

^(a)

Net asset value

Offered quotes

N/A

^(a)

Other assets:

Foreign currency swaps

139

Discounted cash flow

Interest rates (USD)

1.98% - 2.20%

^(b)

Discounted cash flow

Interest rates (USD)

.61% - .88%

^(b)

Interest rates (JPY)

0.01% - 0.38%

^(c)

Interest rates (JPY)

.06% - .37%

^(c)

CDS spreads

11 - 110 bps

CDS spreads

12 - 119 bps

Discounted cash flow

Interest rates (USD)

1.98% - 2.20%

^(b)

Discounted cash flow

Interest rates (USD)

.61% - .88%

^(b)

Interest rates (JPY)

0.01% - 0.38%

^(c)

Interest rates (JPY)

.06% - .37%

^(c)

Total assets

876

950

Liabilities:

Other liabilities:

Foreign currency swaps

101

Discounted cash flow

Interest rates (USD)

1.98% - 2.20%

^(b)

237

Discounted cash flow

Interest rates (USD)

.61% - .88%

^(b)

Interest rates (JPY)

0.01% - 0.38%

^(c)

Interest rates (JPY)

.06% - .37%

^(c)

CDS spreads

30 - 187 bps

CDS spreads

46 - 202 bps

Discounted cash flow

Interest rates (USD)

1.98% - 2.20%

^(b)

Discounted cash flow

Interest rates (USD)

.61% - .88%

^(b)

Interest rates (JPY)

0.01% - 0.38%

^(c)

Interest rates (JPY)

.06% - .37%

^(c)

Total liabilities

107

255

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

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

December 31, 2018

December 31, 2019

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

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

177

Consensus pricing

Offered quotes

N/A

^(a)

178

Consensus pricing

Offered quotes

N/A

^(a)

Public utilities

109

Discounted cash flow

Credit spreads

N/A

^(a)

224

Discounted cash flow

Credit spreads

N/A

^(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(a)

Consensus pricing

Offered quotes

N/A

^(a)

Other corporate

213

Discounted cash flow

Credit spreads

N/A

^(a)

262

Discounted cash flow

Credit spreads

N/A

^(a)

Equity securities

Net asset value

Offered quotes

N/A

^(a)

Net asset value

Offered quotes

N/A

^(a)

Other assets:

Foreign currency swaps

125

Discounted cash flow

Interest rates (USD)

2.75% - 2.84%

^(b)

106

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Interest rates (JPY)

.18% - .71%

^(c)

Interest rates (JPY)

.12% - .43%

^(c)

CDS spreads

19 - 120 bps

CDS spreads

10 - 100 bps

Discounted cash flow

Interest rates (USD)

2.75% - 2.84%

^(b)

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Interest rates (JPY)

.18% - .71%

^(c)

Interest rates (JPY)

.12% - .43%

^(c)

Total assets

750

936

Liabilities:

Other liabilities:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

2.75% - 2.84%

^(b)

�� Foreign currency swaps

118

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Interest rates (JPY)

.18% - .71%

^(c)

Interest rates (JPY)

.12% - .43%

^(c)

CDS spreads

28 - 211 bps

CDS spreads

13 - 159 bps

Discounted cash flow

Interest rates (USD)

2.75% - 2.84%

^(b)

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Interest rates (JPY)

.18% - .71%

^(c)

Interest rates (JPY)

.12% - .43%

^(c)

Total liabilities

102

126

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

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

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

Net Asset Value

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

Offered Quotes

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

Interest Rates and CDS Spreads

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

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

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

For additional information on the Company's investments and financial instruments, see the accompanying Notes 1, 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report.


6.	POLICY LIABILITIES

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


	Three Months Ended June 30,							Six Months Ended June 30,							Three Months Ended June 30,							Six Months Ended June 30,
(In millions)		2019			2018				2019			2018				2020			2019				2020			2019
Unpaid supplemental health claims, beginning of period		$	3,967		$	4,041			$	3,952		$	3,881			$	3,983		$	3,967			$	3,968		$	3,952
Less reinsurance recoverables		29			31				28			28				33			29				31			28
Net balance, beginning of period		3,938			4,010				3,924			3,853				3,950			3,938				3,937			3,924
Add claims incurred during the period related to:
Current year		1,785			1,779				3,610			3,621				1,736			1,785				3,574			3,610
Prior years		(136		)	(133		)		(303		)	(325		)		(166		)	(136		)		(302		)	(303		)
Total incurred		1,649			1,646				3,307			3,296				1,570			1,649				3,272			3,307
Less claims paid during the period on claims incurred during:
Current year		1,229			1,226				1,735			1,746				1,127			1,229				1,681			1,735
Prior years		430			426				1,568			1,540				411			430				1,558			1,568
Total paid		1,659			1,652				3,303			3,286				1,538			1,659				3,239			3,303
Effect of foreign exchange rate changes on unpaid claims		65			(91		)		65			50				22			65				34			65
Net balance, end of period		3,993			3,913				3,993			3,913				4,004			3,993				4,004			3,993
Add reinsurance recoverables		31			29				31			29				37			31				37			31
Unpaid supplemental health claims, end of period		4,024			3,942				4,024			3,942				4,041			4,024				4,041			4,024
Unpaid life claims, end of period		682			582				682			582				732			682				732			682
Total liability for unpaid policy claims		$	4,706		$	4,524			$	4,706		$	4,524			$	4,773		$	4,706			$	4,773		$	4,706

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of ~~$303~~$302 million for the six-month period ended June 30, ~~2019~~2020 comprises approximately ~~$198~~$188 million from Japan, which represents approximately ~~65%~~62% of the total. ~~There was no material~~Excluding the impact of foreign exchange of a gain of approximately $1 million from December 31, 2019 to June 30, 2020, the favorable claims development in Japan ~~from foreign currency exchange from December 31, 2018 to June 30, 2019.~~would have been approximately $187 million, representing approximately 62% of the total.

The Company has experienced continued favorable claim trends in ~~2019~~2020 for its core health products in Japan. The Company's experience in Japan related to the average length of stay in the hospital for cancer treatment has shown continued decline in the current period. In addition, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

The remainder of the favorable claims development related to prior years for the six-month period ended June 30, ~~2019,~~2020, reflects Aflac U.S. favorable claims experience compared to previous estimates, primarily in the cancer and accident lines of business.


7.	REINSURANCE

The Company periodically enters into fixed quota-share coinsurance agreements with other companies in the normal course of business. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $1.0 billion as of both June 30, ~~2019~~2020 and December 31, ~~2018~~2019, 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 ~~$987~~$991 million and ~~$941~~$970 million as of June 30, ~~2019~~2020 and December 31, ~~2018,~~ 2019,

respectively. The increase in the reinsurance recoverable balance was driven by the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate strengthened by approximately ~~3.0%~~1.7% and ceded reserves increased approximately ~~3.7%~~3.9% from December 31, ~~2018,~~2019 to June 30, ~~2019.~~

2020.

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


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(In millions)	2019				2018				2019				2018				2020				2019				2020				2019
Direct premium income		$	4,766			$	4,793			$	9,542			$	9,626			$	4,752			$	4,766			$	9,525			$	9,542
Ceded to other companies:
Ceded Aflac Japan closed blocks		(119		)		(126		)		(240		)		(256		)		(116		)		(119		)		(232		)		(240		)
Other		(17		)		(16		)		(32		)		(30		)		(24		)		(17		)		(48		)		(32		)
Assumed from other companies:
Retrocession activities		50				53				100				107				49				50				97				100
Other		1				2				3				3				3				1				4				3
Net premium income		$	4,681			$	4,706			$	9,373			$	9,450			$	4,664			$	4,681			$	9,346			$	9,373

Direct benefits and claims		$	3,038			$	3,106			$	6,078			$	6,225			$	2,975			$	3,038			$	6,003			$	6,078
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(109		)		(114		)		(219		)		(231		)		(105		)		(109		)		(210		)		(219		)
Eliminations		10				11				20				23				10				10				19				20
Other		(12		)		(12		)		(24		)		(23		)		(21		)		(12		)		(45		)		(24		)
Assumed from other companies:
Retrocession activities		47				49				97				101				47				47				87				97
Eliminations		(10		)		(11		)		(20		)		(23		)		(10		)		(10		)		(19		)		(20		)
Other		0				2				0				1				1				0				2				0
Benefits and claims, net		$	2,964			$	3,031			$	5,932			$	6,073			$	2,897			$	2,964			$	5,837			$	5,932

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

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015 in the amount of approximately ~~110~~¥110 billion ~~yen~~ of reserves. This reinsurance facility agreement was renewed in ~~2018~~2019 and is effective until December 31, ~~2019.~~2020. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac‘s Standard and Poor's (S&P) rating drops below BBB-. As of June 30, ~~2019,~~2020, 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)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
4.00% senior notes due February 2022		$	348		$	348
4.00% senior notes paid January 2020								$	0		$	348
3.625% senior notes due June 2023		698			698			698			698
3.625% senior notes due November 2024		746			746			747			747
3.25% senior notes due March 2025		448			447			448			448
2.875% senior notes due October 2026		298			297			298			298
3.60% senior notes due April 2030								990			0
6.90% senior notes due December 2039		220			220			221			220
6.45% senior notes due August 2040		254			254			254			254
4.00% senior notes due October 2046		394			394			394			394
4.750% senior notes due January 2049		540			540			541			541
Yen-denominated senior notes and subordinated debentures:
.932% senior notes due January 2027 (principal amount 60.0 billion yen)		554			538
1.159% senior notes due October 2030 (principal amount 29.3 billion yen)		270			262
1.488% senior notes due October 2033 (principal amount 15.2 billion yen)		140			136
1.750% senior notes due October 2038 (principal amount 8.9 billion yen)		82			79
2.108% subordinated debentures due October 2047 (principal amount 60.0 billion yen)		552			536
.963% perpetual subordinated bonds callable April 2024 (principal amount 30.0 billion yen)		276			0
.300% senior notes due September 2025 (principal amount ¥ 12.4 billion)								114			0
.932% senior notes due January 2027 (principal amount ¥60.0 billion)								555			545
.500% senior notes due December 2029 (principal amount ¥12.6 billion)								116			114
.550% senior notes due March 2030 (principal ¥ 13.3 billion)								122			0
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)								271			266
.843% senior notes due December 2031 (principal amount ¥9.3 billion)								86			84
.750% senior notes due March 2032 (principal amount ¥20.7 billion)								191			0
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)								140			138
.934% senior notes due December 2034 (principal amount ¥9.8 billion)								90			88
.830% senior notes due March 2035 (principal amount ¥10.6 billion)								97			0
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)								82			81
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)								58			57
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)								552			543
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)								277			272
Yen-denominated loans:
Variable interest rate loan due September 2021 (.32% in 2019 and 2018, principal amount 5.0 billion yen)		46			45
Variable interest rate loan due September 2023 (.47% in 2019 and 2018, principal amount 25.0 billion yen)		232			225
Finance lease obligations payable through 2025		12			13
Operating lease obligations payable through 2028 ⁽¹⁾		121			0
Variable interest rate loan due September 2026 (.42% in 2020 and 2019, principal amount ¥5.0 billion)								46			45
Variable interest rate loan due September 2029 (.57% in 2020 and 2019, principal amount ¥25.0 billion)								230			227
Finance lease obligations payable through 2027								11			12
Operating lease obligations payable through 2049								142			149
Total notes payable and lease obligations		$	6,231		$	5,778		$	7,771		$	6,569

⁽¹⁾~~See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2019 related to leases.~~

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

In April ~~2019, ALIJ~~2020, the Parent Company issued ~~30.0~~$1.0 billion ~~yen (par value)~~ of ~~perpetual subordinated bonds.~~ ~~These bonds~~senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of ~~.963%~~3.60% per annum, payable semi-annually, and ~~then~~will mature in April 2030. These notes are redeemable at ~~six-month Euro Yen LIBOR plus an applicable spread~~the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on ~~and after~~ the ~~day immediately following April 18, 2024.~~ ~~The bonds will~~notes to be ~~callable on each~~redeemed, not including any portion of the payments of interest ~~payment~~accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S. Treasury security with a maturity comparable to the remaining term of the notes, plus 45 basis points, plus in each case, accrued and ~~after April 18, 2024.~~unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.

In March 2020, the Parent Company issued 4 series of senior notes totaling ¥57.0 billion through a public debt offering under its U.S. shelf registration statement. The ~~following table presents~~first series, which totaled ¥12.4 billion, bears interest at a fixed rate of .300% per annum, payable semiannually and will mature in September 2025. The second series, which totaled ¥13.3 billion, bears interest at a fixed rate of .550% per annum, payable semi-annually, and will mature in March 2030. The third series, which totaled ¥20.7 billion, bears interest at a fixed rate of .750% per annum, payable semiannually and will mature in March 2032. The fourth series, which totaled ¥10.6 billion, bears interest at a fixed rate of .830% per annum, payable semi-annually, and will mature in March 2035. These notes may only be redeemed before maturity, in whole but not in part, upon the ~~contractual maturities and present value~~occurrence of ~~lease liabilities.~~certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance.

June 30, 2019
(In millions) Operating Leases Finance Leases Total
2019 $ 32
$ 3
$ 35
2020 30
3
33
2021 20
2
22
2022 17
2
19
2023 9
1
10
After 2023 24
1
25
Total lease payments $ 132
$ 12
$ 144
Less: Interest 11
0
11
Present value of lease liabilities $ 121
$ 12
$ 133

~~The following table presents~~In January 2020, the ~~weighted average remaining lease term and weighted average discount rate for lease liabilities.~~

Parent Company used the net proceeds from senior notes issued in December 2019 to redeem $350 million of its 4.00% fixed-rate senior notes due February 2022.



	~~June 30, 2019~~
~~Weighted average remaining lease term (years):~~
~~Operating leases~~	~~4.1~~
~~Finance leases~~	~~3.8~~

~~Weighted average discount rate:~~
~~Operating leases~~	~~2.5%~~
~~Finance leases~~	~~1.5%~~

Operating lease costs for the three- and six-month periods ended June 30, 2019 were $14 million and $29 million, respectively. Operating cash outflow for operating leases for the six-month period ended June 30, 2019 was $28 million.

A summary of the Company's lines of credit as of June 30, ~~2019~~2020 follows:



~~Borrower~~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 ~~27, 2019~~18, 2020	$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 ~~yen~~	¥0.0 billion ~~yen~~	A rate per annum equal to (a) Tokyo interbank market rate (TIBOR) plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period	No later than March 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	~~April 4, 2023,~~November 18, 2024, or the date commitments are terminated pursuant to an event of default	~~55.0~~$1.0 billion ~~yen, or the equivalent amount in U.S. dollars~~	$0.0 billion ~~yen~~	A rate per annum equal to, at the Company's option, either, (a) ~~London Interbank Offered Rate (LIBOR)~~LIBOR adjusted for certain costs or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin	No later than ~~April 4, 2023~~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	None specified	$50 million	$0 million	A rate per annum equal to, at the Parent Company's option, either (a) a eurocurrency rate determined by reference to the agent's LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the greater of (i) the prime rate as determined by the agent, and (ii) the sum of 0.50% and the federal funds rate for such day	Up to 3 months	None	General corporate purposes
Aflac⁽¹⁾	uncommitted revolving	364 days	November ~~29, 2019~~30, 2020	$250 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	3 months	None	General corporate purposes
Aflac Incorporated⁽¹⁾	uncommitted revolving	364 days	April 2, ~~2020~~2021	¥50.0 billion ~~yen~~	¥0.0 billion ~~yen~~	Three-month TIBOR plus 70 basis points per annum	3 months	None	General corporate purposes
Aflac Incorporated⁽¹⁾	uncommitted revolving	364 days	November 25, 2020	¥50.0 billion	¥0.0 billion	Three-month TIBOR plus 70 basis points per annum	3 months	None	General corporate purposes
Aflac New York⁽¹⁾	uncommitted revolving	364 days	April 7, 2021	$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 20, 2021	$15 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	3 months	None	General corporate purposes
Tier One Insurance Company⁽¹⁾	uncommitted revolving	364 days	March 20, 2021	$.3 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	3 months	None	General corporate purposes
AGV Management Services Japan K.K.⁽¹⁾	uncommitted revolving	364 days	May 1, 2021	¥500 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 May 1, 2021	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 June 30, ~~2019.~~2020. No events of default or defaults occurred during the six-month period ended June 30, ~~2019.~~2020.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report.


9.	INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses. The Company was required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was the period ended March 31, 2020. For the six-month period ended June 30, 2020, the CARES Act did not have a material impact on the Company’s consolidated financial statements. At this time, the Company does not expect the impact of the CARES Act to have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020.

The Company’s combined U.S. and Japanese effective income tax rate on pretax earnings was 24.8% and 26.3% for the three-month periods and 23.4% and 25.8% for the six-month periods ended June 30, 2020 and 2019, respectively. This combined effective tax rate differs from the U.S. statutory rate primarily due to foreign earnings taxed at different rates. The primary driver for the reduced income tax rate in the current period is the pretax investment losses in Japan, which provide a 28% income tax benefit.


10.	SHAREHOLDERS’ EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the six-month periods ended June 30.30.


(In thousands of shares)	2019		2018		2020		2019
Common stock - issued:
Balance, beginning of period	1,347,540		1,345,762		1,349,309		1,347,540
Exercise of stock options and issuance of restricted shares	1,504		1,299		1,426		1,504
Balance, end of period	1,349,044		1,347,061		1,350,735		1,349,044
Treasury stock:
Balance, beginning of period	592,254		564,852		622,516		592,254
Purchases of treasury stock:
Share repurchase program	17,179		13,441		15,193		17,179
Other	574		328		521		574
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(836	)	(400	)	(1,116	)	(836	)
Exercise of stock options	(305	)	(327	)	(45	)	(305	)
Other	(287	)	(105	)	(242	)	(287	)
Balance, end of period	608,579		577,789		636,827		608,579
Shares outstanding, end of period	740,465		769,272		713,908		740,465

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Anti-dilutive share-based awards		1		48		12		28		1,257		1		989		12

Share Repurchase Program

During the first six months of 2020, the Company repurchased 15.2 million shares of its common stock for $637 million as part of its share repurchase program. During the first six months of 2019, the Company repurchased 17.2 million shares of its common stock for $847 million as part of its share repurchase program. ~~During the first six months of 2018, the Company repurchased 13.4 million shares of its common stock for $601 million as part of its share repurchase program.~~ As of June 30, ~~2019,~~2020, a remaining balance of ~~51.9~~21.9 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Reclassifications from Accumulated Other Comprehensive Income

The tables below are reconciliations of accumulated other comprehensive income by component for the following periods.

Changes in Accumulated Other Comprehensive Income


Three Months Ended June 30, 2019
Three Months Ended June 30, 2020																					Three Months Ended June 30, 2020
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total				Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities			Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,848	)		$	6,561			$	(26	)		$	(206	)		$	4,481
Balance at March 31, 2020																						$	(1,543	)		$	6,043		$	(35	)		$	(277	)		$	4,188
Other comprehensive income (loss) before reclassification		393				1,512				(1		)		(5		)		1,899				74				2,433			(1		)		(5		)		2,501
Amounts reclassified from accumulated other comprehensive income (loss)		0				(18		)		0				2				(16		)		0				56			0				5				61
Net current-period other comprehensive income (loss)		393				1,494				(1		)		(3		)		1,883				74				2,489			(1		)		0				2,562
Balance, end of period		$	(1,455	)		$	8,055			$	(27	)		$	(209	)		$	6,364
Balance at June 30, 2020																						$	(1,469	)		$	8,532		$	(36	)		$	(277	)		$	6,750

All amounts in the table above are net of tax.


Three Months Ended June 30, 2018
Three Months Ended June 30, 2019																					Three Months Ended June 30, 2019
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total				Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,303	)		$	5,206			$	(21	)		$	(197	)		$	3,685
Balance at March 31, 2019																						$	(1,848	)		$	6,561			$	(26	)		$	(206	)		$	4,481
Other comprehensive income (loss) before reclassification		(463		)		(391		)		(2		)		(1		)		(857		)		393				1,512				(1		)		(5		)		1,899
Amounts reclassified from accumulated other comprehensive income (loss)		0				21				0				3				24				0				(18		)		0				2				(16		)
Net current-period other comprehensive income (loss)		(463		)		(370		)		(2		)		2				(833		)		393				1,494				(1		)		(3		)		1,883
Balance, end of period		$	(1,766	)		$	4,836			$	(23	)		$	(195	)		$	2,852
Balance at June 30, 2019																						$	(1,455	)		$	8,055			$	(27	)		$	(209	)		$	6,364

All amounts in the table above are net of tax.


Six Months Ended June 30, 2019
Six Months Ended June 30, 2020																					Six Months Ended June 30, 2020
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total				Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance, beginning of period		$	(1,847	)		$	4,234			$	(24	)		$	(212	)		$	2,151
Balance at December 31, 2019																						$	(1,623	)		$	8,548			$	(33	)		$	(277	)		$	6,615
Cumulative effect of change in accounting principle - ASU 2019-04																						0				848				0				0				848
Balance at January 1, 2020																						$	(1,623	)		$	9,396			$	(33	)		$	(277	)		$	7,463
Other comprehensive income (loss) before reclassification		392				3,853				(3		)		(2		)		4,240				154				(975		)		(3		)		(11		)		(835		)
Amounts reclassified from accumulated other comprehensive income (loss)		0				(32		)		0				5				(27		)		0				111				0				11				122
Net current-period other comprehensive income (loss)		392				3,821				(3		)		3				4,213				154				(864		)		(3		)		0				(713		)
Balance, end of period		$	(1,455	)		$	8,055			$	(27	)		$	(209	)		$	6,364
Balance at June 30, 2020																						$	(1,469	)		$	8,532			$	(36	)		$	(277	)		$	6,750

All amounts in the table above are net of tax.

Six Months Ended
June 30, 2018
(In millions) Unrealized Foreign
Currency Translation
Gains (Losses) Unrealized
Gains (Losses)
on Investment Securities Unrealized
Gains (Losses)
on Derivatives Pension Liability Adjustment Total
Balance, beginning of period $ (1,750 ) $ 5,964
$ (23 ) $ (163 ) $ 4,028

Cumulative effect of change
in accounting principle -
financial instruments 0
(148 ) 0
0
(148 )
Cumulative effect of change
in accounting principle -
tax effects from tax reform (325 ) 734
(3 ) (32 ) 374

Other comprehensive
income (loss) before
reclassification 309
(1,733 ) 3
(5 ) (1,426 )
Amounts reclassified from
accumulated other
comprehensive income
(loss) 0
19
0
5
24

Net current-period other
comprehensive
income (loss) 309
(1,714 ) 3
0
(1,402 )
Balance, end of period $ (1,766 ) $ 4,836
$ (23 ) $ (195 ) $ 2,852



Six Months Ended June 30, 2019
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Investment Securities				Unrealized Gains (Losses) on Derivatives				Pension Liability Adjustment				Total
Balance at December 31, 2018		$	(1,847	)		$	4,234			$	(24	)		$	(212	)		$	2,151
Other comprehensive income (loss) before reclassification		392				3,853				(3		)		(2		)		4,240
Amounts reclassified from accumulated other comprehensive income (loss)		0				(32		)		0				5				(27		)
Net current-period other comprehensive income (loss)		392				3,821				(3		)		3				4,213
Balance at June 30, 2019		$	(1,455	)		$	8,055			$	(27	)		$	(209	)		$	6,364

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 June 30, 2019					Three Months Ended June 30, 2020
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	0		Other-than-temporary impairment losses realized		$	(75	)	Net investment gains (losses)
		25			Other gains (losses)
		25			Total before tax
		(7		)	Tax (expense) or benefit⁽¹⁾		19			Tax (expense) or benefit⁽¹⁾
		$	18		Net of tax		$	(56	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(3	)	Acquisition and operating expenses⁽²⁾		$	(7	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾		0			Acquisition and operating expenses⁽²⁾
		1			Tax (expense) or benefit⁽¹⁾		2			Tax (expense) or benefit⁽¹⁾
		$	(2	)	Net of tax		$	(5	)	Net of tax
Total reclassifications for the period		$	16		Net of tax		$	(61	)	Net of tax

⁽¹⁾ Based on ~~26%~~25% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1112 for additional details).


(In millions)	Three Months Ended June 30, 2018					Three Months Ended June 30, 2019
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	(2	)	Other-than-temporary impairment losses realized		$	25		Net investment gains (losses)
		(26		)	Other gains (losses)
		(28		)	Total before tax
		7			Tax (expense) or benefit⁽¹⁾		(7		)	Tax (expense) or benefit⁽¹⁾
		$	(21	)	Net of tax		$	18		Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(4	)	Acquisition and operating expenses⁽²⁾		$	(3	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾		0			Acquisition and operating expenses⁽²⁾
		1			Tax (expense) or benefit⁽¹⁾		1			Tax (expense) or benefit⁽¹⁾
		$	(3	)	Net of tax		$	(2	)	Net of tax
Total reclassifications for the period		$	(24	)	Net of tax		$	16		Net of tax

⁽¹⁾ ~~Based on 26% blended tax rate~~

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

(In millions) Six Months Ended
June 30, 2019
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 $ 0
Other-than-temporary impairment
losses realized
43
Other gains (losses)
43
Total before tax
(11 )
Tax (expense) or benefit⁽¹⁾
$ 32
Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses) $ (7 )
Acquisition and operating expenses⁽²⁾
Prior service (cost) credit 0

Acquisition and operating expenses⁽²⁾
2

Tax (expense) or benefit⁽¹⁾
$ (5 ) Net of tax
Total reclassifications for the period $ 27
Net of tax

⁽¹⁾Based on 26% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1112 for additional details).


(In millions)	Six Months Ended June 30, 2018					Six Months Ended June 30, 2020
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	(2	)	Other-than-temporary impairment losses realized		$	(145	)	Net investment gains (losses)
		(24		)	Other gains (losses)
		(26		)	Total before tax
		7			Tax (expense) or benefit⁽¹⁾		34			Tax (expense) or benefit⁽¹⁾
		$	(19	)	Net of tax		$	(111	)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(8	)	Acquisition and operating expenses⁽²⁾		$	(15	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾		0			Acquisition and operating expenses⁽²⁾
		3			Tax (expense) or benefit⁽¹⁾		4			Tax (expense) or benefit⁽¹⁾
		$	(5	)	Net of tax		$	(11	)	Net of tax
Total reclassifications for the period		$	(24	)	Net of tax		$	(122	)	Net of tax

⁽¹⁾Based on ~~27%~~23% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1112 for additional details).



(In millions)	Six Months Ended June 30, 2019
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		$	43		Net investment gains (losses)
		(11		)	Tax (expense) or benefit⁽¹⁾
		$	32		Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(7	)	Acquisition and operating expenses⁽²⁾
Prior service (cost) credit		0			Acquisition and operating expenses⁽²⁾
		2			Tax (expense) or benefit⁽¹⁾
		$	(5	)	Net of tax
Total reclassifications for the period		$	27		Net of tax

⁽¹⁾Based on 26% blended tax rate

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

~~10.~~11. SHARE-BASED COMPENSATION

In July 2020, the Company transitioned from T. Rowe Price Trust Company to Fidelity Management Trust Company as the trustee and recordkeeper of the Company's long-term share-based compensation plans.

As of June 30, ~~2019,~~2020, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan). Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors.

The Plan, as amended on February 14, 2017, allows for a maximum number of shares issuable over its term of 75 million shares including 38 million shares that may be awarded in respect of awards other than options or stock

appreciation rights. If any awards granted under the Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture, then the shares underlying the awards will again be available under the Plan.

The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. As of June 30, ~~2019,~~2020, approximately ~~39.4~~37.9 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of June 30, ~~2019,~~2020, the only performance-based awards issued and outstanding were restricted stock ~~awards.~~awards and units.

Stock options and stock appreciation rights granted under the amended Plan have an exercise price of at least the fair market value of the underlying stock on the grant date and have an expiration date no later than 10 years from the grant date. Time-based restricted stock awards, restricted stock units and stock options granted after January 1, 2017 generally vest on a ratable basis over three years, and awards granted prior to the amendment vest on a three years cliff basis. The Compensation Committee of the Board of Directors has the discretion to determine vesting schedules.

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

The following table provides information on stock options outstanding and exercisable at June 30, ~~2019.~~2020.


	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share			Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		4,072		4.8		$	103		$	29.49		3,366		4.3		$	21		$	30.11
Exercisable		3,740		4.5		97			28.94			3,307		4.2		21			30.01

The Company received cash from the exercise of stock options in the amount of ~~$30~~$7 million during the first six months of ~~2019,~~2020, compared with ~~$31~~$30 million in the first six months of ~~2018.~~2019. The tax benefit realized as a result of stock option exercises and restricted stock releases was $18 million in the first six months of 2020, compared with $25 million in the first six months of ~~2019, compared with $14 million in the first six months of 2018.~~2019.

As of June 30, ~~2019,~~2020, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards was ~~$61~~$59 million, of which ~~$28~~$27 million ~~(769 thousand~~(1 million shares) was related to restricted stock awards with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately ~~1.3~~1.8 years. There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the six-month period ended June ~~30.~~30, 2020.

(In thousands of shares) Shares
Weighted-Average
Grant-Date Fair Value
Per Share
Restricted stock at December 31, 2018 3,407
$ 36.52

Granted in 2019 989
49.34

Canceled in 2019 (23 ) 39.44

Vested in 2019 (1,811 ) 32.54

Restricted stock at June 30, 2019 2,562
$ 44.25



(In thousands of shares)	Shares			Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2019	2,715		⁽¹⁾		$	43.74
Granted in 2020	1,448				46.14
Canceled in 2020	(53	)			49.71
Vested in 2020	(1,501	)			34.96
Restricted stock at June 30, 2020	2,609				$	48.68

⁽¹⁾The balance has been adjusted to include dividends

In February ~~2019,~~2020, the Company granted ~~399~~409 thousand performance-based stock awards, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company estimated the fair value of restricted stock awards with market-based conditions using a Monte Carlo simulation model. The model discounts the value of the stock at the assumed vesting date based on the risk-free interest rate. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage pay-out estimate will be updated each quarter.

The Company uses third-party analyses to assist in developing the assumptions used in, as well as calibrating, a Monte Carlo simulation model. The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards.

For additional information on the Company's long-term share-based compensation plans and the types of share-based awards, see Note 12 of the Notes to the Consolidated Financial Statements included in the ~~2018~~2019 Annual Report.


~~11.~~12.	BENEFIT PLANS

The Company has funded defined benefit plans in Japan and the ~~United States,~~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 5 years; (4) active employees who were age 55 or older and who would meet the 15 years of service requirement within the next 5 years; and (5) current retirees. For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statement of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $6 million and $7 million for ~~both of~~ the three-month periods and $12 million ~~and $13 million~~ for both of the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Total net periodic cost includes the following components:


	Three Months Ended June 30,																						Three Months Ended June 30,
	Pension Benefits																Other						Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits						Japan								U.S.								Postretirement Benefits
(In millions)	2019				2018				2019				2018				2019			2018			2020				2019				2020				2019				2020			2019
Components of net periodic benefit cost:
Service cost		$	5			$	5			$	6			$	7			$	0		$	0		$	6			$	5			$	7			$	6			$	0		$	0
Interest cost		2				1				9				8				1			1			1				2				8				9				1			1
Expected return on plan assets		(1		)		(1		)		(7		)		(6		)		0			0			(2		)		(1		)		(9		)		(7		)		0			0
Amortization of net actuarial loss		1				0				2				4				0			0			1				1				6				2				0			0
Net periodic (benefit) cost		$	7			$	5			$	10			$	13			$	1		$	1		$	6			$	7			$	12			$	10			$	1		$	1

Six Months Ended June 30,
Pension Benefits Other
Japan U.S. Postretirement Benefits
(In millions) 2019 2018 2019 2018 2019 2018
Components of net periodic
benefit cost:
Service cost $ 10
$ 10
$ 12
$ 14
$ 0
$ 0

Interest cost 3
3
18
17
1
1

Expected return on plan
assets (3 ) (3 ) (14 ) (13 ) 0
0

Amortization of net actuarial
loss 2
0
5
8
0
0

Net periodic (benefit) cost $ 12
$ 10
$ 21
$ 26
$ 1
$ 1



	Six Months Ended June 30,
	Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits
(In millions)	2020				2019				2020				2019				2020			2019
Components of net periodic benefit cost:
Service cost		$	12			$	10			$	14			$	12			$	0		$	0
Interest cost		2				3				16				18				1			1
Expected return on plan assets		(4		)		(3		)		(18		)		(14		)		0			0
Amortization of net actuarial loss		2				2				12				5				1			0
Net periodic (benefit) cost		$	12			$	12			$	24			$	21			$	2		$	1

During the six months ended June 30, ~~2019,~~2020, Aflac Japan contributed approximately ~~$17~~$18 million (using the weighted-average yen/dollar exchange rate for the six-month period ending June 30, ~~2019)~~2020) to the Japanese funded defined benefit plan, and Aflac U.S. ~~contributed $10 million~~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 ~~2018~~2019 Annual Report.


~~12.~~13.	COMMITMENTS AND CONTINGENT LIABILITIES

Effective for ~~2019,~~2020, the Company entered into an outsourcing agreement with an information technology and data services company to provide application maintenance and development services for its Japanese operation. As of June 30, ~~2019,~~2020, the agreement has a remaining term of ~~four~~five years and an aggregate remaining cost of ~~6.6~~¥15.3 billion ~~yen~~ ($61142 million using the June 30, ~~2019,~~2020, 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 ~~United States~~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, 2019.~~June 30, 2020. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the six-month period ended June 30, ~~2019~~2020 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”~~safe harbor to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. ~~The Company desires~~Aflac Incorporated and its subsidiaries 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 ~~following~~ones listed below or similar words, as well as specific projections of future results, generally qualify as forward-looking. ~~Aflac~~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~~the effects of COVID-19, and any resulting economic effects and government interventions, on the ~~economy~~Company's business and financial results

~~exposure~~ability to ~~significant interest rate risk~~attract and retain qualified sales associates, brokers, employees, and distribution partners

~~concentration of business in Japan~~

~~foreign currency fluctuations in the yen/dollar exchange rate~~

~~limited availability of acceptable yen-denominated investments~~

~~U.S. tax audit risk~~events related to ~~conversion of~~ the Japan ~~branch~~Post investigation and other matters

competitive environment and ability to ~~a subsidiary~~anticipate and respond to market trends

deviations in actual experience from pricing and reserving assumptions

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

~~competitive environment~~defaults and ~~ability~~credit downgrades of investments

exposure to ~~anticipate~~significant interest rate risk

concentration of business in Japan

limited availability of acceptable yen-denominated investments

failure to comply with restrictions on policyholder privacy and ~~respond to market trends~~

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

~~ability to attract and retain qualified sales associates, brokers, employees, and distribution partners~~information security

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

~~failure~~catastrophic events including, but not necessarily limited to, ~~comply with restrictions on patient privacy~~epidemics, pandemics (such as the coronavirus COVID-19), tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and ~~information security~~damage incidental to such events

difficult conditions in global capital markets and the economy

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

extensive regulation and changes in law or regulation by governmental authorities

foreign currency fluctuations in the yen/dollar exchange rate

tax rates applicable to the Company may change

~~defaults and credit downgrades of investments~~

decline in creditworthiness of other financial institutions

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

U.S. tax audit risk related to conversion of the Japan branch to a subsidiary

subsidiaries' ability to pay dividends to the Parent Company

decreases in the Company's financial strength or debt ratings

inherent limitations to risk management policies and procedures

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

differing judgments applied to investment valuations

ability to effectively manage key executive succession

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

changes in accounting standards

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

level and outcome of litigation

allegations or determinations of worker misclassification in the United States

MD&A OVERVIEW

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)~~MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three- and six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, 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, ~~2018 (2018~~2019 (2019 Annual Report). In this MD&A, amounts may not foot due to rounding. For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part II. Other Information.

This MD&A is divided into the following sections:

~~THE COMPANY'S BUSINESS~~

EXECUTIVE SUMMARY

Company Overview

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) ~~primarily sell~~provide financial protection to more than 50 million people worldwide. The Company’s principal business is providing 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 ~~is marketed~~consists of two reporting segments: Aflac Japan and ~~administered through~~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) ~~in the United States and, effective April 1, 2018, through~~; Continental American Insurance Company (CAIC), branded as Aflac ~~Life~~Group Insurance Japan Ltd. (ALIJ) in Japan. Prior to April 1, 2018, the Company's insurance business was marketed in Japan as a branch of Aflac. (For more information about the conversion of Aflac Japan to a legal subsidiary, see the Insurance Operations subsection of this MD&A). The Company’s operations consist of two reportable business segments: Aflac U.S., which includes Aflac, and Aflac Japan, which includes ALIJ.(AGI); American Family Life Assurance Company of New York (Aflac New York); Tier One Insurance Company (TOIC) and Argus Dental & Vision, Inc. (Argus), which provides a platform for Aflac Dental and Vision in the U.S. (collectively, Aflac U.S.).

COVID-19

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The impact of COVID-19 on the Company continues to evolve, and its future effects remain uncertain. The Company continues to closely monitor the effects and risks of COVID-19 to assess its impact on the Company's business, financial condition, results of operations, liquidity and capital position in a number of ways, and may cause changes to estimates of future earnings, capital deployment, regulatory capital position, segment dividend payout ratios and other guidance the Company provided under 2020 Outlook in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2019 Annual Report.

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


•	Liquidity and Capital Resources

The Company entered the crisis in a strong capital and liquidity position, having maintained capital ratios in Japan and the U.S. at a level designed to absorb a degree of market volatility. To further support liquidity and capital resources, the Parent Company, in March 2020, issued four series of senior notes totaling ¥57.0 billion and, in April 2020, issued $1 billion in senior notes through public debt offerings under its U.S. shelf registration statement. Accordingly, as of June 30, 2020 the Company held approximately $5.5 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion held to provide a capital buffer and liquidity support at the holding company. Even after these debt offerings, the Company’s leverage ratio remains at levels that the Company believes are adequate to maintain current ratings and leave capacity for further debt issuances. The Company has available liquidity in its unsecured revolving credit facilities of $1 billion and ¥100.0 billion, respectively, and currently has no borrowings under either of these facilities. In April 2020, Aflac increased its internal limit for Federal Home Loan Bank of Atlanta (FHLB) borrowings to $800 million, $300 million of which the Company has designated to be used for short-term liquidity needs and subject to qualified collateral availability and other conditions. The Company has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments.

The Company remains committed to prudent liquidity and capital management and is taking a ~~wholly owned~~tactical approach to capital allocation. In terms of repurchase guidance, the Company remains in the market at reduced levels and is being tactical in its approach to repurchasing its stock. The Company believes that this tactical approach will allow it to increase or decrease repurchase activity depending on how the pandemic and market conditions evolve.

The Company is committed to maintaining a strong Aflac Japan solvency margin ratio (SMR) and Aflac U.S. risk-based capital (RBC) ratios. While the SMR is particularly sensitive to market volatility resulting from widening of credit spreads, both SMR and RBC are sensitive to credit downgrades and defaults. The Company has capital tools available to increase SMR and RBC including the reduction of subsidiary dividends paid to the Parent Company by its insurance subsidiaries and Parent Company capital contributions to insurance subsidiaries sourced through cash on hand, proceeds from debt issuances or by drawing on the revolving credit facilities noted above. For example, the Parent Company made a capital contribution of ~~Aflac. Most~~$150 million to CAIC in May 2020. The Company also has a committed reinsurance facility in the amount of ~~Aflac’s policies are individually underwritten and marketed through independent agents.~~¥110 billion of reserves that could be deployed to support SMR. Additionally, Aflac Japan and Aflac U.S. ~~markets~~have to date reduced

dividends they provide to the Parent Company in 2020 by ¥75 billion and ~~administers group products through Continental American Insurance~~$75 million, respectively, compared to initial 2020 plans. Taking into consideration the strong liquidity position of the Parent Company ~~(CAIC)~~as well as the continuing development of economic conditions in Japan and the U.S., ~~branded~~the Company currently plans to defer the payment of further subsidiary dividends to the Parent Company until the fourth quarter of 2020. Further dividend delays or reductions may be undertaken as the Company continues to monitor developments. In its Aflac ~~Group Insurance.~~ U.S. segment, the Company intends to maintain RBC in the 400% range for 2020.

As a result of market volatility, the Company has made tactical adjustments to its foreign currency-hedging program in Aflac Japan to mitigate hedging cost and settlement risk while maintaining a strong SMR. Aflac Japan maintains a collar program on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange rates and therefore support SMR. In the first quarter of 2020, the Company reduced the size of the collar program by approximately $3 billion to $9 billion and marginally widened the collars. While these adjustments will moderately increase the Company's exposure to SMR volatility, the Company believes that they will also 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 collar program. The Company is evaluating other adjustments, including the possibility of hedging additional U.S dollar-denominated investments. See the Liquidity and Capital Resources section of this MD&A for additional information regarding other potential sources of liquidity and capital resources.

Investment Portfolio

The Company's investment portfolio was well-positioned entering the crisis, and the Company continues to follow its strategy of investing primarily in fixed maturity securities to generate a reliable stream of income. Fundamental credit analysis and de-risking activity in prior periods contributed to the current quality of the Company’s investments. The Company continued with de-risking activity in the second quarter, reducing positions in the portfolios seen as more vulnerable in the current environment. The Company continues to closely monitor the impact of the crisis on its investments and hedging programs, and on markets globally. Certain investments have been adversely impacted, including investments in issuers that faced an immediate and severe impact such as travel and lodging, leisure, non-emergency medical and energy. These investments continued to experience price declines and downgrades in the second quarter and the Company has agreed to a number of payment deferrals and other modifications with respect to underperforming debt investments. For additional information on these loan modifications, see Note 3 of the Notes to the Consolidated Financial Statements.

Markets have stabilized from the extreme volatility seen at the outset of the crisis, although issuers continue to be affected by reduced business activity and consumer demand. Volatility in oil prices and reduction in global energy demand continue to adversely impact issuers in the energy sector. Due to the decline in U.S. interest rates, and limitations on the availability of new investments in certain private asset classes such as middle market loans, commercial mortgages and transitional real estate, net investment income may be adversely impacted over time from lower reinvestment rates for fixed maturity investments and lower interest on floating rate assets. The impact of the crisis during the quarter may not be fully reflected in net investment income because certain investments, such as private limited partnerships, typically report their results to the Company one to three months following the end of the reporting period. Therefore, the reduction in net investment income from these investments in the second quarter reflects to some extent price declines in publicly traded equities during the first quarter. There are a number of factors that impact private limited partnership income, but the Company expects public equity markets to be a favorable driver to this component of net investment income in the third quarter, based on the positive performance of leading equity indices during the second quarter, such as the S&P 500 and Russell 2000. The Company continues to make tactical adjustments to its investment portfolios in response to the crisis, and continues to assess its investment strategy and asset allocation to identify additional tactical adjustments that may be necessary due to the continuing recession.


•	Crisis Management

The Company has crisis command centers set up in Japan and the U.S. These command centers are generally utilized for any type of crisis, including natural disasters and cybersecurity events. The command centers participate in regular updates to the Company's leadership regarding Japan and U.S. government and regulatory actions, operations, employee policies and conditions and distribution status. In addition, capital market, central bank and government stimulus updates are provided, as well as updates on cybersecurity,

including with respect to the Company's remote workforce. Moreover, the Company's financial leadership group meets more frequently and has focused on the capital markets, capital and liquidity position, stress testing and any defensive actions that may be necessary as the crisis unfolds.


•	Aflac Japan initiatives

In February 2020, Aflac Japan began to implement actions such as working from home, staggered work hours, limitations on the number of personnel attending in-person meetings and restrictions on traveling between buildings and floors in Aflac Japan worksites. On April 7, 2020, the Japan government declared a state of emergency in seven prefectures including Tokyo and Osaka and requested that companies in these prefectures reduce the number of employees coming into the office by 70% or more. Accordingly, Aflac Japan implemented increasing levels of remote working levels for its work force toward the requested level. On April 16, 2020, the state of emergency was expanded nationwide in Japan, and on May 25, 2020, the state of emergency was lifted nationwide. As of June 30, 2020, Aflac Japan has approximately 50% of its workforce working from home. Aflac Japan is evaluating return to the office measures; however, Aflac Japan anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations.

Aflac Japan has announced several additional actions taken for its employees including travel restrictions and extended paid leave.

Aflac Japan remains focused on generating new business through direct mail made to existing and prospective customers. In addition, Aflac Japan is promoting digital and web-based sales to groups and preparing to introduce a new system that enables smartphone-based insurance ~~operations~~application by allowing the customer and an Aflac operator to see the same screen through their smartphones. Face-to-face sales have been challenged and are having an impact on sales results. During the second quarter, Aflac Japan experienced a sales decline of 58.1% compared to the second quarter of 2019, due to both the effects of the pandemic and the continued effects of the Japan Post investigation. See the Aflac Japan Segment of this MD&A for additional information regarding sales in the Japan Post channel and the strategic alliance with Japan Post.

Aflac Japan has also followed the guidance of the FSA in terms of treating customers with care, ensuring ease and timeliness of claims payments and extended coverage for temporary medical facilities and telemedicine in certain circumstances, and waiver of interest on certain policyholder loans. Aflac Japan initially extended a six-month grace period on premium payments, and in June 2020, the grace period for premiums due through September 30, 2020 was extended to April 30, 2021. Policyholders are required to file for relief through this extension. On April 18, 2020, Aflac Japan announced that it will pay certain accidental death and disability benefits in the event of a death directly caused by COVID-19.

To assist with the COVID-19 pandemic, Aflac Japan donated ¥500 million to the Japan Medical Associations and to identified municipalities where Aflac Japan has operations.


•	Aflac U.S. and Corporate and Other initiatives

The Parent Company and Aflac U.S. began to implement Company mandates including restrictions on travel and in-person meetings applicable to U.S. employees beginning in February 2020 and required work from home directives across their U.S. work force in March 2020. As of June 30, 2020, approximately 98% of employees were working remotely, with 100% of employees working remotely in certain areas including New York City, including all investment employees based in the United ~~States~~States. The Company currently anticipates that a return to the worksite for U.S. based employees of the Parent Company and Aflac U.S. will be conducted in phases beginning no sooner than early 2021, subject to factors including the availability of treatments and vaccines, the return schedule of school systems and the availability of child care, the number of COVID–19 cases and the COVID–19 replication rate in areas of the U.S. where the Company has significant operations. However, Aflac U.S. anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations. The Parent Company and Aflac U.S. continue to maintain employee and worksite safety measures including travel restrictions, building access restrictions and in-person meeting restrictions.

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

Aflac U.S. is focused on supporting its agency channel, most of whom are small businesses, by offering zero-interest loans and cash stipends in lieu of canceled recognition trips.

Aflac U.S. policy sales, enrollment and agent recruiting functions are highly dependent upon face-to-face interaction between independent agents and brokers with prospective and new customers and agents. Opportunities for such interaction have been significantly reduced by reactions to the pandemic, such as social distancing, shelter in place orders and work from home initiatives. In addition, licensure of newly recruited agents has been delayed in some states due to the unavailability or difficulty of temporary licenses or online training. Further, despite government stimulus measures, the economic effects of the pandemic on prospective and existing customers is still largely unknown. Similar to Aflac Japan, ~~service~~ the ~~two markets~~Aflac U.S. sales team is working to adjust its sales approach given the reduction in face-to-face sales. Key elements to this approach include realizing sales at the worksite through 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 in the second half of 2020. Finally, Aflac U.S. is in its second year of the build-out of the Consumer Markets business for the ~~Company's~~digital direct-to-consumer sale of insurance ~~business.~~and sales made through that platform have continued to grow.

~~PERFORMANCE HIGHLIGHTS~~

~~Yen-denominated income statement accounts~~Face-to-face sales have been challenged and are translated to U.S. dollars using a weighted-average Japanese yen/U.S. dollar foreign exchange rate, while yen-denominated balance sheet accounts are translated to U.S. dollars using a spot Japanese yen/U.S. dollar foreign exchange rate⁽¹⁾~~. The spot yen/dollar exchange rate at June 30, 2019 was 107.79, or 3.0% stronger than~~having an impact on sales results. During the ~~the spot yen/dollar exchange rate of 111.00 at December 31, 2018. The weighted-average yen/dollar exchange rate for the three-month period~~three- and six-periods ended June 30, ~~2019 was 109.94, or .7% weaker than the weighted-average yen/dollar exchange rate~~2020, Aflac U.S. experienced a sales decline of ~~109.14 for~~55.6% and 31.2%, respectively, compared to the same ~~period~~respective periods in ~~2018.~~2019, reflecting the impacts of the pandemic. The ~~weighted-average yen/dollar exchange rate for~~Aflac U.S. benefit ratio decreased in the three- and six-month ~~period~~periods ended June 30, 2020, as compared to the same periods in 2019, reflecting reduced accidents, wellness medical visits and routine procedures due to shelter-in-place orders and heightened social distancing due to COVID-19. The Company anticipates this decrease to be temporary; however, management continues to evaluate the pandemic as claims activity within this new and unprecedented environment remain highly uncertain.

Aflac U.S. is encouraging policyholders who are displaying COVID-19 symptoms to seek treatment and is paying wellness benefits on applicable policies for COVID-19 tests, when completed claims are submitted. Aflac U.S. is also providing coverage for treatment in temporary facilities and by telemedicine in certain circumstances.

During the first and second quarters, Aflac U.S. took steps to comply with COVID-19-related directives issued by state regulatory authorities, including those requiring or requesting premium grace periods. As of July 20, 2020, premium grace periods remained in effect in 23 states. Aflac U.S. anticipates an increase in policy lapses in the third and fourth quarters of 2020 as premium grace periods continue to expire, particularly if government stimulus measures discussed below, or similar measures, are not renewed or initiated.

In light of the anticipated combined effects of reduced sales and persistency, Aflac U.S. currently expects 2020 earned premium results in the range of flat to a decline of 3% compared with 2019.

To date, the Parent Company has contributed $6 million to organizations that are providing assistance for health care workers assisting with the COVID-19 pandemic.

Major government initiatives

Government authorities in Japan and the U.S. have implemented several initiatives in response to the COVID-19 pandemic, including actions designed to mitigate the adverse health effects of the virus and those designed to provide broad-based relief and economic support to all aspects of the economy. Given that these measures were recently implemented, it is too early to determine what impacts these initiatives have had or will have on the Company’s business, results of operations, financial condition, liquidity, capital position, investment portfolio, workforce, distribution partners and vendors.

On April 7, 2020, Prime Minister Abe issued a state of emergency declaration targeting seven prefectures based on the revised Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response. On April 16, 2020, the state of emergency was ~~110.09,~~expanded to all 47 prefectures. The state of emergency was lifted in phases, with 39 prefectures released on May 14, 2020, three additional prefectures released on May 21, and the state of emergency lifted nationwide on May 25. On June 19, 2020,

restrictions on intraprefecture travel were lifted.

The Financial Services Agency (FSA) has also requested that financial service providers respond appropriately while continuing their essential operations. This request includes insurance companies, which have been asked to continue essential operations such as benefits and claims payment, including policyholder loans. Moreover, following the expansion of the impact of COVID-19, the FSA requested insurance companies to consider flexible interpretation and application of insurance policy provisions and measures required for products from the standpoint of protecting policyholders. In accordance with the FSA’s request, Aflac Life Insurance Japan Ltd. implemented a measure to pay accidental death benefits and accidental serious disability benefits under its accidental death benefit rider, etc. in cases of death or ~~1.3% weaker~~specified serious disabilities from COVID-19.

On April 20, 2020, the Cabinet of Japan approved ¥117 trillion or more than 20% of GDP in emergency stimulus measures, including various tax measures to address the ~~weighted-average yen/dollar exchange rate~~financial difficulties that businesses are facing. The stimulus package includes measures decided earlier in February and March as emergency COVID-19 response and the “Comprehensive Economic Measures to Create a Future with Security and Growth” formulated in December 2019. The package is divided into measures covering two stages of ~~108.61~~the COVID-19 outbreak: the “emergency support phase,” and the “V-shaped recovery phase.” The emergency support phase is described as covering until a noticeable slowdown in the spread of COVID-19 and provides cash benefits of ¥100 thousand per person to Japanese citizens and other measures that focus on improvements to the medical service system. The "V-shaped recovery phase" focuses on a campaign to boost demand after the pandemic abates, as well as to reinforce Japan’s economic foundations through measures such as supply-chain reforms and promotion of telework

On May 27, 2020, the Cabinet of Japan approved a second ¥117 trillion stimulus package. The Diet passed a supplementary budget to fund the package on June 12, 2020. The second stimulus package is intended to help small and mid-sized businesses fund leave allowances for furloughed workers and provides rent assistance for business operations.

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

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

The Families First Coronavirus Response Act was signed into law on March 18, 2020 with the goal of mitigating the financial impact of the COVID-19 on states, territories, the uninsured, the unemployed, workers and individuals who rely on food assistance, such as children and low-income seniors.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law on March 7, 2020 and was designed to provide approximately $2 trillion in financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities. Among other measures, the CARES Act provided for $260 billion in expanded unemployment benefits and $290 billion of direct payments to individuals, and established a $349 billion Paycheck Protection Program (PPP) providing for loans to small businesses, nonprofits, and veteran’s organizations with 500 or fewer employees. On April 24, 2020, an additional $320 billion was allocated to the PPP, including $10 billion for administrative costs and $60 billion allocated to small lenders and community banks, and on July 4, 2020, the application deadline for the ~~same period~~PPP was extended from June 30, 2020 to August 8, 2020. The CARES Act also included a five-year net operating loss (NOL) carryback, payroll tax relief and other significant provisions for businesses. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40 in ~~2018.~~certain situations. On April 7, 2020, certain regulatory banking agencies, in consultation with the Financial Accounting Standards Board (FASB), issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Interagency statement) applicable for all entities, which offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are treated as TDRs. The Company has applied GAAP relief under Section 4013 of the CARES Act and the Interagency statement with respect to certain qualifying loan modifications. See Notes 1 and 3 of Notes to the Consolidated Financial Statements for additional details.

The Federal Reserve has also taken various actions in an effort to support the economy and markets in response to heightened volatility and uncertainty. These actions include reducing by 1.5% each the rate that it charges for direct loans to banks, as well as the target for the rate banks charge each other for overnight funds (federal funds rate); initiating quantitative easing with no stated cap on purchases; committing to purchase U.S. Treasury securities, agency mortgage-backed and agency commercial mortgaged-backed securities; re-establishing the Term Asset-Backed Securities Loan Facility (TALF) originally launched in 2009, through which it will lend to holders of AA-rated asset-backed securities; and establishing facilities to support purchase of corporate bonds from large investment-grade companies.

Performance Highlights

Total revenues were $5.4 billion in the second quarter of 2020, compared with $5.5 billion in the second quarter of ~~2019, compared with $5.6 billion~~2019. Net earnings were $805 million, or $1.12 per diluted share in the second quarter of ~~2018. Net earnings were~~2020, compared with $817 million, or $1.09 per diluted share, in the second quarter of ~~2019, compared with $832 million, or $1.07 per diluted share,~~2019. The declines in total revenues and net earnings in the second quarter of ~~2018.~~2020 were both driven primarily by an increase in net investment losses.

Total revenues were $10.6 billion in the first six months of 2020, compared with $11.2 billion in the first six months of ~~2019, compared with $11.1~~2019. Net earnings were $1.4 billion, or $1.89 per diluted share in the first six months of ~~2018. Net earnings were~~2020, compared with $1.7 billion, or $2.32 per diluted share, in the first six months of ~~2019,~~2019. The declines in total revenues and net earnings in the first six months of 2020 were both driven primarily by an increase in net investment losses.

Results in the second quarter of 2020 included pretax net investment losses of $170 million, compared with ~~$1.6~~net investment losses of $66 million in the second quarter of 2019. Net investment losses in the second quarter of 2020 included $176 million of credit losses; $27 million of net gains from certain derivative and foreign currency gains or losses; $31 million of net gains on equity securities; and $52 million of net losses from sales and redemptions.

Results in the first six months of 2020 included pretax net investment losses of $633 million, compared with net investment gains of $5 million in the first six months of 2019. Net investment losses in the first six months of 2020 included $321 million of credit losses; $135 million of net losses from certain derivative and foreign currency gains or losses; $118 million of net losses on equity securities; and $59 million of net losses from sales and redemptions.

The average yen/dollar exchange rate⁽¹⁾ for the three-month period ended June 30, 2020 was 107.65, or 2.1% stronger than the average yen/dollar exchange rate of 109.94 for the same period in 2019. The average yen/dollar exchange rate⁽¹⁾ for the six-month period ended June 30, 2020 was 108.25, or 1.7% stronger than the average yen/dollar exchange rate of 110.09 for the same period in 2019.

Adjusted earnings⁽²⁾ in the second quarter of 2020 were $921 million, or $1.28 per diluted share, compared with $846 million, or $1.13 per diluted share, in the second quarter of 2019, driven primarily by favorable Aflac U.S. benefit ratios. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $.01. Adjusted earnings⁽²⁾ in the first six months of 2020 were $1.8 billion, or ~~$1.98~~$2.49 per diluted share, compared with $1.7 billion, or $2.25 per diluted share, in the first six months of ~~2018.~~2019. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by $.02.

Total investments and cash at the end of June 2020 were $142.2 billion, compared with $136.6 billion at June 30, 2019. In the first six months of 2020, Aflac Incorporated repurchased $637 million, or 15.2 million of its common shares. At the end of June 2020, the Company had 21.9 million remaining shares authorized for repurchase.

Shareholders’ equity was $29.4 billion, or $41.21 per share, at June 30, 2020, compared with $28.2 billion, or $38.14 per share, at June 30, 2019. Shareholders’ equity at June 30, 2020 included a net unrealized gain on investment securities and derivatives of $8.5 billion, compared with a net unrealized gain of $8.0 billion at June 30, 2019. Shareholders’ equity at June 30, 2020 also included an unrealized foreign currency translation lossof $1.5 billion, compared with an unrealized foreign currency translation loss of $1.5 billion at June 30, 2019. The annualized return on average shareholders’ equity in the second quarter of 2020 was 11.5%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI)⁽²⁾ (adjusted book value) was $22.7 billion, or $31.75 per share at June 30, 2020, compared with $21.9 billion, or $29.54 per share, at June 30, 2019. The annualized adjusted return on equity excluding foreign currencyimpact⁽²⁾ in the second quarter of 2020 was 16.3%.

⁽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 in the second quarter of 2019 included pretax net realized investment losses of $66 million, compared with net realized investment gains of $3 million in the the second quarter of 2018. Net investment losses in the the second quarter of 2019 included $2 million of other-than-temporary impairment losses and changes in loan loss reserves and $78 million in net losses from derivatives and foreign currency gains or losses. The Company reported net losses on equity securities of $11 million in the the second quarter of 2019.

Results in the first six months of 2019 included pretax net realized investment gains of $5 million, compared with net realized investment losses of $131 million in the first six months of 2018. Net investment gains in the first six months of 2019 included $4 million of other-than-temporary impairment losses and changes in loan loss reserves and $80 million in net losses from derivatives and foreign currency gains or losses. The Company reported net gains on equity securities of $47 million in the first six months of 2019.

~~In the first six months of 2019, the Company repurchased 17.2 million shares of its common stock for $847 million under its share repurchase program.~~

~~CRITICAL ACCOUNTING ESTIMATES~~

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In this MD&A, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification^™ (ASC). The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations. The estimates that the Company deems to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 95% of the Company's assets and 81% of its liabilities are reported as of June 30, 2019, and thus has a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items that the Company has identified as critical accounting estimates during the six months ended June 30, 2019. For additional information, see the Critical Accounting Estimates section of MD&A included in the 2018 Annual Report.

~~New Accounting Pronouncements~~

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

RESULTS OF OPERATIONS

The 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.

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

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

The Company defines ~~adjusted earnings (a~~the non-U.S. GAAP financial ~~measure)~~measures included in this filing as follows:

Adjusted earnings are the profits derived from operations. The most ~~comparative~~comparable U.S. GAAP measure is net earnings. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding ~~realized~~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 defines adjusted~~Adjusted earnings per share (basic or diluted) ~~to be~~are adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. The most comparable U.S. GAAP measure is net earnings per share.

Amortized hedge costs/income represent costs/income incurred or recognized inas a result of using foreign ~~currency forward contracts~~currency-derivatives to hedge certain foreign exchange risks in the Company's Japan segment ~~(costs)~~ or in the Corporate and Other ~~segment (income).~~segment. These amortized hedge costs/income are ~~derived from~~estimated at the ~~difference between~~inception of the ~~foreign currency spot rate at time~~derivatives based on the specific terms of ~~trade inception~~each contract and ~~the contractual foreign currency forward rate,~~are recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs/income.

Because a significant portion of the Company's business is conducted in Japan and foreign exchange rates are outside of management’s control, the Company believes it is important to understand the impact of translating Japanese yen into U.S. dollars. Adjusted earnings ~~and adjusted~~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. The most comparable U.S. GAAP measure is net earnings.

Adjusted earnings per diluted share excluding current period foreign currency impact are ~~computed~~adjusted earnings excluding current period foreign currency impact divided by the weighted average outstanding diluted shares for the period presented. The most comparable U.S. GAAP measure is net earnings per share.

U.S. dollar-denominated investment income excluding foreign currency impact is determined using the average ~~yen/dollar~~foreign currency exchange rate for the comparable prior year period.

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

Adjusted return on equity (ROE) excluding foreign currency impact is calculated using adjusted earnings excluding current period ~~which eliminates fluctuations driven solely~~foreign currency impact divided by ~~yen-to-dollar currency rate changes.~~average shareholders’ equity, excluding AOCI. The most comparable U.S. GAAP financial measure is return on average equity as determined using net earnings and average total shareholders’ equity.

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

Reconciliation of Net Earnings to Adjusted Earnings⁽¹⁾

In Millions Per Diluted Share In Millions Per Diluted Share
Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018 2019 2018 2019 2018
Net earnings $ 817
$ 832
$ 1.09
$ 1.07
$ 1,745
$ 1,550
$ 2.32
$ 1.98

Items impacting net earnings:
Realized investment (gains)
losses ^{(2),(3),(4),(5)}
33
(35 ) .04
(.04 ) (70 ) 63
(.09 ) .08

Other and non-recurring
(income) loss 0
41
.00
.05
1
70
.00
.09

Income tax (benefit)
expense on items excluded
from adjusted earnings (5 ) (4 ) (.01 ) (.01 ) 18
(28 ) .02
(.04 )
Adjusted earnings 846
835
1.13
1.07
1,695
1,655
2.25
2.12

Current period foreign currency
impact ⁽⁶⁾
4
N/A
.01
N/A
13
N/A
.02
N/A

Adjusted earnings excluding
current period foreign
currency impact ⁽⁷⁾
$ 851
$ 835
$ 1.14
$ 1.07
$ 1,708
$ 1,655
$ 2.27
$ 2.12



	In Millions						Per Diluted Share						In Millions						Per Diluted Share
	Three Months Ended June 30,												Six Months Ended June 30,
	2020			2019			2020			2019			2020			2019			2020			2019
Net earnings	$	805		$	817		$	1.12		$	1.09		$	1,370		$	1,745		$	1.89		$	2.32
Items impacting net earnings:
Net investment (gains) losses ^{(2),(3),(4),(5)}	166			33			.23			.04			614			(70		)	.85			(.09		)
Other and non-recurring (income) loss	0			0			.00			.00			15			1			.02			.00
Income tax (benefit) expense on items excluded from adjusted earnings	(50		)	(5		)	(.07		)	(.01		)	(196		)	18			(.27		)	.02
Adjusted earnings	921			846			1.28			1.13			1,803			1,695			2.49			2.25
Current period foreign currency impact ⁽⁶⁾	(5		)	N/A			(.01		)	N/A			(14		)	N/A			(.02		)	N/A
Adjusted earnings excluding current period foreign currency impact	$	916		$	846		$	1.27		$	1.13		$	1,789		$	1,695		$	2.47		$	2.25

⁽¹⁾ Amounts may not foot due to rounding.

⁽²⁾Amortized hedge costs of ~~$62~~$50 and ~~$55~~$62 for the three-month periods and ~~$124~~$105 and ~~$110~~$124 for the six-month periods ended June 30, ~~2019,~~2020, and ~~2018,~~2019, respectively, related to certain foreign currency exposure management strategies have been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings as a decrease to net investment income. See "Hedge Costs/Income" discussion below for further information.

⁽³⁾ Amortized hedge income of ~~$20~~$27 and $7$20 for the three-month periods and ~~$40~~$56 and $9$40 for the ~~six-moth~~six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, related to certain foreign currency exposure management strategies have been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings as an increase to net investment income. See "Hedge Costs/Income" discussion below for further information.

⁽⁴⁾ Net interest cash flows from derivatives associated with certain investment strategies of $6 and $(7) for the three-month ~~period~~periods and an immaterial amount and $(14) for the six-month ~~period~~periods ended June 30, ~~2019,~~2020 and ~~an immaterial amount for the three- and six-month periods in 2018,~~2019, respectively, have been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings as a component of net investment income.

⁽⁵⁾ A gain of $14 and $17 for the three-month periods and $30 and $33 for the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable have been reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings as a component of interest expense.

⁽⁶⁾ Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.

⁽⁷⁾Amounts excluding current period foreign currency impact are computed using the average yen/dollar exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes.

Reconciling Items

~~Realized~~Net Investment Gains and Losses

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s growth and profitability. This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure. The Company does not purchase securities with the intent of generating ~~capital~~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. ~~Realized~~Net investment gains and losses include securities transactions, ~~impairments, changes in loan loss reserves,~~credit losses, derivative and foreign currency activities and changes in fair value of equity securities.

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

Securities transactions include gains and losses from sales and redemptions of investments where the amount received is different from the amortized cost of the investment. ~~Impairments~~Prior to January 1, 2020, impairments include other-than-temporary-impairment losses on investment securities as well as changes in loan loss reserves for loan receivables. ~~Starting in the first quarter of 2018, gains~~Effective January 1, 2020, credit losses include losses for held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities, loan receivables, loan commitments and ~~losses from changes in fair value of equity securities are recorded in earnings.~~

reinsurance recoverables.

Certain Derivative and Foreign Currency Gains (Losses)

The Company's derivative activities ~~include~~ include:

foreign currency forwards and options used in hedging foreign exchange risk on ~~certain fixed maturity securities;~~ U.S. dollar-denominated investments in Aflac Japan's portfolio

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

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

foreign currency swaps that are associated with VIE bond purchase commitments, and ~~credit defaults swaps held~~investments in ~~consolidated variable interest~~special-purpose entities, ~~(VIEs);~~ including VIEs where the Company is the primary beneficiary

interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate ~~investments; and~~ investments

interest rate swaptions used to hedge changes in the fair value associated with interest rate ~~changes~~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 ~~yen/dollar~~foreign currency exchange ~~rate from adjusted earnings.~~rate. Amortized hedge costs/income related to certain foreign currency exposure management strategies (see Amortized Hedge Cost/Income section below), and net interest cash flows from derivatives associated with certain investment strategies and notes payable are reclassified from ~~realized~~net investment gains (losses) and included in adjusted earnings.

~~Amortized Hedge Costs/Income~~

Adjusted earnings includes the impact of amortized hedge costs/income. Amortized hedge costs/income represent costs/income incurred or recognized in using foreign currency forward contracts to hedge certain foreign currency exchange risks in the company's Japan segment (costs) or in the Corporate and Other segment (income). These amortized hedge costs/income are derived from the difference between the foreign currency spot rate at time of trade inception and the contractual foreign currency forward rate, recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs/income.

Amortized hedge costs/income can fluctuate based upon many factors, including the derivative notional amount, the length of time of the derivative contract, changes in both U.S. and Japan interest rates, and supply and demand for dollar funding. Amortized hedge costs and income have ~~increased~~fluctuated in recent periods due to changes in the previously mentioned factors. For additional information regarding foreign currency hedging, refer to Hedging Activities in the ~~Analysis of Financial Condition~~Investments section of this MD&A.

For additional information regarding ~~realized~~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 ~~United States~~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 ~~United States.~~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.

~~Nonrecurring items also include conversion costs related to legally converting the~~Income Taxes

The Company's ~~Japan business to a subsidiary; these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems~~combined U.S. and ~~processes and other similar services. These Japan branch conversion costs were an immaterial amount for 2019 and $41 million~~Japanese effective income tax rate on pretax earnings was 24.8% for the three-month period ended June 30, 2020, compared with 26.3% for the same period in 2019.The Company's combined U.S. and ~~$70 million~~Japanese effective income tax rate on pretax earnings was 23.4% for the six-month period ended June 30, ~~2018.~~

2020, compared with 25.8% for the same period in 2019. This combined effective tax rate differs from the U.S. statutory rate primarily due to foreign earnings taxed at different rates. For further information, see Critical Accounting Estimates - Income Taxes section of the MD&A in the 2019 Annual Report.

Foreign Currency Translation

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

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

~~Income Taxes~~

The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 26.3% for the three-month period ended June 30, 2019, compared with 26.4% for the same period in 2018. The Company's combined U.S.

~~and Japanese effective income tax rate on pretax earnings was 25.8% for the six-month period ended June 30, 2019,~~

compared with 26.7% for the same period in 2018. This combined effective tax rate differs from the U.S. statutory rate primarily due to foreign earnings taxed at different rates. For further information, see Critical Accounting Estimates - Income Taxes section of the MD&A in the 2018 Annual Report.

~~INSURANCE~~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. Aflac's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to consolidated earnings. Businesses that are not individually reportable, such as the Parent Company, and asset management subsidiaries and other business activities, including reinsurance retrocession activities, ~~not included in Aflac Japan or Aflac U.S.~~ are included in the Corporate and other segment. See the Item 1. Business section of the ~~Company's 2018~~2019 Annual Report for a summary of each segment's products and distribution ~~channels,~~channels.

During the second quarter, Aflac Japan sales for protection-type first sector and third sector products decreased 59.6% and total sales decreased 58.8%, on a ~~discussion~~yen basis, primarily due to continued effects of the ~~conversion of~~COVID-19 pandemic and secondarily, from the continued effects from the Japan Post investigation. Sales from Aflac U.S. were down 55.6% in the second quarter due to social distancing efforts, which eliminated face-to-face sales opportunities beginning in mid-March 2020. The respective Aflac Japan ~~from~~and Aflac U.S. platforms and distribution partners continue to work to adapt to the new environment. The Company continues to monitor the effects of COVID-19 on its operating results and has taken several steps to mobilize its resources to ensure adequate liquidity, a ~~branch to a subsidiary~~strong capital position, business continuity and employee safety during this pandemic. See the ~~creation~~Executive Summary subsection of ~~asset management subsidiaries in 2018.~~this MD&A for additional information.

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 ~~evaluates~~believes that a presentation of this measure is vitally important to an understanding of the underlying profitability drivers and trends of its ~~premium growth~~business. Additional performance measures used to evaluate the financial condition and ~~sales efforts using~~performance of the ~~following performance measures:~~Company's segments are listed below.

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

expense ratio

New annualized premium sales (sometimes referred to as new sales or sales) is an operating measure that is not reflected on the Company's financial statements. New annualized premium sales generally represents 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.money yield

return on average invested assets

average weekly producer

~~Net premiums (sometimes referred to as net premium income or net earned premium) is a financial measure that appears~~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 Statement of Earnings~~consolidated U.S. GAAP results and in 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.

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 June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2019		2018		2019		2018		2020		2019		2020		2019
Net premium income	$	3,172	$	3,227	$	6,352	$	6,490	$	3,158	$	3,172	$	6,308	$	6,352
Net investment income:(1)
Yen-denominated investment income	311		326		628		657		319		311		641		628
U.S. dollar-denominated investment income	360		335		715		647		364		360		740		715
Net investment income	671		661		1,343		1,304		683		671		1,381		1,343
Amortized hedge costs related to certain foreign currency exposure management strategies	62		55		124		110		50		62		105		124
Net investment income, less amortized hedge costs	609		606		1,219		1,194
Adjusted net investment income									633		609		1,276		1,219
Other income (loss)	11		11		22		22		12		11		22		22
Total adjusted revenues	3,792		3,844		7,593		7,706		3,803		3,792		7,606		7,593
Benefits and claims, net	2,185		2,237		4,384		4,530		2,205		2,185		4,391		4,384
Adjusted expenses:
Amortization of deferred policy acquisition costs	177		180		359		348		155		177		328		359
Insurance commissions	179		194		362		383		184		179		369		362
Insurance and other expenses	420		397		822		791		420		420		824		822
Total adjusted expenses	776		771		1,543		1,522		759		776		1,521		1,543
Total benefits and adjusted expenses	2,961		3,008		5,927		6,052		2,964		2,961		5,912		5,927
Pretax adjusted earnings	$	831	$	836	$	1,666	$	1,654	$	839	$	831	$	1,694	$	1,666
Weighted-average yen/dollar exchange rate	109.94		109.14		110.09		108.61		107.65		109.94		108.25		110.09


	In Dollars								In Yen								In Dollars								In Yen
Percentage change over previous period:	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
Percentage change over previous period:	2019		2018		2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019		2020		2019
Net premium income	(1.7	)%	.2	%	(2.1	)%	1.2	%	(.9	)%	(1.7	)%	(.9	)%	(2.2	)%	(.4	)%	(1.7	)%	(.7	)%	(2.1	)%	(2.5	)%	(.9	)%	(2.3	)%	(.9	)%
Net investment income, less amortized hedge costs	.5		8.8		2.1		7.1		.8		6.4		3.1		3.2
Adjusted net investment income																	3.9		.5		4.7		2.1		2.0		.8		3.0		3.1
Total adjusted revenues	(1.4	)	1.5		(1.5	)	2.1		(.7	)	(.5	)	(.3	)	(1.4	)	.3		(1.4	)	.2		(1.5	)	(1.8	)	(.7	)	(1.4	)	(.3	)
Pretax adjusted earnings	(.6	)	5.7		.7		6.0		(.1	)	3.6		1.9		2.2		1.0		(.6	)	1.7		.7		(1.2	)	(.1	)	.0		1.9

⁽¹⁾Net interest cash flows from derivatives associated with certain investment strategies of $6 and $(7) for the three-month periods and an immaterial amount and $(14) for the six-month periods ended June 30, 2020 and 2019, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three- and six-month periods ended June 30, ~~2019,~~2020, Aflac Japan's net premium income decreased, in yen terms, primarily due to an anticipated decrease in first sector ~~premium~~premiums as savings products reached premium paid-up status. ~~Net~~Adjusted net investment income ~~net of amortized hedge costs,~~ increased primarily due to ~~increased investments in~~higher income from U.S. ~~dollar-denominated floating rate~~dollar denominated assets and ~~higher variable investment income.~~lower hedge costs.

Annualized premiums in force decreased ~~2.0%~~3.4% to ~~1.51~~¥1.46 trillion ~~yen~~ as of June 30, ~~2019,~~2020, compared with ~~1.54~~¥1.51 trillion ~~yen~~ as of June 30, ~~2018.~~2019. The decrease in annualized premiums in force in yen was driven primarily by limited-pay ~~policies becoming paid-up during the year.~~products reaching paid up status. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were ~~$14.0~~$13.5 billion at June 30, ~~2019,~~2020, compared with $13.9 billion a year ago.

Aflac Japan's investment portfolios include U.S. dollar-denominated securities and reverse-dual currency securities (yen-denominated debt securities with dollar coupon payments). In years when the yen strengthens in relation to the dollar, translating Aflac Japan's U.S. dollar-denominated investment income into yen lowers growth rates for net investment income, total adjusted revenues, and pretax adjusted earnings in yen terms. In years when the yen weakens, translating U.S. dollar-denominated investment income into yen magnifies growth rates for net investment income, total 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 ~~dollar/yen~~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 ~~dollar/yen~~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 June 30,

Including Foreign
Currency Changes
Excluding Foreign
Currency Changes⁽¹⁾

Three Months Six Months Three Months Six Months

2019
2018
2019
2018 2019 2018 2019 2018

Net investment income, less
amortized hedge costs .8
% 6.4
% 3.1
% 3.2
% .4
% 7.5
% 2.3
% 5.0
%
Total adjusted revenues (.7 ) (.5 ) (.3 ) (1.4 ) (.7 ) (.3 ) (.4 ) (1.1 )
Pretax adjusted earnings (.1 ) 3.6
1.9
2.2
(.4 ) 4.3
1.3
3.5

⁽¹⁾Amounts excluding foreign currency impact on U.S. dollar-denominated investment income (a non-U.S. GAAP financial measure) were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year.



	Including Foreign Currency Changes												Excluding Foreign Currency Changes
	Three Months						Six Months						Three Months						Six Months
	2020			2019			2020			2019			2020			2019			2020		2019
Adjusted net investment income	2.0		%	.8		%	3.0		%	3.1		%	3.3		%	.4		%	4.0		2.3		%
Total adjusted revenues	(1.8	)		(.7	)		(1.4	)		(.3	)		(1.6	)		(.7	)		(1.3	)	(.4	)
Pretax adjusted earnings	(1.2	)		(.1	)		.0			1.9			(.3	)		(.4	)		.7		1.3

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total adjusted revenues:	2019		2018		2019		2018		2020		2019		2020		2019
Benefits and claims, net	57.7	%	58.2	%	57.7	%	58.8	%	58.0	%	57.7	%	57.8	%	57.7	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	4.7		4.7		4.7		4.5		4.1		4.7		4.3		4.7
Insurance commissions	4.7		5.0		4.8		5.0		4.8		4.7		4.9		4.8
Insurance and other expenses	11.0		10.3		10.8		10.3		11.0		11.0		10.8		10.8
Total adjusted expenses	20.5		20.0		20.3		19.7		20.0		20.5		20.0		20.3
Pretax adjusted earnings	21.9		21.8		21.9		21.5		22.0		21.9		22.2		21.9
Ratios to total premiums:
Benefits and claims, net	68.9	%	69.3	%	69.0	%	69.8	%	69.8	%	68.9	%	69.6	%	69.0	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	5.6		5.6		5.7		5.4		4.9		5.6		5.2		5.7

In the three- and six-month periods ended June 30, ~~2019,~~2020, the benefit ratio ~~decreased,~~increased, compared with the same ~~respective~~ periods in the prior ~~year,~~year. This is primarily due to higher persistency, resulting in an increase in future policy benefit reserves, offset by the continued change in mix of first and third sector business as first sector products become ~~paid-up, as well as continued favorable claims trends for the Company's third sector products in Japan.~~paid-up. In the three- and six-month periods ended June 30, ~~2019,~~2020, the adjusted expense ratio ~~increased~~decreased mainly due to lower ~~premium income mainly from paid-up first sector products~~DAC amortization and ~~higher~~sales promotion expenses, ~~for advanced technology implementation.~~partially offset by the decrease in total revenue. In total, the pretax adjusted profit margin ~~(calculated by dividing adjusted earnings by adjusted revenues)~~ increased in the three- and six-month periods ended June 30, ~~2019, reflecting the decrease in the benefit ratio partially offset by a smaller increase in the expense ratio.~~2020. For the full year of ~~2019,~~2020, the Company ~~anticipates~~is monitoring the ~~Aflac Japan~~situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin ~~to remain stable.~~and benefit ratio.

Aflac Japan Sales

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


	In Dollars												In Yen								In Dollars												In Yen
	Three Months						Six Months						Three Months				Six Months				Three Months						Six Months						Three Months						Six Months
(In millions of dollars and billions of yen)	2019			2018			2019			2018			2019		2018		2019		2018		2020			2019			2020			2019			2020			2019			2020			2019
New annualized premium sales	$	218		$	265		$	388		$	443		23.9		29.0		42.7		48.1		$	91		$	218		$	220		$	388		¥	9.8		¥	23.9		¥	23.8		¥	42.7
Increase (decrease) over prior period	(17.9		)%	16.1		%	(12.4		)%	4.7		%	(17.6	)%	14.0	%	(11.4	)%	1.4	%	(58.1		)%	(17.9		)%	(43.3		)%	(12.4		)%	(58.8		)%	(17.6		)%	(44.1		)%	(11.4		)%

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


	Three Months				Six Months				Three Months				Six Months
	2019		2018		2019		2018		2020		2019		2020		2019
Cancer	65.3	%	72.2	%	62.6	%	65.5	%	54.7	%	65.3	%	55.1	%	62.6	%
Medical	26.5		21.3		28.0		26.4		32.5		26.5		32.4		28.0
Income support	1.0		1.3		1.2		1.7		.9		1.0		1.1		1.2
Ordinary life:
WAYS	.4		.5		.5		.6		.8		.4		.7		.5
Child endowment	.2		.3		.2		.3		.4		.2		.4		.2
Other ordinary life ⁽¹⁾	6.1		4.1		6.9		5.0		10.0		6.1		9.6		6.9
Other	.5		.3		.6		.5		.7		.5		.7		.6
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

⁽¹⁾Includes term and whole life

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical and income support insurance products. 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 ~~17.3%~~59.6% in the second quarter of ~~2019,~~2020, compared with the same respective period in ~~2018. Comparable~~2019. The decline in sales primarily reflects the impact of the COVID-19 pandemic and reduced sales of cancer insurance through the Japan Post channel.

Sales of Aflac Japan cancer products in the Japan Post Group channel experienced a material decline beginning in August 2019 which has continued into 2020. For additional information, see the risk factor entitled "Events related to the ongoing Japan Post investigation and other matters regarding sales of Japan Post Insurance products could negatively impact the Company’s sales and results ~~reflect~~of operations," in Part II, Item 1A. of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2020. Aflac Japan experienced a ~~strong~~sharp drop-off in total sales in the second quarter ~~2018 driven by~~due to the ~~launch~~effects of ~~Aflac Japan's refreshed cancer product.~~the COVID-19 pandemic and continuing effects of the Japan Post investigation. See the Executive Summary section entitled "COVID-19" of this MD&A for additional information.

Independent corporate agencies and individual agencies contributed ~~39.2%~~53.8% of total new annualized premium sales for Aflac Japan in the second quarter of ~~2019,~~2020, compared with ~~38.2%~~39.2% for the same period in ~~2018.~~2019. Affiliated corporate agencies, which include Japan Post, contributed ~~57.8%~~42.8% of total new annualized premium sales in the second quarter of ~~2019,~~2020, compared with ~~58.3%~~57.8% in the second quarter of ~~2018.~~2019. Japan Post offers Aflac's cancer insurance products in more than 20,000 ~~post offices. The~~postal outlets. Notwithstanding the recent reduction in sales of Aflac Japan's cancer products in the Japan Post channel, the Company believes this alliance with Japan Post has and will ~~further~~ benefit its cancer insurance ~~sales.~~sales over the long term. During the three-month period ended June 30, ~~2019,~~2020, Aflac Japan recruited 135 new sales agencies. At June 30, ~~2019,~~2020, Aflac Japan was represented by more than ~~9,400~~8,700 sales agencies, with more than 109,000 licensed sales associates employed by those agencies.

At June 30, ~~2019,~~2020, Aflac Japan had agreements to sell its products at ~~369~~364 banks, approximately 90% of the total number of banks in Japan. Bank channel sales accounted for ~~3.0%~~3.4% of new annualized premium sales for Aflac Japan in the second quarter of ~~2019 for Aflac Japan,~~2020, compared with ~~3.5% during~~3.0% in the second quarter of ~~2018.~~2019.

Strategic Alliance with Japan Post Holdings

On December 19, 2018, the Parent Company and Aflac Japan entered into a Basic Agreement with Japan Post Holdings ~~Co., Ltd.,~~ a Japanese ~~corporation (Japan Post Holdings).~~corporation. Pursuant to the terms of the Basic Agreement, Japan Post Holdings agreed to form a capital relationship with the Parent Company, and Japan Post Holdings and Aflac Japan agreed to reconfirm existing initiatives regarding cancer insurance and to consider new joint initiatives, including leveraging digital technology in various processes, cooperation in new product development to promote customer-centric business management, cooperation in domestic and/or overseas business expansion and joint investment in third party entities and cooperation regarding asset management.

On February 28, 2019, the Parent Company entered a Shareholders Agreement with Japan Post Holdings, J&A Alliance Holdings Corporation, a Delaware corporation, solely in its capacity as trustee of J&A Alliance Trust, a New York voting trust (Trust), and General Incorporated Association J&A Alliance, a Japanese general incorporated association. Pursuant to the ~~terms of the~~ Shareholders Agreement, Japan Post Holdings agreed to cause the Trust ~~will~~to use commercially reasonable efforts to acquire, through open market or private block purchases in the United States, beneficial ownership of approximately 7% of the ~~outstanding shares of~~Common Stock in connection with the ~~Parent Company’s outstanding common stock within~~Basic Agreement. According to a ~~period of 12 months following the date the Trust begins acquiring such stock. On May 7, 2019, a press release issued~~Schedule 13G/A filed by Japan Post Holdings ~~announced~~with the SEC on January 8, 2020, the Trust had beneficially acquired 6.47% of the outstanding Common Shares as of December 31, 2019. Japan Post Holdings is the sole beneficiary of the Trust. According to a press release by Japan Post Holdings on February 14, 2020, the Trust had completed the planned beneficial acquisition of approximately 7% of the outstanding Common Shares as of February 13, 2020.

On May 1, 2020, the Parent Company filed a registration statement on Form S-3 that ~~purchases~~registered the sale of ~~shares~~its common stock from time to time by J&A Alliance Holdings Corporation in its capacity as trustee of the Trust. The filing was made strictly pursuant to a contractual requirement contained in the Shareholders Agreement. Notwithstanding the contractual commitment and filing of the Form S-3, the Trust continues to be subject to a lockup period for a period expiring four years after the Trust acquired 7% of the Parent ~~Company’s common stock commenced on April 29, 2019 through~~Company's outstanding shares, under the ~~Trust and that it planned to complete such purchases within Japan Post’s fiscal year 2019 (which ends March 31, 2020).~~terms of the Shareholders Agreement.

The Trust has agreed not to own more than 10% of the Parent Company’s outstanding shares for a period expiring ~~on the earlier of~~ four years after the Trust ~~acquires~~acquired 7% of such shares, five years after it acquires 5% of such shares, or ten years after the Trust begins acquiring the Parent Company’s stock. After expiration of such period, the Trust has agreed not to own more than the greater of 10% of the Parent Company’s outstanding shares or such shares representing 22.5% of the voting rights in the Parent Company.

In light of the fact that the shares acquired by the Trust, like all Aflac Incorporated common shares, will be eligible for 10-for-1 voting rights after being held for 48 consecutive months, the Shareholders Agreement further provides for voting restrictions that effectively limit the trustee’s voting rights to no more than 20% of the voting rights in the Parent Company and further restrict the trustee’s voting rights with respect to certain change in control transactions. Japan Post Holdings will not have a Board seat on the Parent Company’s Board of Directors and will not have rights to control, manage or intervene in the management of the Parent Company.

~~This strategic investment~~As of December 31, 2019, all regulatory approvals expressly set forth in the Shareholders Agreement have been obtained. The Shareholders Agreement requires the parties to use reasonable best efforts to cooperate in connection with any ongoing regulatory matters related to or arising from the Trust’s acquisition or ownership or control of the shares of Company Common Stock, including any applications or filings in connection with a direct or indirect acquisition of control of or merger with an insurer by the Company or its affiliates. The foregoing is subject to ~~certain regulatory approvals~~and qualified in ~~Japan~~its entirety by reference to the full text of the Shareholders Agreement, a copy of which is attached as Exhibit 10.50 to the Company’s Quarterly Report on Form 10-Q filed April 26, 2019, and the ~~U.S. The Company anticipates that regulatory approvals will be received in the second half~~terms of ~~2019.~~which exhibit are incorporated herein by reference.

Aflac Japan Investments

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

As part of the Company's portfolio management and asset allocation process, Aflac Japan invests in yen and U.S. dollar-denominated investments. Yen-denominated investments primarily consist of JGBs and public and private fixed maturity securities. Aflac Japan's U.S. dollar-denominated investments include fixed maturity investments and growth assets, including public equity securities and alternative investments in limited partnerships or similar investment vehicles. Aflac Japan has been investing in both publicly-traded and privately originated U.S. dollar-denominated investment-grade and ~~below-investment-grade~~below-

investment-grade fixed maturity securities and loan receivables, and has entered into foreign currency forwards and options to hedge the currency risk on the fair value of a portion of the U.S. dollar investments.

The following table details the investment purchases for Aflac Japan.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2019		2018		2019		2018		2020		2019		2020		2019
Yen-denominated:
Fixed maturity securities:
Japan government and agencies	$	0	$	212	$	583	$	3,399	$	0	$	0	$	736	$	583
Private placements	469		388		893		550		23		469		113		893
Other fixed maturity securities	107		234		356		484		194		107		271		356
Equity securities	12		8		121		106		139		12		142		121
Total yen-denominated	$	588	$	842	$	1,953	$	4,539	$	356	$	588	$	1,262	$	1,953

U.S. dollar-denominated:
Fixed maturity securities:
Other fixed maturity securities	$	854	$	998	$	1,522	$	1,038	$	390	$	854	$	917	$	1,522
Infrastructure debt	10		0		10		0		20		10		55		10
Bank loans	0		193		0		373
Equity securities	2		39		29		80		0		2		0		29
Commercial mortgage and other loans:
Transitional real estate loans	347		579		670		2,149		97		347		465		670
Commercial mortgage loans	38		0		38		13		0		38		12		38
Middle market loans	313		161		688		278		240		313		1,427		688
Other investments	32		45		73		172		48		32		98		73
Total dollar-denominated	$	1,596	$	2,015	$	3,030	$	4,103	$	795	$	1,596	$	2,974	$	3,030
Total Aflac Japan purchases	$	2,184	$	2,857	$	4,983	$	8,642	$	1,151	$	2,184	$	4,236	$	4,983

See the ~~Analysis of Financial Condition~~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 ~~2018~~2019 Annual Report for more information regarding loans and loan receivables.

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


	Three Months						Six Months						Three Months						Six Months
	2019			2018			2019			2018			2020			2019			2020			2019
Total purchases for the period (in millions) ⁽¹⁾	$	2,152		$	2,812		$	4,910		$	8,470		$	1,103		$	2,152		$	4,138		$	4,910
New money yield ^{(1), (2)}	3.77		%	3.55		%	3.50		%	2.88		%	3.41		%	3.77		%	3.86		%	3.50		%
Return on average invested assets ⁽³⁾	2.28			2.30			2.31			2.29			2.28			2.28			2.32			2.31
Portfolio book yield, including U.S. dollar-denominated investments, end of period ⁽¹⁾	2.59		%	2.59		%	2.59		%	2.59		%	2.63		%	2.59		%	2.63		%	2.59		%

⁽¹⁾Includes fixed maturity securities, commercial mortgage and other loans, equity securities, and excludes alternative investments in limited partnerships

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

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

The decrease in the Aflac Japan new money yield in the three-month period ended June 30, 2020 was primarily due to lower U.S. interest rates. The increase in the Aflac Japan new money yield in the ~~three- and~~ six-month ~~periods~~period ended June 30, ~~2019~~2020 was primarily due to increased allocations to higher yielding ~~U.S. dollar-denominated~~floating rate asset classes.

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

AFLAC U.S. SEGMENT

Aflac U.S. Pretax Adjusted Earnings

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

Aflac U.S. Summary of Operating Results


	Three Months Ended June 30,							Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
(In millions)	2019				2018			2019				2018				2020				2019				2020				2019
Net premium income	$	1,459			$	1,426		$	2,920			$	2,853			$	1,458			$	1,459			$	2,941			$	2,920
Net investment income	180				182			357				357				172				180				348				357
Other income	2				2			4				4				26				2				54				4
Total adjusted revenues	1,641				1,610			3,281				3,214				1,656				1,641				3,343				3,281
Benefits and claims	732				744			1,452				1,441				646				732				1,359				1,452
Adjusted expenses:
Amortization of deferred policy acquisition costs	131				123			290				269				134				131				293				290
Insurance commissions	150				145			299				292				148				150				299				299
Insurance and other expenses	290				258			579				535				302				290				640				579
Total adjusted expenses	571				526			1,168				1,096				584				571				1,232				1,168
Total benefits and adjusted expenses	1,303				1,270			2,620				2,537				1,230				1,303				2,591				2,620
Pretax adjusted earnings	$	338			$	340		$	661			$	677			$	426			$	338			$	752			$	661
Percentage change over previous period:
Net premium income	2.3			%	2.7		%	2.3			%	2.7			%	(.1		)	%	2.3			%	.7			%	2.3			%
Net investment income	(1.1		)		1.1			.0				(.3		)		(4.4		)		(1.1		)		(2.5		)		.0
Total adjusted revenues	1.9				2.5			2.1				2.4				.9				1.9				1.9				2.1
Pretax adjusted earnings	(.6		)		3.0			(2.4		)		5.8				26.0				(.6		)		13.8				(2.4		)

Annualized premiums in force ~~increased 2.3%~~decreased 1.7% to $6.1 billion at June 30, 2020, compared with $6.2 billion at June 30, ~~2019, compared with $6.0 billion at June 30, 2018.~~2019. Net investment income decreased primarily due to the lower interest rate environment and ongoing capital management activity.

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total adjusted revenues:	2019		2018		2019		2018		2020		2019		2020		2019
Benefits and claims	44.6	%	46.2	%	44.3	%	44.8	%	39.0	%	44.6	%	40.7	%	44.3	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	8.0		7.6		8.8		8.4		8.1		8.0		8.8		8.8
Insurance commissions	9.1		9.0		9.1		9.1		8.9		9.1		8.9		9.1
Insurance and other expenses	17.7		16.0		17.7		16.6		18.2		17.7		19.1		17.7
Total adjusted expenses	34.8		32.7		35.6		34.1		35.3		34.8		36.9		35.6
Pretax adjusted earnings	20.6		21.1		20.1		21.1		25.7		20.6		22.5		20.1
Ratios to total premiums:
Benefits and claims	50.2	%	52.2	%	49.7	%	50.5	%	44.3	%	50.2	%	46.2	%	49.7	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	9.0		8.6		9.9		9.4		9.2		9.0		10.0		9.9

For the three- and six-month periods ended June 30, ~~2019,~~2020, the benefit ratio decreased compared with the same periods in ~~2018.~~2019, reflecting reduced accidents, wellness medical visits and routine procedures due to shelter-in-place orders and heightened social distancing due to COVID-19. The adjusted expense ratio increased ~~for~~in the three- and six-month periods ended June 30, ~~2019,~~2020, when

compared towith the same periods in ~~2018,~~2019, primarily due to anticipated spending increases reflecting ongoing investments in the U.S. platform, distribution, and customer ~~experience.~~experience, and TPA related expenses from

the acquisition of Argus, as well as lower unit cost capitalization reflecting a second quarter decline in sales and lower general administrative expense due to lower sales, travel and claims activity. The pretax adjusted profit margin ~~declined~~increased in the three- and ~~six- month~~six-month periods, when compared towith the same periods in ~~2018,~~2019, due to ~~higher expense~~lower benefit ratios, offset somewhat by ~~lower~~higher expense ratios. For the full year of 2020, the Company is monitoring the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratios. (Note that all of these ratios-to-revenue reflect reduced net investment income due to the Company's planned drawdown of excess capital to lower Risk-Based Capital (RBC) ratios. See the Capital Resources and Liquidity section of this MD&A for further discussion of the planned reduction of RBC.)ratio.

Aflac U.S. Sales

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


	Three Months							Six Months							Three Months								Six Months
(In millions)	2019				2018			2019				2018			2020				2019				2020				2019
New annualized premium sales	$	362			$	370		$	702			$	705		$	161			$	362			$	484			$	702
Increase (decrease) over prior period	(2.0		)	%	3.9		%	(.3		)	%	2.3		%	(55.6		)	%	(2.0		)	%	(31.2		)	%	(.3		)	%

The following table details the contributions to Aflac's U.S. new annualized premium sales by major insurance product category for the periods ended June 30.30.


	Three Months				Six Months				Three Months				Six Months
	2019		2018		2019		2018		2020		2019		2020		2019
Accident	28.7	%	29.5	%	28.7	%	29.4	%	25.7	%	28.7	%	26.7	%	28.7	%
Short-term disability	23.8		23.5		23.7		23.3		23.9		23.8		23.0		23.7
Critical care⁽¹⁾	19.9		20.8		20.4		21.4		20.6		19.9		21.0		20.4
Hospital indemnity	16.0		15.1		15.6		15.0		17.1		16.0		17.0		15.6
Dental/vision	5.2		5.4		5.1		5.4		4.1		5.2		4.3		5.1
Life	6.4		5.7		6.5		5.5		8.6		6.4		8.0		6.5
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

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

New annualized premium sales for accident insurance, the leading Aflac U.S. product category, decreased ~~4.8%~~60.3%; short-term disability sales decreased ~~1.2%~~55.4%; critical care insurance sales (including cancer insurance) decreased ~~6.7%~~54.0%; and hospital indemnity insurance sales ~~increased 3.8%~~decreased 52.5% in the second quarter of ~~2019,~~2020, compared with the same period in ~~2018.~~

~~The addition of group products has expanded Aflac U.S.'s reach and enabled~~2019. Primarily, the decline is sales for Aflac U.S. ~~to generate more~~is attributable COVID-19 social distancing efforts, which limited face-to-face sales opportunities ~~with larger employers and through broker and sales agent channels. The Company anticipates that~~beginning in mid-March 2020. See the ~~appeal~~Executive Summary section entitled "COVID-19" of Aflac U.S. group products will continue to enhance opportunities to connect with larger businesses and their employees. The Aflac U.S. portfolio of group and individual products offers businesses the opportunity to give their employees a more valuable and comprehensive selection of benefit options.this MD&A for additional information.

In the second quarter of ~~2019,~~2020, the Aflac U.S. sales force included an average of approximately ~~8,200~~4,300 U.S. agents, including brokers, who were actively producing business on a weekly basis. The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and ~~needs.~~

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

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

future production capacity.

In ~~July 2019,~~March 2020, the Company, through its insurance subsidiaries Aflac and Aflac New York, entered into an agreement to acquire ~~Argus Holdings, LLC~~Zurich North America’s U.S. Corporate Life and ~~its subsidiary Argus Dental & Vision, Inc., a benefits~~Pensions business, which consists of group life, disability and absence management ~~organization~~products. Aflac and ~~national network dental~~Aflac New York will reinsure on an indemnity basis Zurich North America’s U.S. in-force group life and ~~vision company. This transaction represents a commitment~~disability policies with annualized earned premium in the anticipated range of ~~$75 million in capital at closing~~$115 million. Aflac will also acquire assets needed to support the group life and disability business, along with an ~~additional $21 million in consideration paid over three years based on achieving certain performance targets. The transaction is subject~~absence management platform. Subject to regulatory ~~approval~~approvals and ~~other~~customary closing ~~conditions. Tampa, Florida will serve as the home for the Aflac U.S. Network Dental and Vision platform. This acquisition~~conditions, this transaction is expected to ~~provide opportunities for sales growth, improved account penetration and distribution productivity.~~

~~U.S. Regulatory Environment~~

~~Healthcare Reform Legislation~~

The Affordable Care Act (ACA), federal health care legislation, was intended to give Americans of all ages and income levels access to comprehensive major medical health insurance and gave the U.S. federal government direct regulatory authority over the business of health insurance. While the ACA was enacted in 2010, the major elements of the law became effective on January 1, 2014. The ACA included major changes to the U.S. health care insurance marketplace. Among other changes, the ACA included an individual medical insurance coverage mandate (the monetary penalty for noncompliance with which has since been repealed effective 2019 by the Tax Cuts and Jobs Act (Tax Act)), provided for penalties on certain employers for failing to provide adequate coverage, created health insurance exchanges, and addressed coverage and exclusions as well as medical loss ratios. It also imposed an excise tax on certain high cost plans, known as the “Cadillac tax,” that is currently scheduled to begin in 2022. The ACA also included changes in government reimbursements and tax credits for individuals and employers and altered federal and state regulation of health insurers. The ACA, as enacted, does not require material changesclose in the ~~design~~second half of the Company's insurance products. However, indirect consequences of the legislation and regulations could present challenges that could potentially have an impact on the Company's sales model, financial condition and results of operations. Members of Congress continue to consider legislation that would repeal and replace key provisions of the ACA. There can be no assurance that any legislation affecting the ACA will be passed by Congress, nor as to the ultimate timing or provisions of any such legislation, nor as to the effect of any such legislation on the design or marketability of the Company's insurance products. Further, certain provisions of the ACA have been and may continue to be subject to challenge through litigation, the ultimate effects of which on the ACA are uncertain.

While the current U.S. presidential administration has pursued a stated policy of attempting to create more competition in the marketplace through executive orders and rule making, it is unclear what impact these will have on the U.S. healthcare market, nor is it known whether proposed or final rules will be challenged or withstand judicial scrutiny. The President signed an Executive Order in October 2017 directing federal regulatory agencies to review and modify certain regulations issued under the ACA. The stated objectives of the Executive Order are to increase competition and consumer choices in health care markets, and to lower costs for health care, by making association health plans available to more employers, allowing employers to make better use of health reimbursement arrangements, and expanding coverage through short-term insurance. The Executive Order tasks three federal agencies, the Departments of Labor (DOL), Treasury, and Health and Human Services (HHS) with reviewing current rules and developing guidance to implement the order. These agencies have since proposed or finalized certain rules and guidance, although their ultimate impact on healthcare markets is not known, the Company continues to anticipate that the Executive Order will not have a significant impact on the availability or marketability of its products. The U.S. Department of Justice recently indicated its support for a previous U.S. district court ruling that the individual mandate is unconstitutional and that the remainder of the ACA is invalid.

~~Tax Reform Legislation~~

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

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

Aflac U.S. prices its business on an internal rate of return basis. The Aflac U.S. business has a financial structure that the Company expects to be neutral on a pricing basis from these tax changes. The Aflac U.S. products have high initial costs for marketing, underwriting and administration, which will have less tax relief under the changes and will increase

the amount required to invest in new business. In addition, the Company expects that RBC requirements will increase on an after-tax basis, being another source of initial funding required for these products. The tax basis for reserves and DAC may also change the timing of tax payments in an accelerated or unfavorable direction. All of these effects will offset a favorable lower tax rate on income in later years. The overall impact is expected to be neutral on a pricing basis from these various effects.

The Tax Act changes became effective on January 1, 2018. However, because changes to tax rates are accounted for in the period of enactment, during the period ended December 31, 2017, the Company revalued its deferred tax assets and liabilities and recorded a net deferred tax liability reduction of $1.9 billion as of that date. In the fourth quarter of 2018, the Company recorded an immaterial adjustment to the provisional Japan deferred tax balances and no valuation allowance adjustment related to anticipatory foreign tax credit asset, rendering final values for the Company's deferred tax liability.For information on the effects of the Tax Act during the period ended December 31, 2018, see Note 10 of the Notes to the Consolidated Financial Statements presented in the 2018 Annual Report. For information on the conversion of Aflac Japan from a branch to a subsidiary, see General Business under Item 1, Business, in the 2018 Annual Report.

~~Dodd-Frank Act~~

Title VII of the Dodd-Frank Act and regulations issued thereunder, in particular rules to require central clearing for certain types of derivatives, may have an impact on Aflac's derivative activity, including activity on behalf of Aflac Japan. In addition, in 2015 and 2016, six U.S. financial regulators, including the U.S. Commodity Futures Trading Commission (CFTC), issued final rules regarding the exchange of initial margin (IM) and variation margin (VM) for uncleared swaps that impose greater obligations on swap dealers regarding uncleared swaps with certain counterparties, such as Aflac. The requirements of such rules with respect to VM, as well as similar regulations in Europe, became effective on March 1, 2017. Full compliance with respect to all counterparties was required by September 1, 2017. The requirements of such rules with respect to IM are currently being phased in and will be fully implemented by September 1, 2020, although an extension to September 1, 2021 is expected for covered entities with an aggregate average notional amount below $50 billion. In October of 2017, the CFTC and the European Commission each finalized comparability determinations that permit certain swap dealers who are subject to both regulatory margin regimes to take advantage of substituted compliance by complying with one set of margin requirements. The margin requirements are expected to result in more stringent collateral requirements and to affect other aspects of Aflac's derivatives activity.

The Dodd-Frank Act also established a Federal Insurance Office (FIO) under the U.S. Treasury Department to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. Traditionally, U.S. insurance companies have been regulated primarily by state insurance departments. The FIO does not directly regulate the insurance industry, but under Dodd-Frank it has the power to preempt state insurance regulations that are inconsistent with international agreements reached by the federal government, subject to certain requirements and restrictions. The FIO and certain federal agencies must achieve consensus positions with the state insurance regulators when taking positions on insurance proposals by certain international forums. In December 2013, the FIO released a report entitled "How To Modernize And Improve The System Of Insurance Regulation In The United States." The report was required by the Dodd-Frank Act, and included 18 recommended areas of near-term reform for the states, including addressing capital adequacy and safety/soundness issues, reform of insurer resolution practices, and reform of marketplace regulation. The report also listed nine recommended areas for direct federal involvement in insurance regulation. Some of the recommendations outlined in the FIO report released in December 2013 have been implemented. The FIO has also engaged with the supervisory colleges to monitor financial stability and identify regulatory gaps for large national and internationally active insurers. The President and Congress have stated proposals to reform or repeal certain provisions of the Dodd-Frank Act, some of which have been implemented. The Company cannot predict with any degree of certainty what impact, if any, such proposals might have on Aflac's business, financial condition, or results of operations.

~~Insurance Guaranty Laws~~

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

2020.

Aflac U.S. Investments

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

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

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

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2019 2018 2019 2018
  Fixed maturity securities:
     Other fixed maturity securities $ 279
$ 560
$ 874
$ 679

     Infrastructure debt 14
80
74
96

  Equity securities ⁽¹⁾
11
26
27
49

Commercial mortgage and other loans:
     Transitional real estate loans 94
98
142
170

     Commercial mortgage loans 44
55
69
55

     Middle market loans 27
44
56
75

Other investments 4
4
8
26

        Total Aflac U.S. Purchases $ 473
$ 867
$ 1,250
$ 1,150

⁽¹⁾~~Includes FHLB purchases~~



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Fixed maturity securities:
Other fixed maturity securities	$	85	$	279	$	267	$	874
Infrastructure debt	4		14		20		74
Collateralized loan obligations	11		0		11		0
Equity securities	1		11		5		27
Commercial mortgage and other loans:
Transitional real estate loans	7		94		45		142
Commercial mortgage loans	10		44		37		69
Middle market loans	5		27		43		56
Other investments	5		4		11		8
Total Aflac U.S. Purchases	$	128	$	473	$	439	$	1,250

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 ~~2018~~2019 Annual Report for more information regarding loans and loans receivables.

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


	Three Months						Six Months						Three Months						Six Months
	2019			2018			2019			2018			2020			2019			2020			2019
Total purchases for period (in millions) ⁽¹⁾	$	469		$	863		$	1,242		$	1,124		$	123		$	469		$	428		$	1,242
New money yield ^{(1), (2)}	4.45		%	4.21		%	4.47		%	4.33		%	3.04		%	4.45		%	3.54		%	4.47		%
Return on average invested assets ⁽³⁾	5.05			5.14			5.07			5.09			4.81			5.05			4.91			5.07
Portfolio book yield, end of period⁽¹⁾	5.43		%	5.53		%	5.43		%	5.53		%	5.30		%	5.43		%	5.30		%	5.43		%

⁽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~~decrease in the Aflac U.S. new money yield for the three- and six-month periods ended June 30, ~~2019~~2020 was primarily due to ~~increased allocations to higher yielding asset classes.~~lower U.S. interest rates. See Notes 3 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on the Company's investments.

CORPORATE AND OTHER

The Company defines pretax adjusted earnings, a non-U.S. GAAP financial measure, as adjusted earnings before the application of income taxes. See the Results of Operations section of this MD&A for the Company's definition of adjusted earnings and a reconciliation of adjusted earnings to the most directly comparable U.S. GAAP measure of net earnings. 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 June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2019			2018			2019			2018			2020			2019			2020			2019
Premium income	$	50		$	53		$	100		$	107		$	49		$	50		$	97		$	100
Net investment income	20			20			42			39			21			20			45			42
Amortized hedge income related to certain foreign currency management strategies	20			7			40			9			27			20			56			40
Net investment income, including amortized hedge income	40			27			82			48
Adjusted net investment income													48			40			101			82
Other income	5			5			8			9			3			5			6			8
Total adjusted revenues	95			85			190			164			100			95			204			190
Benefits and claims, net	48			50			95			102			47			48			87			95
Adjusted expenses:
Interest expense	33			29			66			59			43			33			76			66
Other adjusted expenses	40			45			74			88			40			40			69			74
Total adjusted expenses	73			74			140			147			83			73			145			140
Total benefits and adjusted expenses	121			124			235			249			130			121			232			235
Pretax adjusted earnings	$	(26	)	$	(38	)	$	(45	)	$	(84	)	$	(30	)	$	(26	)	$	(28	)	$	(45	)

~~Net~~Adjusted net investment income benefited from the Company’s enterprise corporate ~~yen~~ hedging program in the three- and six-month periods ended June 30, 2020 and 2019, ~~and 2018,~~ respectively. Beginning in 2020, net investment income also includes the Company's portion of earnings from its strategic equity investment in an asset management company. See the Hedging Activities subsection of this MD&A for further information on the ~~Parent Company's foreign currency hedge~~enterprise corporate hedging program.

In December 2018, the Parent Company invested $20 million in Singapore Life Pte. Ltd. (Singapore Life), a digitally-focused life insurance company based in Singapore. The Parent Company made an additional investment of $16 million in the second quarter of 2019, bringing the total investment to $36 million. As part of the relationship, Aflac also plans to enter into a reinsurance agreement on certain protection products with Singapore Life. However, the Company does not currently expect the equity investment or the reinsurance agreement to have a material impact on its financial position or results of operations.

~~ANALYSIS OF FINANCIAL CONDITION~~

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

~~Investments~~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.

The following ~~table details~~tables detail investments by segment.

~~Investments~~Investment Securities by Segment


		Aflac Japan						Aflac U.S.					June 30, 2020
(In millions)	June 30, 2019			December 31, 2018			June 30, 2019			December 31, 2018			Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value		$	77,144		$	69,409		$	13,822		$	12,132	$	83,819	$	14,250	$	1,890	$	99,959
Held to maturity, fixed maturity securities, at amortized cost		31,007			30,318			0			0
Held to maturity, fixed maturity securities, at amortized cost⁽¹⁾													23,509		0		0		23,509
Equity securities		868			806			156			137		603		63		83		749
Commercial mortgage and other loans:
Transitional real estate loans(1)		3,838			3,621			735			756		4,716		911		0		5,627
Commercial mortgage loans(1)		793			763			367			301		1,275		423		0		1,698
Middle market loans(1)		1,602			1,144			287			334		3,126		266		0		3,392
Other investments:
Policy loans		232			219			14			13		247		16		0		263
Short-term investments ⁽¹⁾⁽²⁾		383			0			293			141		177		101		486		763
Limited partnerships		415			333			46			37		591		66		61		718
Other		0			0			33			26		0		27		0		27
Total investments		116,282			106,613			15,753			13,877		118,063		16,123		2,520		136,705
Cash and cash equivalents		1,541			1,779			453			641		1,693		808		3,027		5,528
Total investments and cash ⁽²⁾		$	117,823		$	108,392		$	16,206		$	14,518	$	119,756	$	16,931	$	5,547	$	142,233

⁽¹⁾ Net of allowance for credit losses

⁽²⁾Includes securities lending collateral



	December 31, 2019
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	75,780	$	13,703	$	1,779	$	91,262
Held to maturity, fixed maturity securities, at amortized cost	30,085		0		0		30,085
Equity securities	657		67		78		802
Commercial mortgage and other loans:
Transitional real estate loans	4,507		943		0		5,450
Commercial mortgage loans	1,308		399		0		1,707
Middle market loans	2,141		271		0		2,412
Other investments:
Policy loans	234		16		0		250
Short-term investments ⁽¹⁾	386		242		1		629
Limited partnerships	496		55		17		568
Other	0		30		0		30
Total investments	115,594		15,726		1,875		133,195
Cash and cash equivalents	1,674		417		2,805		4,896
Total investments and cash	$	117,268	$	16,143	$	4,680	$	138,091

⁽²⁾⁽¹⁾~~Excludes investments and cash held by the Parent Company and other business segments of $2,568 in 2019 and $3,333 in 2018~~Includes securities lending collateral

Cash and cash equivalents totaled $3.0 billion, or 2.2% of total investments and cash, as of June 30, 2019, compared with $4.3 billion, or 3.4%, at December 31, 2018. For a discussion of the factors affecting the Company's cash balance, see the Operating Activities, Investing Activities and Financing Activities subsections of this MD&A.

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

The ratings of the Company's securities referenced in the table below are based on the ratings designations provided by major ~~Nationally Recognized Statistical Rating Organizations (NRSROs) (Moody's, S&P~~rating organizations such as Moody's, Standard & Poor's and ~~Fitch)~~Fitch or, if not rated, are determined based on the Company's internal analysis of such securities. When the ratings issued by the rating agencies differ, the Company utilizes

the second lowest rating when three or more rating agency ratings are available or the lowest rating when only two rating agency ratings are available.

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

Composition of Fixed Maturity Securities ~~Portfolio~~ by Credit Rating

June 30, 2019 December 31, 2018
Amortized
Cost   Fair
  Value     Amortized
Cost   Fair
  Value
AAA 1.0 % .9 % 1.0 % .9 %
AA 3.9
4.0
3.9
4.0

A 68.8
70.6
67.9
69.9

BBB 22.8
21.4
23.2
21.6

BB or lower 3.5
3.1
4.0
3.6

Total 100.0 % 100.0 % 100.0 % 100.0 %



		June 30, 2020						December 31, 2019
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.2	%		1.1	%		1.1	%		1.0	%
AA		4.2			4.4			4.3			4.4
A		69.0			70.1			68.6			69.8
BBB		22.4			21.6			23.1			22.1
BB or lower		3.2			2.8			2.9			2.7
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of June 30, ~~2019,~~2020, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of June 30, ~~2019.~~2020.

(In millions) Credit
Rating Amortized
Cost Fair
Value Unrealized
Loss
Diamond Offshore Drilling Inc. B $ 145
$ 82
$ (63 )
AXA BBB 300
268
(32 )
Baker Hughes Inc. A 124
107
(17 )
Transocean Inc. CCC 72
57
(15 )
Kommunal Landspensjonskasse (KLP) BBB 139
125
(14 )
National Oilwell Varco Inc. BBB 85
73
(12 )
Time Warner Cable Inc. BBB 122
111
(11 )
Tyco Electronics Group SA A 107
96
(11 )
Intesa Sanpaolo Spa BBB 145
135
(10 )
Teva Pharmaceutical LLC BB 67
58
(9 )



(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
Investcorp Capital Limited		BB		$	393		$	348		$	(45	)
AXA		BBB		300			259			(41		)
KLM Royal Dutch Airlines		B		142			109			(33		)
Banco de Chile		A		186			155			(31		)
Commonwealth Bank of Australia		AA		195			174			(21		)
PEMEX Project Funding Master Trust		BB		278			258			(20		)
Lloyds Banking Group PLC		A		213			194			(19		)
Autostrade Per Litalia Spa		BB		185			169			(16		)
Downer Group Finance Pty LTD		BBB		93			78			(15		)
GLP Pte Ltd.		BBB		139			125			(14		)

Generally, declines in fair values can be a result of changes in interest rates, yen/dollar exchange rate, and changes in net spreads driven by a broad market move or a change in the issuer's underlying credit quality. ~~As the~~The Company believes these issuers have the ability to continue making timely payments of principal and ~~interest, the Company views these changes in fair value to be temporary and does not believe it is necessary to impair the carrying value of these securities.~~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


	June 30, 2019									June 30, 2020
(In millions)	Par Value		Amortized Cost		Fair Value		Unrealized Gain (Loss)			Par Value		Amortized Cost ⁽¹⁾		Fair Value		Unrealized Gain (Loss)
Investcorp Capital Limited	$	393	$	393	$	442	$	49		$	393	$	393	$	348	$	(45	)
Commerzbank										371		247		370		123
Pemex Project Funding Master Trust										278		278		258		(20		)
KLM Royal Dutch Airlines										186		142		109		(33		)
Autostrade Per Litalia Spa										186		185		169		(16		)
Telecom Italia SpA										186		186		230		44
Barclays Bank PLC										186		119		137		18
Apache Corporation										138		127		126		(1		)
IKB Deutsche Industriebank AG										121		53		78		25
Republic of South Africa	371		371		382		11			93		93		94		1
KLM Royal Dutch Airlines	278		205		238		33
Barclays Bank PLC	186		115		155		40
Republic of Tunisia	186		109		117		8
Telecom Italia SpA	186		186		228		42
Transnet	139		139		140		1
Diamond Offshore Drilling Inc.	124		145		82		(63		)
IKB Deutsche Industriebank AG	121		51		96		45
Arconic Inc.	100		86		104		18
Other Issuers	663		620		644		24			828		684		702		18
Subtotal ⁽¹⁾⁽²⁾	2,747		2,420		2,628		208			2,966		2,507		2,621		114
Senior secured bank loans	830		864		822		(42		)	275		290		257		(33		)
High yield corporate bonds	623		627		634		7			706		712		699		(13		)
Middle market loans, net of reserves ⁽²⁾	1,916		1,889		1,888		(1		)
Middle market loans										3,559		3,392		3,388		(4		)
Grand Total	$	6,116	$	5,800	$	5,972	$	172		$	7,506	$	6,901	$	6,965	$	64

⁽¹⁾Net of allowance for credit losses

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

⁽²⁾~~Middle market loans are carried at amortized cost~~

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

The Company maintains an allocation to higher yielding corporate bonds within the Aflac Japan and Aflac U.S. portfolios. Most of these securities were rated below-investment-grade at the time of purchase, but the Company also purchased several that were rated investment grade which, because of market pricing, offer yields commensurate with below-investment-grade risk profiles. The objective of this allocation was to enhance the Company's yield on invested assets and further diversify credit risk. All investments 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.


	June 30, 2019				June 30, 2020
(In millions)	Amortized Cost		% of Total		Amortized Cost ⁽¹⁾		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		% of Total
Government and agencies	$	54,960	49.0	%	$	54,841	$	9,722	$	(45	)	$	64,517	49.1	%
Municipalities	2,559		2.3		2,477		504		(9		)	2,973		2.2
Mortgage- and asset-backed securities	399		.3		509		38		(1		)	547		.5
Public utilities	8,568		7.6		8,475		1,556		(31		)	10,001		7.6
Electric	6,598		5.8		6,603		1,224		(20		)	7,808		5.9
Natural Gas	308		.3		396		52		(7		)	441		.4
Other	741		.7		717		147		0			863		.6
Utility/Energy	921		.8		759		133		(4		)	889		.7
Sovereign and Supranational	2,207		1.9		1,824		257		(12		)	2,069		1.6
Banks/financial institutions	9,984		8.9		10,288		1,250		(323		)	11,214		9.3
Banking	5,920		5.3		6,213		737		(159		)	6,791		5.6
Insurance	1,910		1.7		1,967		381		(74		)	2,274		1.8
Other	2,154		1.9		2,108		132		(90		)	2,149		1.9
Other corporate	33,525		30.0		33,234		5,148		(450		)	37,931		29.7
Basic Industry	3,585		3.2		3,316		546		(19		)	3,843		3.0
Capital Goods	3,123		2.8		3,353		510		(16		)	3,846		3.0
Communications	4,051		3.6		4,021		786		(32		)	4,776		3.6
Consumer Cyclical	3,382		3.0		3,085		466		(29		)	3,522		2.8
Consumer Non-Cyclical	6,267		5.6		6,692		1,171		(34		)	7,828		6.0
Energy	4,707		4.2		4,138		506		(167		)	4,477		3.7
Other	1,304		1.2		1,493		138		(41		)	1,590		1.3
Technology	3,120		2.8		3,291		349		(32		)	3,608		2.9
Transportation	3,986		3.6		3,845		676		(80		)	4,441		3.4
Total fixed maturity securities	$	112,202	100.0	%	$	111,648	$	18,475	$	(871	)	$	129,252	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


		June 30, 2019								December 31, 2018						June 30, 2020						December 31, 2019
(In millions)	Amortized Cost				Fair Value				Amortized Cost			Fair Value			Amortized Cost ⁽¹⁾			Fair Value			Amortized Cost			Fair Value
Publicly issued securities:
Fixed maturity securities		$	91,665			$	107,577			$	83,482		$	93,255		$	91,701		$	107,052		$	89,625		$	105,557
Equity securities		1,079				1,079				936			936			658			658			717			717
Total publicly issued		92,744				108,656				84,418			94,191			92,359			107,710			90,342			106,274
Privately issued securities: ⁽¹⁾⁽²⁾
Fixed maturity securities		20,537		⁽²⁾		23,893		⁽²⁾		23,692			26,362
Fixed maturity securities ⁽³⁾																19,947			22,200			19,831			23,299
Equity securities		8				8				51			51			91			91			85			85
Total privately issued		20,545				23,901				23,743			26,413			20,038			22,291			19,916			23,384
Total investment securities		$	113,289			$	132,557			$	108,161		$	120,604		$	112,397		$	130,001		$	110,258		$	129,658

⁽¹⁾Net of allowance for credit losses

⁽²⁾ Primarily consists of securities owned by Aflac Japan

⁽²⁾⁽³⁾ Excludes Rule 144A securities ~~starting in the first quarter of 2019~~

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

Reverse-Dual Currency Securities⁽¹⁾


(Amortized cost, in millions)	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
Privately issued reverse-dual currency securities		$	5,273			$	5,120			$	5,084			$	4,993
Publicly issued collateral structured as reverse-dual currency securities		1,706				1,657				1,706				1,678
Total reverse-dual currency securities		$	6,979			$	6,777			$	6,790			$	6,671
Reverse-dual currency securities as a percentage of total investment securities		6.2		%		6.3		%		6.0		%		6.1		%

⁽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~~HEDGING ACTIVITIES

The Company uses derivative contracts to hedge foreign currency exchange rate risk and interest rate risk. ~~Derivative hedges~~The Company uses various strategies, including derivatives, to manage these risks. See item “7A. Quantitative and Qualitative Disclosures About Market Risk” in the 2019 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 ~~derivative hedge~~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 ~~Parent Company’s Foreign Currency Hedge~~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 ~~Parent Company’s Foreign Currency Hedge~~Enterprise Corporate Hedging Program below).

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

Aflac Japan buys U.S. dollar-denominated investments, typically corporate bonds, and hedges them back to yen with foreign currency forwards and options to hedge foreign currency exchange rate risk. This economically creates yen assets that match yen liabilities during the life of the derivative and provides ~~liquidity and~~ capital relief. The currency risk being hedged is generally based on fair value of hedged investments. The following table summarizes the U.S. dollar-denominated investments held by Aflac Japan.


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost ⁽¹⁾		Fair Value		Amortized Cost		Fair Value
Available-for-sale securities:
Fixed maturity securities (excluding bank loans)	$	17,912	$	18,674	$	17,101	$	17,003	$	18,439	$	20,506	$	18,012	$	19,542
Fixed maturity securities - bank loans (floating rate)	1,094		1,039		1,296		1,238		377		337		677		649
Equity securities	205		205		177		177		18		18		19		19
Commercial mortgage and other loans:
Transitional real estate loans (floating rate)	3,838		3,851		3,621		3,625		4,716		4,573		4,507		4,543
Commercial mortgage loans	793		802		763		736		1,275		1,350		1,308		1,319
Middle market loans (floating rate)	1,602		1,605		1,144		1,146		3,126		3,126		2,141		2,153
Other investments	415		415		333		333		591		591		496		496
Total U.S. Dollar Program	25,859		26,591		24,435		24,258		28,542		30,501		27,160		28,721
Available-for-sale securities:
Fixed maturity securities - economically converted to yen	1,729		2,525		1,679		2,269		1,750		2,671		1,700		2,608
Total U.S. dollar-denominated investments in Aflac Japan	$	27,588	$	29,116	$	26,114	$	26,527	$	30,292	$	33,172	$	28,860	$	31,329

⁽¹⁾Net of allowance for credit losses

U.S. Dollar Program includes all U.S. dollar-denominated investments in Aflac Japan other than the investments in certain consolidated VIEs where the instrument is economically converted to yen as a result of a derivative in the consolidated ~~variable interest entity.~~ VIE.

Aflac Japan maintains a collar program on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange and therefore support SMR. In the first quarter of 2020, the Company reduced the size of the collar program by approximately $3 billion as certain collars expired and were not replaced. While these adjustments will moderately increase the Company's exposure to SMR volatility, the Company believes that they will also 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 collar program. The Company is evaluating other adjustments, including the possibility of hedging additional U.S dollar-denominated investments.

As of June 30, ~~2019,~~2020, Aflac Japan had $9.1 billion outstanding notional amounts of foreign currency forwards and ~~$11.9~~$17.8 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging ~~the~~its U.S. dollar-denominated investments. The fair value of Aflac Japan's unhedged U.S. ~~dollar~~dollar-denominated portfolio was ~~$17.5~~$21.4 billion (excluding certain U.S. dollar-denominated assets shown in the table above as a result of consolidation that have been economically converted to yen using derivatives).

Foreign exchange derivatives used for hedging are periodically settled, which results in cash receipt or payment at maturity or early termination. The Company had net cash ~~settlements~~inflows of ~~$11~~$1 million and ~~$35~~net cash outflows of $11 million for the three-month periods and ~~$23~~net cash outflows of $32 million and ~~$36~~$23 million for the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, associated with the currency derivatives used for hedging Aflac Japan’s U.S. dollar-denominated investments.

For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, and the Risk Factor sections titled “The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and “Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity" in the 2018 Annual Report. For discussion of the Company’s view on the stressed economic surplus in Aflac Japan, refer to the Investments subsection within Item 1., Business, in the 2018 Annual Report.

~~Parent Company's Foreign Currency Hedge~~Enterprise Corporate Hedging Program

The Company has designated certain yen-denominated liabilities and ~~prior to April 1, 2018,~~ 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 ~~$1.9~~$10.5 billion as of June 30, ~~2019,~~2020, compared with ~~$1.8~~$9.1 billion as of December 31, ~~2018, with hedging instruments comprised completely of yen-denominated debt.~~2019.

The Company makes its accounting designation of net investment hedge at the beginning of each quarter. If the total of the designated Parent Company non-derivative and derivative notional is equal to or less than the Company's net investment in Aflac Japan, the hedge is deemed to be effective, and the currency exchange effect on the yen-denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income. The Company's net investment hedge was effective during the ~~three- and~~ six-month periods ended June 30, 2020 and 2019, ~~and 2018,~~ respectively. For additional information on the Company's net investment hedging strategy, see Note 4 of the Notes to the Consolidated Financial Statements.

In order to economically mitigate risks associated with the enterprise-wide exposure to the yen and the level and volatility of hedge costs, the Parent Company enters into foreign exchange forward and option contracts. By buying U.S. dollars and selling yen, the Parent Company is effectively lowering its overall economic exposure to the yen, while Aflac Japan's U.S dollar exposure remains reduced as a result of Aflac Japan's U.S. dollar-denominated hedge program that economically creates yen assets. Among other objectives, this strategy is intended to offset the enterprise-wide amortized hedge costs by generating amortized hedge income. The portion of the enterprise-wide amortized hedge income contributed by this strategy was ~~$20~~$27 million and $7$20 million for the three-month periods and ~~$40~~$56 million and $9$40 million for the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. This activity is reported in Corporate and Other. As this program evolves, the Company will continue to evaluate the program’s ~~efficacy, including third-party review.~~efficacy. See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs/income.

The following table presents metrics related to Aflac Japan amortized hedge costs and the Parent Company amortized hedge income for the periods ended June 30.

~~Amortized~~Aflac Japan Hedge ~~Costs/~~Cost/Income Metrics⁽¹⁾


	Three Months		Six Months		Three Months		Six Months
	2019	2018	2019	2018	2020	2019	2020	2019
Aflac Japan:
FX forward (sell USD, buy yen) notional at end of period (in billions)⁽²⁾	$9.1	$9.9	$9.1	$9.9	$9.1	$9.1	$9.1	$9.1
Weighted average remaining tenor (in months)⁽³⁾	11.2	19.8	11.2	19.8	8.1	11.2	8.1	11.2
Amortized hedge costs for period (in millions)	$(62)	$(55)	$(124)	$(110)
Amortized hedge income (cost) for period (in millions)					$(50)	(62)	$(105)	$(124)
Parent Company:
FX forward (buy USD, sell yen) notional at end of period (in billions)⁽²⁾	$3.0	$1.3	$3.0	$1.3	$5.0	$3.0	$5.0	$3.0
Weighted average remaining tenor (in months)⁽³⁾	10.6	9.9	10.6	9.9	12.1	10.6	12.1	10.6
Amortized hedge income for period (in millions)	$20	$7	$40	$9
Amortized hedge income (cost) for period (in millions)					$27	$20	$56	$40

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

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

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

Interest Rate Risk Hedge Program

ToAflac Japan and Aflac U.S. use interest rate swaps to mitigate the risk of investment income volatility ~~the Company economically hedges interest rate fluctuations~~ for certain variable-rate investments. ToAdditionally, to manage interest rate risk associated with its U.S. dollar-denominated investments held by Aflac Japan, the Company ~~also~~ utilizes interest rate swaptions.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on the Company's hedging activities. ~~For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 1A. Risk Factors in the 2018 Annual Report.~~

~~Deferred Policy Acquisition Costs~~DEFERRED POLICY ACQUISITION COSTS

The following table presents deferred policy acquisition costs by segment.


(In millions)	June 30, 2019			December 31, 2018			% Change				June 30, 2020			December 31, 2019			% Change
Aflac Japan		$	6,623		$	6,384		3.7	%	⁽¹⁾		$	6,726		$	6,584		2.2	%	⁽¹⁾
Aflac U.S.		3,505			3,491			.4				3,495			3,544			(1.4	)
Total		$	10,128		$	9,875		2.6	%			$	10,222		$	10,128		.9	%

⁽¹⁾Aflac Japan’s deferred policy acquisition costs increased ~~.8%~~.5% in yen during the six months ended June 30, ~~2019.~~2020.

See Note 6 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report for additional information on the Company's deferred policy acquisition costs.

~~Policy Liabilities~~

POLICY LIABILITIES

The following table presents policy liabilities by segment.


(In millions)	June 30, 2019				December 31, 2018				% Change				June 30, 2020				December 31, 2019				% Change
Aflac Japan		$	96,421			$	92,791			3.9	%	⁽¹⁾		$	98,171			$	95,793			2.5	%	⁽¹⁾
Aflac U.S.		11,141				10,981				1.5				11,474				11,295				1.6
Other		212				183				15.8				251				223				12.6
Intercompany eliminations⁽²⁾		(785		)		(767		)		2.3				(793		)		(757		)		4.8
Total		$	106,989			$	103,188			3.7	%			$	109,103			$	106,554			2.4	%

⁽¹⁾Aflac Japan’s policy liabilities increased ~~.9%~~.8% in yen during the six months ended June 30, ~~2019.~~2020.

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

~~Notes Payable~~

~~Notes payable totaled $6.2 billion at June 30, 2019, compared with $5.8 billion at December 31, 2018.~~

See Note 8 of the accompanying Notes to the Consolidated Financial Statements for additional information on the Company's notes payable. See Note 1 of the accompanying Notes to the Consolidated Financial Statements for additional information regarding the change in accounting for leases.

In April 2019, ALIJ issued 30.0 billion yen (par value) of perpetual subordinated bonds. These bonds bear interest at a fixed rate of .963% per annum and then at six-month Euro Yen LIBOR plus an applicable spread on and after the day immediately following April 18, 2024. The bonds will be callable on each interest payment date on and after April 18, 2024.

~~Benefit Plans~~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 1112 of the accompanying Notes to the Consolidated Financial Statements and Note 14 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report.

~~Policyholder Protection~~

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. OnIn November ~~25,~~ 2016, Japan's Diet passed legislation that extended the government's fiscal support of the LIPPC through March 2022. Effective April 2014, the annual LIPPC contribution amount for the total life industry was lowered from 40¥40 billion ~~yen~~ to ~~33 billion yen.~~¥33 billion. Aflac Japan recognized an expense of .9¥1.0 billion ~~yen~~ and ~~1.0~~¥.9 billion ~~yen~~ for the six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, for LIPPC assessments.

Guaranty Fund Assessments

Under U.S. state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business. The amount of the guaranty fund assessment that an insurer is assessed is based on its proportionate share of premiums in that state. Guaranty fund assessments for the ~~three-month~~six-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, were immaterial.

~~As of June 30, 2019, the Company has estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation of a long-term care insurer.~~

OFF-BALANCE SHEET ARRANGEMENTS

See Note 123 of the Notes to the Consolidated Financial Statements for ~~further information~~details on ~~the assessment.~~

~~Off-Balance Sheet Arrangements~~certain investment commitments.

As of June 30, ~~2019,~~2020, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations. See Note 15 of the Notes to the Consolidated Financial Statements in the ~~2018~~2019 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

LIQUIDITY AND CAPITAL RESOURCES ~~AND LIQUIDITY~~

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

business investment and growth needs

strategic growth objectives

financial flexibility and obligations

capital support for hedging activity

a constantly evolving business and economic environment

a balanced approach to capital allocation and shareholder deployment.

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

The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure. The target minimum amount for the Parent Company’s cash and cash equivalents is approximately $2.0 billion to provide a capital buffer and liquidity support at the holding company. Amid the COVID-19 pandemic, the Company remains committed to prudent liquidity and capital management. At June 30, 2020, the Company held $5.5 billion in cash and cash equivalents for stress conditions, which includes the Parent Company's target minimum amount of $2.0 billion. For additional information on the Company’s liquidity and capital resources in response to COVID-19, see the Executive Summary section of this MD&A.

Aflac Japan and Aflac U.S. provide the primary sources of liquidity to the Parent Company through management fees and dividends. For 2020, the Parent Company anticipates a reduction in the dividends it receives from Aflac Japan and ~~management fees.~~ Aflac U.S. to maintain a strong capital position for its insurance subsidiaries during the COVID-19 pandemic. For additional information on the impact to subsidiary dividends paid to the Parent Company as a result of COVID-19, see the Executive Summary section of this MD&A.

The following table presents the amounts provided to the Parent Company for the six-month periods ~~ending~~ended June 30.

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

(In millions) 2019 2018
Dividends declared or paid by Aflac Japan and Aflac U.S. $ 1,612
$ 258

Management fees paid by Aflac Japan and Aflac U.S. 74
98



(In millions)	2020		2019
Dividends declared or paid by subsidiaries	$	892	$	1,612
Management fees paid by subsidiaries	68		74

The ~~primary uses of cash by~~following table details Aflac Japan remittances for the ~~Parent Company are shareholder dividends, the repurchase of its common stock and interest on its outstanding indebtedness and operating expenses.~~six-month periods ended June 30.

Aflac Japan Remittances



(In millions of dollars and billions of yen)	2020		2019
Aflac Japan management fees paid to Parent Company	$	38	$	60
Expenses allocated to Aflac Japan (in dollars)	0		3
Aflac Japan profit remittances to the Parent Company (in dollars)	667		1,362
Aflac Japan profit remittances to the Parent Company (in yen)	¥	72.8	¥	147.6

In 2018, the Company announced a change in its internal dividend policy which allows the Company to increase the proportion of regulatory earnings transferred from Aflac U.S. and Aflac Japan to the Parent Company. The Company intends to maintain higher than historical levels of ~~capital~~liquidity and ~~liquidity~~capital at the Parent Company for stress conditions and with the goals of addressing the Company’s hedge costs and related potential need for collateral and mitigating against long-term weakening of the Japanese yen. Further, the Company plans to continue to maintain a portfolio of unhedged U.S. dollar based investments at Aflac Japan and 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 ~~Item 2., Management’s Discussion~~the Hedging Activity subsection in this MD&A for more information.

In addition to cash and Analysis of Financial Condition and Results of Operations under “Forward-Looking Information,” for a description of factors that could cause actual results to differ materially from those contemplated byequivalents, the Company ~~in regards~~also maintains credit facilities, both intercompany and with external partners, and a number of other available tools to ~~its capital management intentions.~~

~~The Parent Company accesses debt security markets to provide additional sources of capital.~~support liquidity needs on a global basis. In September 2018, the Parent Company filed a shelf registration statement with the SEC that allows the Company to issue an indefinite amount of debt securities, in one or more series, from time to time until September 2021. In August 2018, the Parent Company filed a shelf registration with Japanese regulatory authorities that allows the Parent Company to conduct public offerings of bonds in Japan, including yen-denominated Samurai notes, up to 200 billion yen or its equivalent through August 2020. The shelf registration statement is for possible public offerings in Japan, but the bonds issued under the shelf may be transferred by the bondholders to U.S. persons in compliance with U.S. law. The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available. Additionally, as of June 30, 2020, the Parent Company and Aflac had four lines of credit with third parties as well as seven intercompany lines of credit. For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

The ~~principal sources of cash for the Company's insurance operations are premiums and investment income. The~~ primary uses of cash by the ~~Company's insurance operations are investments, policy claims, commissions, operating expenses, income taxes and payments to the~~ Parent Company ~~for management fees~~are shareholder dividends, the repurchase of its common stock and ~~dividends. Both the sources~~interest on its outstanding indebtedness and ~~uses of cash are reasonably predictable.~~

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

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

As of June 30, 2019, the Parent Company and Aflac had four lines of credit with third parties as well as two intercompany lines of credit. For additional information on the Company's lines of credit, see Note 8 of the Notes to the Consolidated Financial Statements.

As part of 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 six months of 2019, Aflac U.S. borrowed and repaid $88 million under this program. As of June 30, 2019, Aflac U.S. had outstanding borrowings of $484 million reported in its balance sheet. For more information on the FHLB program, refer to the Investments subsection within Analysis of Financial Condition in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report.

The Company's consolidated financial statements convey its financing arrangements during the periods presented. The Company has not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein. The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, ~~2019.~~2020. 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 ~~2018~~2019 Annual Report for more information on the Company's securities lending and derivative activities. With the exception of disclosed activities in those referenced footnotes and the Risk Factors in the ~~2018~~2019 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 does not have a known trend, demand, commitment, event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount. As of June 30, 2019, the Parent Company had $1.0 billion as a capital reserve and an additional $1.0 billion of contingent liquidity in order to mitigate liquidity risk of derivative positions that are reducing enterprise-wide foreign currency exposure. The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure.

Consolidated Cash Flows

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

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


(In millions)	2019			2018			2020			2019
Operating activities	$	2,357		$	2,807		$	2,601		$	2,357
Investing activities	(2,727		)	(1,443		)	(2,120		)	(2,727		)
Financing activities	(978		)	(988		)	152			(978		)
Exchange effect on cash and cash equivalents	30			(20		)	(1		)	30
Net change in cash and cash equivalents	$	(1,318	)	$	356		$	632		$	(1,318	)

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 ~~announced in September 2018 that it intends~~has committed $400 million to ~~increase its original investment in the~~ Aflac Ventures, ~~Fund from $100 million over three years to $250 million over three to four years,~~LLC (Aflac Ventures), as opportunities emerge. ~~These investments are included in equity securities or the other investments line in the consolidated balance sheets. The~~ Aflac Ventures ~~Fund~~ is a subsidiary of Aflac ~~Corporate~~Global Ventures, LLC (Aflac Global Ventures) which is reported in the Corporate and ~~other~~Other segment. The central mission of Aflac ~~Corporate~~Global Ventures is to support the organic growth and business development needs of Aflac Japan and Aflac U.S. with emphasis on digital applications designed to improve the customer experience, gain efficiencies, and develop new markets in an effort to enhance and defend long-term shareholder value. Investments are included in equity securities or the other investments line in the consolidated balance sheets.

As part of an arrangement with FHLB, Aflac U.S. obtains low-cost funding from FHLB supported by acceptable forms of collateral pledged by Aflac U.S. In the first six months of 2020, Aflac U.S. borrowed and repaid $177 million under this program. As of June 30, 2020, Aflac U.S. had outstanding borrowings of $337 million reported in its balance sheet. To further support liquidity and capital resources amid the pandemic, in April 2020, Aflac U.S. increased its internal limit for borrowings under this program to $800 million, $300 million of which the Company has designated to be used for short-term liquidity needs only and subject to qualified collateral availability and other conditions.

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

Financing Activities

Consolidated cash ~~used~~provided by financing activities was ~~$978~~$152 million in the first six months of ~~2019,~~2020, compared with consolidated cash used by financing activities of ~~$988~~$978 million for the same period of ~~2018.~~2019.

In April ~~2019, ALIJ~~2020, the Parent Company issued ~~30.0~~$1.0 billion ~~yen (par value)~~ of ~~perpetual subordinated bonds. These bonds~~senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of ~~.963%~~3.60% per annum, payable semi-annually, and ~~then~~will mature in April 2030. These notes are redeemable at ~~six-month Euro Yen LIBOR plus an applicable spread~~the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on ~~and after~~ the ~~day immediately following April 18, 2024. The bonds will~~notes to be ~~callable on each~~redeemed, not including any portion of the payments of interest ~~payment~~accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S. Treasury security with a maturity comparable to the remaining term of the notes, plus 45

basis points, plus in each case, accrued and ~~after April 18, 2024.~~unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.

In March 2020, the Parent Company issued four series of senior notes totaling ¥57.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥12.4 billion, bears interest at a fixed rate of .300% per annum, payable semiannually and will mature in September 2025. The second series, which totaled ¥13.3 billion, bears interest at a fixed rate of .550% per annum, payable semi-annually, and will mature in March 2030. The third series, which totaled ¥20.7 billion, bears interest at a fixed rate of .750% per annum, payable semiannually and will mature in March 2032. The fourth series, which totaled ¥10.6 billion, bears interest at a fixed rate of .830% per annum, payable semi-annually, and will mature in March 2035. These notes may only be redeemed before maturity, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance.

In January 2020, the Parent Company used the net proceeds from senior notes issued in December 2019 to redeem $350 million of its 4.00% fixed-rate senior notes due February 2022.

See Note 8 of the ~~preceding discussion in this Capital Resources and Liquidity section of MD&A~~Notes to the Consolidated Financial Statements for ~~details and any outstanding balances as of June 30, 2019, for~~further information on the ~~Company's lines of credit and FHLB financing arrangement.~~debt issuances discussed above.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, ~~2019.~~2020.

Cash returned to shareholders through ~~dividends and~~ treasury stock purchases and dividends was $1.0 billion during the six-month period ended June 30, 2020, compared with $1.2 billion during the six-month period ended June 30, ~~2019, compared with $1.0 billion during the six-month period ended June 30, 2018.~~2019.

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

Treasury Stock Purchased

(In millions of dollars and thousands of shares) 2019 2018
Treasury stock purchases $ 847
$ 601

Number of shares purchased:
Share repurchase program 17,179
13,441

Other 574
328

Total shares purchased 17,753
13,769



(In millions of dollars and thousands of shares)	2020		2019
Treasury stock purchases	$	637	$	847
Number of shares purchased:
Share repurchase program	15,193		17,179
Other	521		574
Total shares purchased	15,714		17,753

Treasury Stock Issued


(In millions of dollars and thousands of shares)	2019		2018		2020		2019
Stock issued from treasury:
Cash financing	$	26	$	12	$	21	$	26
Noncash financing	27		15		28		27
Total stock issued from treasury	$	53	$	27	$	49	$	53
Number of shares issued	1,428		832		1,403		1,428

During the first six months of ~~2019,~~2020, the Company repurchased ~~17.2~~15.2 million shares of its common stock for ~~$847~~$637 million as part of its share repurchase program. As of June 30, ~~2019,~~2020, a remaining balance of ~~51.9~~21.9 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors. ~~The Company currently plans to~~For information on the impact of COVID-19 on the Company's share repurchase ~~a total~~program, see the Executive Summary section of ~~$1.3 billion to $1.7 billion of its common stock in 2019, assuming stable capital conditions and absent compelling alternatives.~~this MD&A.

Cash dividends paid to shareholders were $.28 per share in the second quarter of 2020, compared with $.27 per share in the second quarter of ~~2019, compared with $.26 per share in the second quarter of 2018.~~2019. The following table presents the dividend activity for the six-month periods ended June 30.


(In millions)	2019		2018		2020		2019
Dividends paid in cash	$	389	$	396	$	388	$	389
Dividends through issuance of treasury shares	14		8		14		14
Total dividends to shareholders	$	403	$	404	$	402	$	403

In July ~~2019,~~2020, the board of directors declared the ~~third~~second quarter cash dividend of ~~$.27~~$.28 per share, an increase of ~~3.8%~~3.7% compared with the same period in ~~2018.~~2019. The dividend is payable on September ~~3, 2019~~1, 2020 to shareholders of record at the close of business on August ~~21, 2019.~~19, 2020.

Regulatory Restrictions

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

The continued long-term growth of the Company's business may require increases in the statutory capital and surplus of its insurance operations. Aflac’s insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, 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)~~RBC formula is used by insurance regulators to help identify inadequately capitalized insurance companies. The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations.

As of June 30, ~~2019,~~2020, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position, even reflecting the full negative impact of the U.S. Tax Act, which was fully adopted in 2018. This reduction occurs as a result of writing down deferred tax assets and the increase in required capital due to the reduction in tax rates. However, Aflac expects to recover from this negative impact over a period of three to five years through additional statutory income, assuming that the additional income is fully retained.position.

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 ~~realized~~ investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end. Dividends declared by Aflac during ~~2019~~2020 in excess of ~~$1.3 billion~~$864 million would be considered extraordinary and require such approval. ~~Following~~Similar laws apply in New York, the ~~Japan branch conversion to a subsidiary, the Company used~~

~~extraordinary dividends as needed to actively manage to appropriate RBC levels that are lower yet sufficient to maintain ratings and support prudent capital management.~~domiciliary jurisdiction of Aflac New York.

In addition to limitations and restrictions imposed by U.S. insurance regulators, ~~after~~ the ~~Japan branch conversion on April 1, 2018, the new~~ Japan subsidiary is required to meet certain financial criteria as governed by Japanese corporate law in order to provide dividends to the Parent Company. Under these criteria, dividend capacity at the Japan subsidiary is 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 ~~solvency margin ratio (SMR).~~SMR. Japan's ~~Financial Services Agency (FSA)~~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.~~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 ~~two~~one senior unsecured revolving credit ~~facilities~~facility in the ~~amounts~~amount of ~~100~~¥100 billion ~~yen and 55 billion yen, respectively,~~ and a committed reinsurance facility in the amount of approximately ~~110~~¥110 billion ~~yen~~ 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 ~~criteria~~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 ~~2018~~2019 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.)

As of June 30, ~~2019,~~2020, Aflac Japan's SMR remains high and reflects a strong capital and surplus position. As part of the conversion of Aflac Japan from a branch to a subsidiary on April 1, 2018, the Company experienced an accounting-driven decline in the SMR of approximately 130 points, based on the SMR as of December 31, 2017. The Company ~~expects~~is committed to ~~be able to pay dividends out of certain accounts, thus restoring this accounting impact over an estimated three-year period.~~

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

~~Aflac Japan Remittances~~

(In millions of dollars and billions of yen) 2019 2018
Aflac Japan management fees paid to Parent Company $ 60
$ 40

Expenses allocated to Aflac Japan (in dollars) 3
8

Aflac Japan profit remittances to the Parent Company or Aflac U.S. (in dollars) 1,362
312

Aflac Japan profit remittances to the Parent Company or Aflac U.S. (in yen) 147.6
33.4

pandemic. For additional information see the Executive Summary COVID-19 section of this MD&A.

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 regularly communicate with the Audit and Risk Committee on ~~regulatory restrictions on dividends, profit repatriations~~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 ~~transfers, see Note 13~~senior officers, with the goal of timely assessing such incidents, determining applicable disclosure requirements and communicating with the ~~Notes~~Audit and Risk Committee. The incident response plan directs the executive officers to report certain incidents immediately and directly to the ~~Consolidated Financial Statements and the Regulatory Restrictions subsection of MD&A, both in the 2018 Annual Report.~~Lead Non-Management Director.

Other

For information regarding commitments and contingent liabilities, see Note 1213 of the Notes to the Consolidated Financial Statements.

Additional Information

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

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance with U.S. GAAP. These principles are established primarily by the FASB. In this MD&A, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification^™ (ASC). The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations. The estimates that the Company deems to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to the valuation of investments and derivatives, DAC, liabilities for future policy benefits and unpaid policy claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 94% of the Company's assets and 81% of its liabilities are reported as of June 30, 2020, 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 six months ended June 30, 2020, with the exception of the recognition of lifetime credit losses required in accordance with the adoption of ASC 326 - Financial Instruments - Credit Losses. See Note 3 of the Notes to the Consolidated Financial Statements for further information on the Company’s current expected credit loss estimation methodology. For additional information, see the Critical Accounting Estimates section of MD&A included in the 2019 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 ~~2018~~2019 Annual Report. There have been no ~~material~~ changes to the Company's market risk exposures from the market risk exposures previously disclosed in the ~~2018~~2019 Annual ~~Report.~~Report except as outlined below.

As a result of recent market volatility caused by the COVID-19 pandemic, the Company has marginally widened and lowered the size of the collars it maintains on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange rates. The Company is evaluating other adjustments to mitigate currency risk, including the possibility of hedging additional U.S. dollar-denominated investments.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the second fiscal quarter of ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

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


Item 1A.	Risk Factors

~~The following~~Readers should ~~be read in conjunction with and supplements and amends~~carefully consider the risk factors that may affect the

Company’s business or operations described under “Risk Factors” in Part I, Item 1A. of the Company's ~~2018~~2019 Annual

Report on Form 10-K for the year ended December 31, ~~2018.~~

~~Events, including those external to the Company's operations, could damage the Company's reputation.~~

~~The Company has made significant investments~~2019 and in the Aflac brand over a long period of time. Because insurance products are intangible, the Company's ability to compete for and maintain policyholders relies to a large extent on consumer trust in the Company's business, including its alliance partners, sales associates and other distribution partners. The perception of unfavorable business practices or financial weakness with respect to the Company, its alliance partners, sales associates or other distribution partners could create doubt regarding the Company's ability to honor the commitments it has made to its policyholders. Such a perception could also negatively impact the Company’s ability to attract and retain qualified sales associates, brokers and other distribution partners, including its alliance partners in Japan, and could have a material adverse effect on the Company's sales, results of operations and financial condition. Maintaining the Company's stature as a trustworthy insurer and responsible corporate citizen, which helps support the strengthPart II, Item 1A. of the Company's brand, is critical to the Company's reputation and the failure or perceived failure to do so could adversely affect the Company's brand value, financial condition and results of operations. For example, negative publicity or allegations of unfavorable business practices or poor governance can be rapidly and widely shared over social or traditional media or other means, and could reduce demandQuarterly Report on Form 10-Q for the ~~Company's insurance products, reduce the Company's ability to recruit and retain employees, or lead to greater regulatory scrutiny of the Company's operations.~~quarter ended March 31, 2020.

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 United States and sales associates and other distribution partners in Japan.

The Company's sales could be adversely affected if its sales networks deteriorate or if the Company does not adequately provide support, training and education for its existing network. In the United States, competition exists for sales associates and brokers with demonstrated ability. In Japan, the Company's sales results are dependent upon its relationship with sales associates and other distribution partners, including its alliance partner, Japan Post, which in recent periods has accounted for approximately 25% of Aflac Japan's third sector sales. The Company has become aware of news reports and other public comments regarding improper sales practices relating to products offered by Japan Post

Insurance Co., Ltd., an affiliate of Japan Post Holdings. The Japan Post Group has voluntarily undertaken to refrain from actively offering Japan Post Insurance products to customers for a temporary period and is evaluating other corrective measures. It is uncertain what effect, if any, these developments will have on the Company’s sales of cancer insurance in Japan, results of operations, or financial condition.

The Company competes with other insurers and financial institutions primarily on the basis of its products, compensation, support services and financial rating. The Company's inability to attract and retain qualified sales associates, brokers and other distribution partners, including its alliance partners in Japan, could have a material adverse effect on the Company's sales, results of operations and financial condition.

The Company's sales associates and brokers are independent contractors and may sell products of its competitors. If the Company's competitors offer products that are more attractive, or pay higher commissions than the Company does, any or all of these distribution partners may concentrate their efforts on selling the Company's competitors' products instead of the Company's. In addition to the Company's commissioned sales force in the United States, Aflac has expanded its sales leadership team to include a salaried sales force of over 200 market directors and broker sales professionals. The Company's ability to attract and retain top talent in these salaried roles has a material impact on its sales success.

Additionally, as the Japan and U.S. employment markets continue to evolve, there is risk that the Company's practices regarding attracting, developing, and retaining employees may not be fully effective. Failure to successfully meet and maintain sufficient levels of employees may diminish the Company's ability to achieve its financial and compliance objectives, both of which are time consuming and personnel-intensive.


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

Issuer Purchases of Equity Securities

During the first six months of ~~2019,~~2020, 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	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	4,465,400		$	46.44	4,465,400	64,582,487	3,906,085		$	52.61	3,906,085	33,147,528
February 1 - February 28	4,170,417		48.65		3,624,583	60,957,904
February 1 - February 29							2,870,531		50.93		2,367,300	30,780,228
March 1 - March 31	2,162,830		49.50		2,147,500	58,810,404	3,715,439		33.46		3,710,430	27,069,798
April 1 - April 30	2,177,000		49.21		2,177,000	56,633,404	1,890,000		35.74		1,890,000	25,179,798
May 1 - May 31	2,813,277		50.99		2,812,850	53,820,554	1,721,653		34.95		1,720,900	23,458,898
June 1 - June 30	1,964,259		54.44		1,952,000	51,868,554	1,609,905		37.48		1,597,741	21,861,157
Total	17,753,183	⁽¹⁾	$	49.28	17,179,333	51,868,554	15,713,613	⁽¹⁾	$	42.26	15,192,456	21,861,157

⁽¹⁾During the first six months of ~~2019, 573,850~~2020, 521,157 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.


Item 6.	Exhibits



(a)	EXHIBIT INDEX
	3.0		-		Articles of Incorporation, as amended – incorporated by reference from Form 10-Q for June 30, 2008, Exhibit ~~3.0 (File No. 001-07434).~~3.0.
	3.1		-		Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated ~~November 10, 2015,~~April 6, 2020, Exhibit ~~3.1 (File No. 001-07434).~~3.1.
	4.0		-		There are no instruments with respect to long-term debt not being registered in which the total amount of securities authorized exceeds 10% of the total assets of Aflac Incorporated and its subsidiaries on a consolidated basis. ~~We agree~~The Company agrees to furnish a copy of any long-term debt instrument to the Securities and Exchange Commission upon request.
	154.1		-		~~Letter~~Twenty-Seventh Supplemental Indenture, dated as of April 1, 2020, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 3.60% Senior Note due 2030) – incorporated by reference from ~~KPMG LLP regarding unaudited interim financial information.~~Form 8-K dated April 1, 2020, Exhibit 4.1.
	10.1*	-		First Amendment to the Aflac Incorporated Executive Deferred Compensation Plan, as amended and restated, effective January 1, 2020.
	31.1		-		Certification of CEO dated July ~~26, 2019,~~29, 2020, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	31.2		-		Certification of CFO dated July ~~26, 2019,~~29, 2020, 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 July ~~26, 2019,~~29, 2020, 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

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 Earnings Per Diluted Share Excluding the Impact of Foreign Currency – Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding net investment gains and losses, except for amortized hedge costs/income related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the company’s insurance operations and that do not reflect Aflac’s underlying business performance. The most comparable U.S. GAAP measure is net earnings. 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 most comparable U.S. GAAP measure is net earnings per share. This metric is then adjusted using the average yen/dollar exchange rate for the comparable prior year period, which eliminates dollar based fluctuations driven solely from currency rate changes.

Adjusted Net Investment Income - Net Investment Income adjusted for amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity and 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 metric is used in segment reporting as a component of segment profitability.

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

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

Average Weekly Producer– The total number of writing associates who have produced greater than $0.00 during the production week - excluding any manual adjustments divided by the number of weeks in the time period. The Company believes this metric allows sales management

to monitor progress and needs, as well as serve as a leading indicator of future production capacity.

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

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

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

Group Insurance– Insurance issued to a group, such as an employer or trade association, that covers employees or association members and their dependents through certificates of coverage.

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

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

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

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

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

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

annualized premium sales are determined by applications submitted during the reporting period. For Aflac U.S., new annualized premium sales are determined by applications. that are issued during the reporting period. Policy conversions are defined as the positive difference in the annualized premium when a policy upgrades in the current reporting period.

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

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

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

Pretax Adjusted Earnings – Earnings as adjusted earnings (as defined above) before the application of income taxes.

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

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

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

Solvency Margin Ratio (SMR) – Solvency margin total divided by one half of the risk total. This insurance ratio is prescribed by the Japan Financial Services Agency (FSA) and is used for all life insurance companies in Japan to

measure the adequacy of the company’s ability to pay policyholder claims in the event actual risks exceed expected levels.

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

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

Defined Terms

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



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

SIGNATURES

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



		Aflac Incorporated

July ~~26, 2019~~29, 2020		/s/ ~~Frederick J. Crawford~~Max K. Broden
		(~~Frederick J. Crawford)~~Max K. Broden)
		Executive Vice ~~President,~~President; Chief Financial Officer

July ~~26, 2019~~29, 2020		/s/ June Howard
		(June Howard)
		Senior Vice President, Financial Services; Chief Accounting Officer

~~100~~109



(In millions, except for share and per-share amounts)	June 30, 2019 (Unaudited)				December 31, 2018
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value (amortized cost $77,466 in 2019 and $73,007 in 2018)		$	87,836			$	78,429
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,729 in 2019 and $3,849 in 2018)		4,599				4,466
Fixed maturity securities held to maturity, at amortized cost (fair value $39,035 in 2019 and $36,722 in 2018)		31,007				30,318
Equity securities, at fair value		1,087				987
Commercial mortgage and other loans (includes $6,233 in 2019 and $5,528 in 2018 of consolidated variable interest entities)		7,622				6,919
Other investments (includes $410 in 2019 and $328 in 2018 of consolidated variable interest entities)		1,427				787
Cash and cash equivalents		3,019				4,337
Total investments and cash		136,597				126,243
Receivables		883				851
Accrued investment income		785				773
Deferred policy acquisition costs		10,128				9,875
Property and equipment, at cost less accumulated depreciation ⁽¹⁾		562				443
Other		2,445				2,221
Total assets		$	151,400			$	140,406
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	90,117			$	86,368
Unpaid policy claims		4,706				4,584
Unearned premiums		4,763				5,090
Other policyholders’ funds		7,403				7,146
Total policy liabilities		106,989				103,188
Income taxes		5,243				4,020
Payables for return of cash collateral on loaned securities		1,557				1,052
Notes payable and lease obligations⁽¹⁾		6,231				5,778
Other		3,139				2,906
Total liabilities		123,159				116,944
Commitments and contingent liabilities (Note 12)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2019 and 2018; issued 1,349,044 shares in 2019 and 1,347,540 shares in 2018		135				135
Additional paid-in capital		2,247				2,177
Retained earnings		33,130				31,788
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,455		)		(1,847		)
Unrealized gains (losses) on fixed maturity securities		8,055				4,234
Unrealized gains (losses) on derivatives		(27		)		(24		)
Pension liability adjustment		(209		)		(212		)
Treasury stock, at average cost		(13,635		)		(12,789		)
Total shareholders’ equity		28,241				23,462
Total liabilities and shareholders’ equity		$	151,400			$	140,406



	June 30, 2019
(In millions)	Operating Leases		Finance Leases		Total
2019	$	32	$	3	$	35
2020	30		3		33
2021	20		2		22
2022	17		2		19
2023	9		1		10
After 2023	24		1		25
Total lease payments	$	132	$	12	$	144
Less: Interest	11		0		11
Present value of lease liabilities	$	121	$	12	$	133



	Page
~~The Company’s Business~~Executive Summary	6769
~~Performance Highlights~~Results of Operations	6775
Investments	87
Deferred Policy Acquisition Costs	95
Policy Liabilities	95
Benefit Plans	95
Policyholder Protection	96
Off-Balance Sheet Arrangements	96
Liquidity and Capital Resources	96
Critical Accounting Estimates	68
~~Results of Operations~~	68
~~Insurance Operations~~	72
~~Analysis of Financial Condition~~	83
~~Capital Resources and Liquidity~~	91101



	Including Foreign Currency Changes												Excluding Foreign Currency Changes⁽¹⁾
	Three Months						Six Months						Three Months						Six Months
	2019			2018			2019			2018			2019			2018			2019			2018
Net investment income, less amortized hedge costs	.8		%	6.4		%	3.1		%	3.2		%	.4		%	7.5		%	2.3		%	5.0		%
Total adjusted revenues	(.7	)		(.5	)		(.3	)		(1.4	)		(.7	)		(.3	)		(.4	)		(1.1	)
Pretax adjusted earnings	(.1	)		3.6			1.9			2.2			(.4	)		4.3			1.3			3.5