0000004977us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-01-012020-06-30

~~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, ~~2020~~2021

☐

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

For the transition period from to

Commission File Number: 001-07434

Aflac Incorporated

(Exact name of registrant as specified in its charter)

Georgia

58-1167100

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1932 Wynnton Road

Columbus,

Georgia

31999

(Address of principal executive offices)

(ZIP Code)

706.323.3431

(Registrant's telephone number, including area code)



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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.10 par value per share

AFL

New York Stock Exchange

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

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

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



Large accelerated filer	þ	Accelerated filer	☐
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~712,912,378~~670,741,349 shares of the issuer's common stock were outstanding as of July 20, ~~2020.~~2021.

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, ~~2020~~2021

Table of Contents


PART I.				FINANCIAL INFORMATION:	Page

			Item 1.	Financial Statements (Unaudited)

~~PART I.~~				~~FINANCIAL INFORMATION:~~	~~Page~~

	~~Item 1.~~	~~Financial Statements (Unaudited)~~

		Consolidated Statements of Earnings Three Months Ended June 30, ~~2020~~2021 and ~~2019~~2020 Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020	1

				Consolidated Statements of Comprehensive Income (Loss) Three Months Ended June 30, ~~2020~~2021 and ~~2019~~2020 Six Months Ended June 30, ~~2020~~2021 and ~~2019~~ 2020	2

				Consolidated Balance Sheets June 30, ~~2020,~~2021, and December 31, ~~2019~~2020	3

				Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2021 and 2020 ~~and 2019~~ Three Months Ended June 30, ~~2020~~2021 and ~~2019~~2020	4

				Consolidated Statements of Cash Flows Six Months Ended June 30, ~~2020~~2021 and ~~2019~~2020	6

				Notes to the Consolidated Financial Statements	7

			Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	6766

			Item 3.	Quantitative and Qualitative Disclosures about Market Risk	101

			Item 4.	Controls and Procedures	~~102~~101

PART II.				OTHER INFORMATION:

			~~Item 1.~~	~~Legal Proceedings~~	~~103~~

			Item ~~1A.~~2.	~~Risk Factors~~	~~103~~

	~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	~~104~~102



			Item 6.	Exhibits	~~105~~103

Glossary of Selected Terms					~~106~~105

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions, except for share and per-share amounts - Unaudited) 2020 2019 2020 2019
Revenues:
Net premiums, principally supplemental health insurance $ 4,664
$ 4,681
$ 9,346
$ 9,373

Net investment income 870
878
1,774
1,756

Net investment gains (losses) (170 ) (66 ) (633 ) 5

Other income (loss) 43
18
82
34

Total revenues 5,407
5,511
10,569
11,168

Benefits and expenses:
Benefits and claims, net 2,897
2,964
5,837
5,932

Acquisition and operating expenses:
Amortization of deferred policy acquisition costs 289
309
622
649

Insurance commissions 332
329
668
661

Insurance and other expenses 756
743
1,536
⁽¹⁾
1,460

Interest expense 63
57
117
115

Total acquisition and operating expenses 1,440
1,438
2,943
2,885

Total benefits and expenses 4,337
4,402
8,780
8,817

Earnings before income taxes 1,070
1,109
1,789
2,351

Income taxes 265
292
419
606

Net earnings $ 805
$ 817
$ 1,370
$ 1,745

Net earnings per share:
Basic $ 1.12
$ 1.10
$ 1.90
$ 2.33

Diluted 1.12
1.09
1.89
2.32

Weighted-average outstanding common shares used in
computing earnings per share (In thousands):
Basic 717,889
745,153
721,128
748,271

Diluted 719,764
748,849
723,638
752,302

Cash dividends per share $ .28
$ .27
$ .56
$ .54


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except for share and per-share amounts - Unaudited)	2021			2020			2021			2020
Revenues:
Net premiums, principally supplemental health insurance		$	4,441		$	4,664		$	9,034		$	9,346
Net investment income		993			870			1,918			1,774
Net investment gains (losses)		89			(170)			396			(633)
Other income (loss)		41			43			85			82
Total revenues		5,564			5,407			11,433			10,569
Benefits and expenses:
Benefits and claims, net		2,653			2,897			5,387			5,837
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		280			289			592			622
Insurance commissions		315			332			641			668
Insurance and other expenses (1)		881			756			1,712			1,536
Interest expense		62			63			124			117
Total acquisition and operating expenses		1,538			1,440			3,069			2,943
Total benefits and expenses		4,191			4,337			8,456			8,780
Earnings before income taxes		1,373			1,070			2,977			1,789
Income taxes		268			265			579			419
Net earnings		$	1,105		$	805		$	2,398		$	1,370
Net earnings per share:
Basic		$	1.63		$	1.12		$	3.51		$	1.90
Diluted		1.62			1.12			3.49			1.89
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		678,050			717,889			683,464			721,128
Diluted		680,920			719,764			686,400			723,638
Cash dividends per share		$	.33		$	.28		$	.66		$	.56

⁽¹⁾Includes expense of $48 for the three- and six-month periods ended June 30, 2021 and $15 for the six-month period ended June 30, 2020 for the early extinguishment of ~~debt~~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,
(In millions - Unaudited) 2020 2019 2020 2019
Net earnings $ 805
$ 817
$ 1,370
$ 1,745

Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during
period 73
417
159
416

Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities
during period 3,274
2,046
(1,395 ) 5,242

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 ) (1 ) (5 ) (4 )
Pension liability adjustment during period 0
(2 ) 0
5

Total other comprehensive income (loss) before income taxes 3,421
2,435
(1,096 ) 5,616

Income tax expense (benefit) related to items of other comprehensive
income (loss) 859
552
(383 ) 1,403

Other comprehensive income (loss), net of income taxes 2,562
1,883
(713 ) 4,213

Total comprehensive income (loss) $ 3,367
$ 2,700
$ 657
$ 5,958


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions - Unaudited)	2021			2020			2021			2020
Net earnings		$	1,105		$	805		$	2,398		$	1,370
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		25			73			(557)			159
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period		1,522			3,274			(481)			(1,395)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings		(5)			75			15			145
Unrealized gains (losses) on derivatives during period		1			(1)			1			(5)
Pension liability adjustment during period		0			0			6			0
Total other comprehensive income (loss) before income taxes		1,543			3,421			(1,016)			(1,096)
Income tax expense (benefit) related to items of other comprehensive income (loss)		331			859			(101)			(383)
Other comprehensive income (loss), net of income taxes		1,212			2,562			(915)			(713)
Total comprehensive income (loss)		$	2,317		$	3,367		$	1,483		$	657

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, 2021 (Unaudited)			December 31, 2020
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (allowance for credit losses of $26 in 2021 and $38 in 2020, amortized cost $85,193 in 2021 and amortized cost $88,143 in 2020)		$	97,791		$	101,286
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,295 in 2021 and amortized cost of $3,487 in 2020)		4,493			4,596
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $8 in 2021 and $10 in 2020 (fair value $28,154 in 2021 and $30,399 in 2020)		22,891			24,464
Equity securities, at fair value		1,475			1,283
Commercial mortgage and other loans, net of allowance for credit losses of $139 in 2021 and $180 in 2020 (includes $9,575 in 2021 and $8,964 in 2020 of consolidated variable interest entities)		11,332			10,554
Other investments (includes $1,111 in 2021 and $826 in 2020 of consolidated variable interest entities)		3,258			2,429
Cash and cash equivalents		5,469			5,141
Total investments and cash		146,709			149,753
Receivables		788			796
Accrued investment income		761			780
Deferred policy acquisition costs		9,810			10,441
Property and equipment, at cost less accumulated depreciation		563			601
Other		2,861			2,715
Total assets		$	161,492		$	165,086
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	92,992		$	97,783
Unpaid policy claims		4,921			5,187
Unearned premiums		3,005			3,597
Other policyholders’ funds		7,368			7,824
Total policy liabilities		108,286			114,391
Income taxes		4,451			4,661
Payables for return of cash collateral on loaned securities		3,133			964
Notes payable and lease obligations		8,121			7,899
Other		3,766			3,612
Total liabilities		127,757			131,527
Commitments and contingent liabilities (Note 12)		0			0
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2021 and 2020; issued 1,352,392 shares in 2021 and 1,351,018 shares in 2020		135			135
Additional paid-in capital		2,465			2,410
Retained earnings		40,162			37,984
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,661)			(1,109)
Unrealized gains (losses) on fixed maturity securities		9,992			10,361
Unrealized gains (losses) on derivatives		(33)			(34)
Pension liability adjustment		(279)			(284)
Treasury stock, at average cost		(17,046)			(15,904)
Total shareholders’ equity		33,735			33,559
Total liabilities and shareholders’ equity		$	161,492		$	165,086

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity


(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders' Equity
Balance at December 31, 2020	$	135	$	2,410	$	37,984	$	8,934	$	(15,904)	$	33,559
Net earnings	0		0		1,293		0		0		1,293
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		(565)		0		(565)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(1,567)		0		(1,567)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		1		0		1
Pension liability adjustment during period, net of income taxes	0		0		0		4		0		4
Dividends to shareholders ($.00 per share)	0		0		0		0		0		0
Exercise of stock options	0		9		0		0		0		9
Share-based compensation	0		9		0		0		0		9
Purchases of treasury stock	0		0		0		0		(668)		(668)
Treasury stock reissued	0		10		0		0		18		28
Balance at March 31, 2021	$	135	$	2,438	$	39,277	$	6,807	$	(16,554)	$	32,103
Net earnings	0		0		1,105		0		0		1,105
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		13		0		13
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		1,198		0		1,198
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		0		0		0
Pension liability adjustment during period, net of income taxes	0		0		0		1		0		1
Dividends to shareholders ($.33 per share)	0		0		(220)		0		0		(220)
Exercise of stock options	0		2		0		0		0		2
Share-based compensation	0		20		0		0		0		20
Purchases of treasury stock	0		0		0		0		(500)		(500)
Treasury stock reissued	0		5		0		0		8		13
Balance at June 30, 2021	$	135	$	2,465	$	40,162	$	8,019	$	(17,046)	$	33,735

See the accompanying Notes to the Consolidated Financial Statements.

(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

(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, 2019	$	135	$	2,313	$	34,291	$	6,615	$	(14,395)	$	28,959
Cumulative effect of change in accounting principle - Accounting Standards Update (ASU) 2016-13, net of income taxes (1)	0		0		(56)		0		0		(56)
Cumulative effect of change in accounting principle - ASU 2019-04, net of income taxes (1)	0		0		0		848		0		848
Balance at January 1, 2020	135		2,313		34,235		7,463		(14,395)		29,751
Net earnings	0		0		566		0		0		566
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		80		0		80
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(3,353)		0		(3,353)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		(2)		0		(2)
Pension liability adjustment during period, net of income taxes	0		0		0		0		0		0
Dividends to shareholders ($.28 per share)	0		0		(202)		0		0		(202)
Exercise of stock options	0		5		0		0		0		5
Share-based compensation	0		7		0		0		0		7
Purchases of treasury stock	0		0		0		0		(476)		(476)
Treasury stock reissued	0		9		0		0		17		26
Balance at March 31, 2020	$	135	$	2,334	$	34,599	$	4,188	$	(14,854)	$	26,402
Net earnings	0		0		805		0		0		805
Unrealized foreign currency translation gains (losses) during period, net of income taxes	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~~in the ~~adoption of accounting guidance~~Company's 2020 Annual Report on ~~January 1, 2020.~~Form 10-K.

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

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

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

   Six Months Ended June 30,
(In millions - Unaudited) 2020 2019
Cash flows from operating activities:
Net earnings $ 1,370
$ 1,745

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums (65 ) (17 )
Capitalization of deferred policy acquisition costs (604 ) (712 )
Amortization of deferred policy acquisition costs 622
649

Increase in policy liabilities 936
1,019

Change in income tax liabilities (117 ) (268 )
Net investment (gains) losses 633
(5 )
Other, net (174 ) (54 )
Net cash provided (used) by operating activities 2,601
2,357

Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities 1,981
2,105

Equity securities 93
154

Held-to-maturity fixed maturity securities 2
203

Commercial mortgage and other loans 685
888

Costs of investments acquired:
Available-for-sale fixed maturity securities (2,691 ) (4,352 )
Equity securities (150 ) (181 )
Commercial mortgage and other loans (2,108 ) (1,534 )
Other investments, net (293 ) (616 )
Settlement of derivatives, net 21
(14 )
Cash received (pledged or returned) as collateral, net 459
495

Other, net (119 ) 125

Net cash provided (used) by investing activities (2,120 ) (2,727 )
Cash flows from financing activities:
Purchases of treasury stock (637 ) (847 )
Proceeds from borrowings 1,545
268

Principal payments under debt obligations (350 ) 0

Dividends paid to shareholders (388 ) (389 )
Change in investment-type contracts, net (17 ) (34 )
Treasury stock reissued 21
26

Other, net (22 )
(2 )
Net cash provided (used) by financing activities 152
(978 )
Effect of exchange rate changes on cash and cash equivalents (1 ) 30

Net change in cash and cash equivalents 632
(1,318 )
Cash and cash equivalents, beginning of period 4,896
4,337

Cash and cash equivalents, end of period $ 5,528
$ 3,019

Supplemental disclosures of cash flow information:
Income taxes paid $ 536
$ 874

Interest paid 97
93

Noncash interest 19
22

Noncash financing activities:
Lease obligations 22
1

Treasury stock issued for:
   Associate stock bonus 8
8

   Shareholder dividend reinvestment 14
14

   Share-based compensation grants 6
5


	Six Months Ended June 30,
(In millions - Unaudited)	2021			2020
Cash flows from operating activities:
Net earnings		$	2,398		$	1,370
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums		(4)			(65)
Capitalization of deferred policy acquisition costs		(515)			(604)
Amortization of deferred policy acquisition costs		592			622
Increase in policy liabilities		478			936
Change in income tax liabilities		98			(117)
Net investment (gains) losses		(396)			633
Other, net		(323)			(174)
Net cash provided (used) by operating activities		2,328			2,601
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		1,468			1,981
Equity securities		124			93
Held-to-maturity fixed maturity securities		2			2
Commercial mortgage and other loans		1,679			685
Costs of investments acquired:
Available-for-sale fixed maturity securities		(3,365)			(2,691)
Equity securities		(258)			(150)
Commercial mortgage and other loans		(2,376)			(2,108)
Other investments, net		(685)			(293)
Settlement of derivatives, net		155			21
Cash received (pledged or returned) as collateral, net		2,412			459
Other, net		5			(119)
Net cash provided (used) by investing activities		(839)			(2,120)
Cash flows from financing activities:
Purchases of treasury stock		(1,150)			(637)
Proceeds from borrowings		1,153			1,545
Principal payments under debt obligations		(700)			(350)
Dividends paid to shareholders		(430)			(388)
Change in investment-type contracts, net		(24)			(17)
Treasury stock reissued		13			21
Other, net		(3)			(22)
Net cash provided (used) by financing activities		(1,141)			152
Effect of exchange rate changes on cash and cash equivalents		(20)			(1)
Net change in cash and cash equivalents		328			632
Cash and cash equivalents, beginning of period		5,141			4,896
Cash and cash equivalents, end of period		$	5,469		$	5,528
Supplemental disclosures of cash flow information:
Income taxes paid		$	480		$	536
Interest paid		109			97
Noncash interest		14			19
Noncash financing activities:
Lease obligations		30			22
Treasury stock issued for:
Associate stock bonus		8			8
Shareholder dividend reinvestment		16			14
Share-based compensation grants		4			6

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~~

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 operations consist of two reportable~~Company's insurance business ~~segments: Aflac Japan~~is marketed and ~~Aflac U.S. The Parent Company's primary insurance subsidiaries are Aflac Life Insurance Japan Ltd. (Aflac Japan) and~~administered through American Family Life Assurance Company of Columbus (Aflac)~~; Continental American~~ in the U.S. and through Aflac Life Insurance ~~Company (CAIC)~~Japan Ltd. (ALIJ) in Japan. The Company’s operations consist of 2 reportable business segments: Aflac U.S., ~~branded as~~which includes Aflac, ~~Group Insurance (AGI);~~and Aflac Japan, which includes ALIJ. American Family Life Assurance Company of New York (Aflac New York)~~; Tier One Insurance Company (TOIC)~~ is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. With the exception of group dental and vision products administered by Argus Dental & Vision, Inc. (Argus) and certain group life insurance products, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), ~~which provides a platform for~~branded as Aflac ~~Dental and Vision~~Group Insurance. The Company's insurance operations in the U.S. ~~(collectively, Aflac U.S.).~~and Japan service the two markets for the Company's insurance business. Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for ~~67%~~69% and ~~68%~~67% of the Company's total revenues in the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The percentage of the Company's total assets attributable to Aflac Japan was ~~83%~~82% at June 30, ~~2020,~~2021, compared with ~~84%~~83% at December 31, ~~2019.~~2020.

Basis of Presentation

The Company prepares its financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In these Notes to the Consolidated Financial Statements, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards 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, ~~2020,~~2021 and December 31, ~~2019,~~2020, and the consolidated statements of earnings and comprehensive income (loss) for the ~~three-month~~three- and six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, the consolidated statement of shareholders' equity for the three-month periods ended March 31, ~~2020~~2021 and ~~2019~~2020 and June 30, ~~2020~~2021 and ~~2019,~~2020, and the consolidated statement of cash flows for the six-month periods ended June 30, ~~2020~~2021 and ~~2019.~~2020. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, ~~2019 (2019~~2020 (2020 Annual Report).

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

~~Liquidity and Capital Resources~~

~~either of these facilities. In April 2020, Aflac increased its internal limit for Federal Home Loan Bank of Atlanta (FHLB) borrowings~~the ability 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 evaluateadjust cash flow management from 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~~

0Accounting Pronouncements Pending Adoption

~~Standard~~	~~Description~~	~~Date of Adoption~~
Standard			Description	Effect on Financial Statements or Other Significant Matters
~~Accounting Standards Update( ASU) 2020-04~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~	In March 2020, the FASB issued amendments that provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the reference rate reform if certain criteria are met. The amendments in this ASU only apply to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. An entity may elect to apply the 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, 2020~~	The adoption of this guidance resulted in a 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 securities’ fair values on the reclassification date. The reclassification impacted the adoption of 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 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.	~~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 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.~~	~~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 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 ASU 2020-11 Financial Services - Insurance (Topic 944):Effective Date and Early Application			In August 2018, the FASB issued amendments that will significantly change how insurers account for long-duration contracts. The amendments will change existing recognition, measurement, presentation, and disclosure requirements. Issues addressed in the new guidance include: 1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures. In November 2019, the FASB issued an amendment extending the effective date for public business entities that meet the definition of an SEC filer, excluding entities eligible to be small reporting companies as defined by the SEC, by one year. In November 2020, the FASB issued an amendment providing an additional year deferral for all insurance entities due to the impact of COVID-19. The amendments are now effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2021.~~2022. Early application of the amendments is permitted.	The Company iscontinues to thoroughly ~~evaluating~~evaluate 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 has created a robust governance framework and a detailed implementation plan to support timely implementation of the ASU. As part of the implementation, the Company has made significant progress on key accounting policy decisions (discount rate, cash flow assumptions, deferred acquisition costs amortization, and disclosures), and is working toward modernization of its actuarial platform to increase automation of key reporting and analytical processes and optimize a control framework around new technologies, data sourcing and maintenance solutions. The Company has also incorporated into its ASU implementation project other functional areas, such as Financial Planning and Analysis and Executive Compensation, not directly associated with U.S. GAAP reporting that nonetheless will be impacted by the accounting changes. The Company has recently begun testing its reporting and disclosure capabilities under the new ASU for post-transition date accounting periods. The Company does not expect to early adopt the updated standard and has ~~tentatively~~ selected a modified retrospective transition method.

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

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position, results of operations or disclosures, see Note 1 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report.


2.	~~BUSINESS SEGMENT INFORMATION~~

2. BUSINESS SEGMENT INFORMATION

The Company consists of 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 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)	2020			2019			2020			2019		(In millions)	2021		2020		2021		2020
Revenues:												Revenues:
Aflac Japan:												Aflac Japan:
Net earned premiums	$	3,158		$	3,172		$	6,308		$	6,352	Net earned premiums	$	2,987	$	3,158	$	6,111	$	6,308
Adjusted net investment income ^(1),(2)	633			609			1,276			1,219		Adjusted net investment income (1),(2)	792		633		1,497		1,276
Other income	12			11			22			22		Other income	10		12		22		22
Total adjusted revenue Aflac Japan	3,803			3,792			7,606			7,593		Total adjusted revenue Aflac Japan	3,789		3,803		7,630		7,606
Aflac U.S.:												Aflac U.S.:
Net earned premiums	1,458			1,459			2,941			2,920		Net earned premiums	1,408		1,458		2,830		2,941
Net investment income	172			180			348			357
Adjusted net investment income												Adjusted net investment income	189		172		366		348
Other income	26			2			54			4		Other income	30		26		58		54
Total adjusted revenue Aflac U.S.	1,656			1,641			3,343			3,281		Total adjusted revenue Aflac U.S.	1,627		1,656		3,254		3,343
Corporate and other ⁽³⁾	100			95			204			191
Corporate and other (3),(4)												Corporate and other (3),(4)	50		100		133		204
Total adjusted revenues	5,559			5,528			11,153			11,065		Total adjusted revenues	5,466		5,559		11,017		11,153
Net investment gains (losses) ^(1),(2),(3)	(152		)	(17		)	(584		)	103		Net investment gains (losses) (1),(2),(3)	98		(152)		416		(584)
Total revenues	$	5,407		$	5,511		$	10,569		$	11,168	Total revenues	$	5,564	$	5,407	$	11,433	$	10,569

⁽¹⁾Amortized hedge costs of ~~$50~~$17 and ~~$62~~$50 for the three-month periods and ~~$105~~$36 and ~~$124~~$105 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

⁽²⁾ Net interest cash flows from derivatives associated with certain investment strategies of $6$(9) and ~~$(7)~~$6 for the three-month periods and $(17) and an immaterial amount ~~and $(14)~~ for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment ~~income.~~income when analyzing operations.

⁽³⁾ Amortized hedge income of ~~$27~~$16 and ~~$20~~$27 for the three-month periods ~~$56~~and $33 and ~~$40~~$56 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(4) Amortization of federal historic rehabilitation and solar investments in partnerships of $30 for the three- and six-month periods ended June 30, 2021, are included as a reduction to net investment income. Offsetting tax credits on these investments of $12 and $25 for the three- and six-month periods ended June 30, 2021, respectively, have been recorded as an income tax benefit on the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

Three Months Ended
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 )


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Pretax earnings:
Aflac Japan (1),(2)	$	1,004	$	839	$	1,891	$	1,694
Aflac U.S.	413		426		859		752
Corporate and other (3),(4),(5)	(76)		(30)		(102)		(28)
Pretax adjusted earnings (6)	1,341		1,235		2,648		2,418
Net investment gains (losses) (1),(2),(3),(4)	85		(166)		388		(614)
Other income (loss)	(53)		1		(59)		(15)
Total earnings before income taxes	$	1,373	$	1,070	$	2,977	$	1,789
Income taxes applicable to pretax adjusted earnings	$	262	$	315	$	510	$	615
Effect of foreign currency translation on after-tax adjusted earnings	(6)		5		7		14

(1) Amortizedhedge costs of $17 and $50 ~~and$62~~ for the three-month periods and ~~$105~~$36 and ~~$124~~$105 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

⁽³⁾ Amortized hedge income of ~~$27~~$16 and ~~$20~~$27 for the three-month periods and ~~$56~~$33 and ~~$40~~$56 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

⁽⁴⁾A gain of $14 ~~and $17~~ for the three-month periods and ~~$30~~$27 and ~~$33~~$30 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

⁽⁵⁾ Amortization of federal historic rehabilitation and solar investments in partnerships of $30 for the three- and six-month periods ended June 30, 2021, is included as a reduction to net investment income. Offsetting tax credits on these investments of $12 and $25 for the three- and six-month periods ended June 30, 2021, respectively, have been recorded as an income tax benefit. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

(6) Includes ~~$44~~$45 and ~~$34~~$44 for the three-month periods and ~~$77~~$89 and ~~$66~~$77 for the six-month periods ended June 30, ~~2020,~~2021, and ~~2019,~~2020, respectively, of interest expense on debt.

Assets were as follows:


(In millions)	June 30, 2020			December 31, 2019			(In millions)	June 30, 2021			December 31, 2020
Assets:							Assets:
Aflac Japan		$	130,156		$	127,523	Aflac Japan		$	132,527		$	137,271
Aflac U.S.		21,776			20,945		Aflac U.S.		23,033			22,864
Corporate and other		5,155			4,300		Corporate and other		5,932			4,951
Total assets		$	157,087		$	152,768	Total assets		$	161,492		$	165,086


3.	~~INVESTMENTS~~

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, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	31,948	$	0	$	3,620	$	78	$	35,490
Municipalities	1,240		0		341		7		1,574
Mortgage- and asset-backed securities	316		0		22		1		337
Public utilities	4,619		0		981		2		5,598
Sovereign and supranational	881		0		91		0		972
Banks/financial institutions	7,230		0		897		65		8,062
Other corporate	7,463		0		1,665		23		9,105
Total yen-denominated	53,697		0		7,617		176		61,138
U.S. dollar-denominated:
U.S. government and agencies	181		0		11		0		192
Municipalities	1,208		0		184		1		1,391
Mortgage- and asset-backed securities	920		0		27		0		947
Public utilities	3,867		0		932		4		4,795
Sovereign and supranational	226		0		60		0		286
Banks/financial institutions	3,083		0		761		2		3,842
Other corporate	25,306		26		4,479		66		29,693
Total U.S. dollar-denominated	34,791		26		6,454		73		41,146
Total securities available for sale	$	88,488	$	26	$	14,071	$	249	$	102,284

June 30, 2020
(In millions)
Amortized
Cost Allowance for Credit Losses Gross
Unrealized
Gains Gross
Unrealized
Losses   Fair
  Value
Securities available for sale, carried at fair
value through other comprehensive income:
Fixed maturity securities:
  Yen-denominated:
Japan government and agencies $ 32,004
$ 0
$ 4,199
$ 45
$ 36,158
Municipalities 994
0
226
8
1,212
Mortgage- and asset-backed securities 334
0
28
1
361
Public utilities 4,550
0
643
15
5,178
Sovereign and supranational 1,035
0
46
5
1,076
Banks/financial institutions 7,412
0
529
319
7,622
Other corporate 7,798
0
1,054
153
8,699
Total yen-denominated 54,127
0
6,725
546
60,306
  U.S. dollar-denominated:
U.S. government and agencies 309
0
20
0
329
Municipalities 1,119
0
161
0
1,280
Mortgage- and asset-backed securities 175
0
10
0
185
Public utilities 3,880
0
899
15
4,764
Sovereign and supranational 240
0
68
7
301
Banks/financial institutions 2,876
0
722
6
3,592
Other corporate 25,451
38
4,086
297
29,202
Total U.S. dollar-denominated 34,050
38
5,966
325
39,653
Total securities available for sale $ 88,177
$ 38
$ 12,691
$ 871
$ 99,959

December 31, 2019
(In millions)
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 $ 30,929
$ 5,169
$ 0
$ 36,098
Municipalities 516
116
3
629
Mortgage- and asset-backed securities 229
25
0
254
Public utilities 1,855
406
0
2,261
Sovereign and supranational 680
50
0
730
Banks/financial institutions 6,152
700
86
6,766
Other corporate 5,323
944
24
6,243
Total yen-denominated 45,684
7,410
113
52,981
  U.S dollar-denominated:
U.S. government and agencies 293
9
0
302
Municipalities 1,077
141
0
1,218
Mortgage- and asset-backed securities 149
7
0
156
Public utilities 3,804
725
10
4,519
Sovereign and supranational 239
73
0
312
Banks/financial institutions 2,879
646
4
3,521
Other corporate 25,246
3,255
248
28,253
Total U.S. dollar-denominated 33,687
4,856
262
38,281
Total securities available for sale $ 79,371
$ 12,266
$ 375
$ 91,262
11

June 30, 2020
(In millions)
Amortized
Cost Allowance for Credit Losses Net Carrying Amount Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Securities held to maturity, carried at
amortized cost:
Fixed maturity securities:
  Yen-denominated:
Japan government and agencies $ 22,531
$ 3
$ 22,528
$ 5,502
$ 0
$ 28,030
Municipalities 364
0
364
117
0
481
Public utilities 46
1
45
14
0
59
Sovereign and supranational 554
5
549
143
0
692
Other corporate 23
0
23
8
0
31
Total yen-denominated 23,518
9
23,509
5,784
0
29,293
Total securities held to maturity $ 23,518
$ 9
$ 23,509
$ 5,784
$ 0
$ 29,293


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

December 31, 2019
(In millions)
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 $ 22,241
$ 6,050
$ 0
$ 28,291
Municipalities 821
262
0
1,083
Mortgage- and asset-backed securities 16
1
0
17
Public utilities 2,535
419
0
2,954
Sovereign and supranational 1,123
197
0
1,320
Banks/financial institutions 916
105
3
1,018
Other corporate 2,433
485
7
2,911
Total yen-denominated 30,085
7,519
10
37,594
Total securities held to maturity $ 30,085
$ 7,519
$ 10
$ 37,594


	June 30, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	21,941	$	3	$	21,938	$	4,986	$	0	$	26,924
Municipalities	351		0		351		110		0		461

Public utilities	46		1		45		13		0		58
Sovereign and supranational	538		4		534		147		0		681

Other corporate	23		0		23		7		0		30
Total yen-denominated	22,899		8		22,891		5,263		0		28,154
Total securities held to maturity	$	22,899	$	8	$	22,891	$	5,263	$	0	$	28,154

(In millions) June 30, 2020 December 31, 2019
Equity securities, carried at fair value through net earnings: Fair Value Fair Value
Equity securities:
Yen-denominated $ 609
$ 658

U.S. dollar-denominated 140
144

Total equity securities $ 749
$ 802


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


(In millions)	June 30, 2021			December 31, 2020
Equity securities, carried at fair value through net earnings:	Fair Value			Fair Value
Equity securities:
Yen-denominated		$	751		$	680
U.S. dollar-denominated		682			603
Other currencies		42			0
Total equity securities		$	1,475		$	1,283

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

During the first and second quarters of 2021, the Company did 0t reclassify any investments from the held-to-maturity category to the available-for-sale category. During the second quarter of 2020, the Company did ~~not~~0t 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, ~~2020,~~2021, were as follows:

(In millions)
Amortized
Cost ⁽¹⁾
Fair
Value
Available for sale:
Due in one year or less $ 957
$ 994

Due after one year through five years 8,899
9,108

Due after five years through 10 years 12,751
14,450

Due after 10 years 65,023
74,861

Mortgage- and asset-backed securities 509
546

Total fixed maturity securities available for sale $ 88,139
$ 99,959

Held to maturity:
Due in one year or less $ 0
$ 0

Due after one year through five years 0
0

Due after five years through 10 years 107
123

Due after 10 years 23,402
29,170

Mortgage- and asset-backed securities 0
0

Total fixed maturity securities held to maturity $ 23,509
$ 29,293

13


(In millions)	Amortized Cost (1)			Fair Value
Available for sale:
Due in one year or less		$	928		$	936
Due after one year through five years		8,392			8,943
Due after five years through 10 years		13,795			16,220
Due after 10 years		64,111			74,902
Mortgage- and asset-backed securities		1,236			1,283
Total fixed maturity securities available for sale		$	88,462		$	102,284
Held to maturity:
Due in one year or less		$	0		$	0
Due after one year through five years		45			50
Due after five years through 10 years		6,635			7,766
Due after 10 years		16,211			20,338
Mortgage- and asset-backed securities		0			0
Total fixed maturity securities held to maturity		$	22,891		$	28,154

(1) Net of allowance for credit losses

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

Investment Concentrations

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

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

June 30, 2021

December 31, 2020

(In millions)

Credit
Rating

Amortized
Cost

Fair
Value

Credit
Rating

Amortized
Cost

Fair
Value

Japan National Government(1)

A+

$52,601

$60,899

A+

$55,153

$64,657

June 30, 2020 December 31, 2019
(In millions) Credit
Rating Amortized
Cost Fair
Value Credit
Rating Amortized
Cost Fair
Value
Japan National Government⁽¹⁾
A+ $53,145 $62,513 A+ $51,726 $62,584

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

Net Investment Gains and Losses

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales	$	14	$	14	$	16	$	21
Gross losses from sales	(2)		(46)		(3)		(46)
Foreign currency gains (losses) on sales and redemptions	(6)		(20)		(18)		(34)
Total sales and redemptions	6		(52)		(5)		(59)
Equity securities	170		31		102		(118)


Credit losses:
Fixed maturity securities available for sale	0		(12)		11		(75)
Fixed maturity securities held to maturity	0		0		1		1
Commercial mortgage and other loans	17		(127)		44		(164)
Impairment losses	0		0		(20)		0
Loan commitments	(5)		(35)		0		(81)
Reinsurance recoverables and other	0		(2)		(2)		(2)
Total credit losses	12		(176)		34		(321)
Derivatives and other:
Derivative gains (losses)	(96)		120		(383)		35
Foreign currency gains (losses)	(3)		(93)		648		(170)
Total derivatives and other	(99)		27		265		(135)
Total net investment gains (losses)	$	89	$	(170)	$	396	$	(633)

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales $ 14
$ 32
$ 21
$ 44

Gross losses from sales (46 ) (3 ) (46 ) (11 )
Foreign currency gains (losses) on sales and redemptions (20 ) (4 ) (34 ) 9

Total sales and redemptions (52 ) 25
(59 ) 42

Equity securities 31

(11 ) (118 ) 47

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) 120
122
35
122

Foreign currency gains (losses) (93 ) (200 ) (170 ) (202 )
Total derivatives and other 27
(78 ) (135 ) (80 )
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,~~2021, that relate to equity securities still held at the June 30, ~~2020~~2021 reporting date, were ~~$31~~$170 million. The unrealized holding ~~losses,~~gains, net of ~~gains,~~losses, recorded as a component of net investment gains and losses for the six-month period ended June 30, ~~2020,~~2021, that relate to equity securities still held at the June 30, ~~2020~~2021 reporting date, were ~~$118~~$93 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, 2021			December 31, 2020
Unrealized gains (losses) on securities available for sale		$	13,822		$	14,290
Deferred income taxes		(3,830)			(3,929)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities		$	9,992		$	10,361

(In millions) June 30, 2020 December 31,
2019
Unrealized gains (losses) on securities available for sale $ 11,820
$ 11,891

Deferred income taxes (3,288 ) (3,343 )
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities $ 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~~periods ended June 30, ~~2020~~2021 and ~~available-for-sale and held-to-maturity investments for prior periods that were in an unrealized loss position,~~December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

June 30, 2020

Total Less than 12 months 12 months or longer
(In millions) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Fixed maturity securities available
for sale:
  Japan government and
agencies:
  Yen-denominated $ 2,196
$ 45
$ 2,196
$ 45
$ 0
$ 0

  Municipalities:
  Yen-denominated 144
8
131
7
13
1

Mortgage- and asset-
backed securities:
  Yen-denominated 36
1
36
1
0
0

  Public utilities:
  U.S. dollar-denominated 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 60
6
23
1
37
5

  Yen-denominated 3,584
319
2,753
205
831
114

  Other corporate:
  U.S. dollar-denominated 3,625
297
1,329
70
2,296
227

  Yen-denominated 1,647
153
1,394
128
253
25

  Total $ 12,646
$ 871
$ 9,096
$ 492
$ 3,550
$ 379

15

December 31, 2019

Total Less than 12 months 12 months or longer
(In millions) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
Fixed maturity securities:
  Municipalities:
  Yen-denominated $ 80
$ 3
$ 80
$ 3
$ 0
$ 0

  Public utilities:
  U.S. dollar-denominated 306
10
69
2
237
8

  Banks/financial institutions:
  U.S. dollar-denominated 79
4
18
0
61
4

  Yen-denominated 1,828
89
1,828
89
0
0

  Other corporate:
  U.S. dollar-denominated 4,261
248
792
53
3,469
195

  Yen-denominated 636
31
636
31
0
0

  Total $ 7,190
$ 385
$ 3,423
$ 178
$ 3,767
$ 207


	June 30, 2021
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities available for sale:


Japan government and agencies:
Yen-denominated		$	3,974		$	78		$	3,279		$	32		$	695		$	46
Municipalities:
U.S. dollar-denominated		38			1			37			1			1			0
Yen-denominated		194			7			81			2			113			5
Mortgage- and asset- backed securities:

Yen-denominated		34			1			0			0			34			1
Public utilities:
U.S. dollar-denominated		175			4			88			1			87			3
Yen-denominated		232			2			181			1			51			1



Banks/financial institutions:
U.S. dollar-denominated		103			2			81			1			22			1
Yen-denominated		1,361			65			207			1			1,154			64
Other corporate:
U.S. dollar-denominated		1,996			66			883			17			1,113			49
Yen-denominated		588			23			141			2			447			21
Total		$	8,695		$	249		$	4,978		$	58		$	3,717		$	191


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


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

Analysis of Securities in Unrealized Loss Positions

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

For any significant declines in fair value of its fixed maturity securities, the Company performs a more focused review of the related issuers' credit profile. For corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, the Company analyzes all sources of credit support, including issuer-specific factors. The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer's capital structure, covenant protections, or other relevant features. From these reviews, the Company evaluates the issuers' continued ability to service the Company's investment through payment of interest and principal.

Assuming no credit-related factors develop, unrealized gains and losses on fixed maturity securities are expected to diminish as investments near maturity. Based on its credit analysis, the Company believes that the issuers of its fixed maturity investments in the sectors shown in the table above have the ability to service their obligations to the Company, and the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

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

allowance has been calculated. As of June 30, ~~2020,~~2021, the Company ~~recorded~~held an allowance of ~~$38~~$26 million. Refer to the Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

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

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

(In millions) 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.~~


(In millions)	June 30, 2021				December 31, 2020
	Amortized Cost		% of Total		Amortized Cost		% of Total
Commercial Mortgage and other loans:
Transitional real estate loans:
Office	$	1,916	16.6	%	$	2,115	19.7	%
Retail	121		1.1		125		1.2
Apartments/Multi-Family	1,818		15.9		1,782		16.6
Industrial	88		0.8		85		.8
Hospitality	1,115		9.7		1,106		10.3
Other	198		1.7		81		.7
Total transitional real estate loans	5,256		45.8		5,294		49.3
Commercial mortgage loans:
Office	397		3.6		401		3.7
Retail	336		2.9		340		3.2
Apartments/Multi-Family	658		5.7		588		5.5
Industrial	481		4.2		391		3.6

Other	5		0.0		0		0.0
Total commercial mortgage loans	1,877		16.4		1,720		16.0
Middle market loans	4,338		37.8		3,720		34.7
Total commercial mortgage and other loans	$	11,471	100.0	%	$	10,734	100.0	%
Allowance for credit losses	(139)				(180)
Total net commercial mortgage and other loans	$	11,332			$	10,554

~~Commercial mortgage~~

CMLs and ~~transitional real estate loans~~TREs were secured by properties entirely within the U.S. (with the largest concentrations in California ~~(20%~~(21%), Texas ~~(13%~~(11%) and Florida ~~(10%~~(9%)). Middle market loans are issued only to companies domiciled within the U.S. and Canada.

Transitional Real Estate Loans

~~Transitional real estate loans~~TREs are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date. This loan portfolio is generally considered to be investment grade. As of June 30, ~~2020,~~2021, the Company had ~~$729 million~~$1.0 billion in outstanding commitments to fund ~~transitional real estate loans.~~TREs. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

~~Commercial mortgage loans~~CMLs are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans. As of June 30, ~~2020,~~2021, the Company had no0 outstanding commitments to fund ~~commercial mortgage loans.~~CMLs. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

~~Middle market loans~~MMLs are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for ~~middle market loans~~MMLs included ~~$19~~$29 million and ~~$99~~$25 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

As of June 30, ~~2020,~~2021, the Company had commitments of approximately ~~$2.5~~$2.1 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 future ~~middle market loans.~~MMLs. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

~~Credit Losses~~

~~Effective January 1, 2020, the Company 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 Company records the estimate of expected credit losses for certain loan commitments within other liabilities in the consolidated balance sheet.

~~Write-offs and partial write-offs are recorded as a reduction to the amortized cost of the loan 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, 2020 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the 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 indicator is loan-to-value (LTV). Given that TRE loans involve properties undergoing renovation or construction, ~~loan-to-value~~LTV provides the most insight into the credit risk of the loan. The Company monitors the performance of the loans periodically, but not less frequently than quarterly.

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

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

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

The following tables present as of June 30, ~~2020~~2021 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.


Transitional Real Estate Loans
(In millions)	2021		2020		2019		2018		2017		Total
Loan-to-Value Ratio:
0%-59.99%	$	419	$	54	$	510	$	328	$	77	$	1,388
60%-69.99%	220		171		850		616		182		2,039
70%-79.99%	143		262		693		522		182		1,802
80% or greater	0		27		0		0		0		27
Total	$	782	$	514	$	2,053	$	1,466	$	441	$	5,256

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)	2021		2020		2019		2018		2017		Prior		Total		Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%	$	166	$	32	$	439	$	129	$	68	$	569	$	1,403	2.48
60%-69.99%	34		16		178		40		0		127		395		2.04
70%-79.99%	0		0		32		0		0		21		53		1.61
80% or greater	0		0		0		0		0		26		26		1.63
Total	200		48		649		169		68		743		1,877		2.35
Weighted Average DSCR	2.56		1.97		2.48		2.18		2.51		2.23

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)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
Credit Ratings:
BBB	$	18	$	84	$	58	$	39	$	10	$	3	$	48	$	260
BB	146		358		310		202		66		32		161		1,275
B	329		501		660		361		223		148		177		2,399
CCC	0		5		81		81		67		34		72		340
CC	0		0		0		14		39		0		2		55
C and lower	0		8		0		0		0		0		1		9
Total	$	493	$	956	$	1,109	$	697	$	405	$	217	$	461	$	4,338

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~~LTV and debt service coverage ratios. The credit allowance for the reinsurance recoverable balance is estimated using a probability-of-default (PD) / loss-given-default (LGD) method.

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

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

~~A TDR involves a situation where~~The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $21.8 billion amortized cost as of June 30, 2021 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

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

When determining the Company's intention to sell a security prior to recovery of its fair value to amortized cost, the Company evaluates facts and circumstances such as, but not ~~otherwise have considered due~~limited to, ~~the borrower’s financial difficulties.~~future cash flow needs, decisions to reposition its security portfolio, and risk profile of individual investment holdings. The Company ~~has elected to apply Section 4013~~performs ongoing analyses of its liquidity needs, which includes cash flow testing of its policy liabilities, debt maturities, projected dividend payments, and other cash flow and liquidity needs.

The Company’s methodology for estimating credit losses for available-for-sale fixed maturity securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as industry analysis and credit ratings of the ~~CARES Act, or~~fixed maturity securities. In addition, 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~~Company evaluates the ~~CARES Act applies to loan modifications made between March 1, 2020~~specific issuer’s probability of default and expected recovery of its position in the ~~earlier~~event of ~~(i) December 31, 2020 or (ii) 60 days after~~default based on the ~~end~~underlying financial condition and assets of the ~~COVID-19 national emergency,~~borrower as ~~determined by~~well as seniority and/or security of other debt holders in the ~~Executive Branch, whereas the Interagency statement does not specify a time horizon.~~issuer when developing management’s best estimate of expected cash flows.

The Company granted certain loan modifications in its MML and TRE portfolios during the period ended June 30, 2021. As of June 30, 2021, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had 0 troubled debt restructurings (TDRs) during the period ended June 30, 2021 and an immaterial amount due to COVID-19 during the ~~six months~~year ended ~~June 30,~~December 31, 2020. ~~The nature of the modifications varied in scope and significance, but generally a small proportion of modifications qualified as TDR.~~

The Company ~~continues to evaluate~~designates nonaccrual status for a nonperforming debt security or a loan ~~modifications in our MML and TRE portfolios. As~~that is not generating its stated interest rate because of ~~June 30, 2020,~~nonpayment of periodic interest by the ~~amortized cost of modified loans where Section 4013 of the CARES Act or the Interagency statement is applicable was immaterial.~~

borrower. The Company ~~had an immaterial amount of TDRs during~~applies the ~~six months ended June 30, 2020.~~cash basis method to record any payments received on non-accrual assets. The Company ~~had no TDRs during 2019~~. ~~For certain TDRs, modifications resulted in write-offs~~resumes the accrual of interest on fixed maturity securities and loans that are currently making contractual payments or for ~~certain loans~~those that are not current where the ~~modified loan resulted in a forgiveness of existing principal and are included in the rollforward of the allowance for credit losses below.~~borrower has paid timely (less than 30 days outstanding).

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had ~~an immaterial amount (cost basis) of~~0 loans ~~and~~or 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~~.segment.


(in millions)																			(in millions)	Transitional Real Estate Loans		Commercial Mortgage Loans		Middle Market Loans		Held to Maturity Securities		Available for Sale Securities		Reinsurance Recoverables
Three Months Ended June 30, 2021:																			Three Months Ended June 30, 2021:
Balance at March 31, 2021																			Balance at March 31, 2021	$	(47)	$	(24)	$	(83)	$	(8)	$	(27)	$	(13)
(Addition to) release of allowance for credit losses																			(Addition to) release of allowance for credit losses	6		2		7		0		1		0

(in millions)	Transitional Real Estate Loans			Commercial Mortgage Loans			Middle Market Loans			Held to Maturity Securities			Available for Sale Securities			Reinsurance Recoverables
Balance at June 30, 2021																			Balance at June 30, 2021	$	(41)	$	(22)	$	(76)	$	(8)	$	(26)	$	(13)
Three Months Ended June 30, 2020:																			Three Months Ended June 30, 2020:
Balance at March 31, 2020																			Balance at March 31, 2020	$	(27)	$	(11)	$	(87)	$	(9)	$	(63)	$	(11)
(Addition to) release of allowance for credit losses																			(Addition to) release of allowance for credit losses	(39)		(31)		(56)		0		(11)		0
Write-offs, net of recoveries																			Write-offs, net of recoveries	0		0		9		0		36		0
Balance at June 30, 2020																			Balance at June 30, 2020	$	(66)	$	(42)	$	(134)	$	(9)	$	(38)	$	(11)
Six Months Ended June 30, 2021:																			Six Months Ended June 30, 2021:
Balance at December 31, 2020																			Balance at December 31, 2020	$	(63)	$	(33)	$	(85)	$	(9)	$	(38)	$	(11)
(Addition to) release of allowance for credit losses																			(Addition to) release of allowance for credit losses	22		11		9		1		0		(2)
Write-offs, net of recoveries																			Write-offs, net of recoveries	0		0		0		0		12		0

Balance at June 30, 2021																			Balance at June 30, 2021	$	(41)	$	(22)	$	(76)	$	(8)	$	(26)	$	(13)
Six Months Ended June 30, 2020:																			Six Months Ended June 30, 2020:
Balance at December 31, 2019 ⁽¹⁾	$	(22	)	$	(3	)	$	(20	)	$	0		$	0		$	0		Balance at December 31, 2019 (1)	$	(22)	$	(3)	$	(20)	$	0	$	0	$	0
Transition impact to retained earnings	(2		)	(8		)	(33		)	(10		)	0			(11		)	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			(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			Write-offs, net of recoveries	0		0		9		0		36		0
Balance at June 30, 2020	$	(66	)	$	(42	)	$	(134	)	$	(9	)	$	(38	)	$	(11	)	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~~2021 was ~~$95~~$35 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, 2020			December 31, 2019			(In millions)	June 30, 2021			December 31, 2020
Other investments:							Other investments:
Policy loans		$	263		$	250	Policy loans		$	243		$	260
Short-term investments ⁽¹⁾		763			628		Short-term investments (1)		1,667			1,139
Limited partnerships		718			569		Limited partnerships		1,329			1,004
Other		27			30		Other		19			26
Total other investments		$	1,771		$	1,477	Total other investments		$	3,258		$	2,429

⁽¹⁾Includes securities lending collateral

As of June 30, ~~2020,~~2021, the Company had ~~$1.3 billion~~$180 million 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, 2020 December 31, 2019
(In millions)
Amortized
Cost ⁽¹⁾
Fair
Value Amortized
Cost Fair
Value
Assets:
Fixed maturity securities, available for sale $ 3,127
$ 4,063
$ 3,308
$ 4,312

Commercial mortgage and other loans 9,117
9,049
7,956
8,015

Other investments ⁽²⁾
589
589
494
494

Other assets ⁽³⁾
87
87
169
169

Total assets of consolidated VIEs $ 12,920
$ 13,788
$ 11,927
$ 12,990

Liabilities:
Other liabilities ⁽³⁾
$ 255
$ 255
$ 126
$ 126

Total liabilities of consolidated VIEs $ 255
$ 255
$ 126
$ 126


	June 30, 2021						December 31, 2020
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Assets:
Fixed maturity securities, available for sale		$	3,295		$	4,493		$	3,487		$	4,596

Commercial mortgage and other loans		9,575			9,679			8,964			9,040
Other investments (2)		1,111			1,111			826			826
Other assets (3)		110			110			133			133
Total assets of consolidated VIEs		$	14,091		$	15,393		$	13,410		$	14,595
Liabilities:
Other liabilities (3)		$	310		$	310		$	231		$	231
Total liabilities of consolidated VIEs		$	310		$	310		$	231		$	231

⁽¹⁾Net of allowance for credit losses

⁽²⁾ Consists entirely of alternative investments in limited partnerships

⁽³⁾ Consists entirely of derivatives

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

Investments in Unit Trust Structures

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

VIEs - Not Consolidated

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

Investments in Variable Interest Entities Not Consolidated

June 30, 2020 December 31, 2019
(In millions) Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Assets:
Fixed maturity securities, available for sale $ 5,982
$ 6,837
$ 4,129
$ 4,884

Fixed maturity securities, held to maturity 0
0
1,848
2,236

Other investments ⁽¹⁾
129
129
75
74

Total investments in VIEs not consolidated $ 6,111
$ 6,966
$ 6,052
$ 7,194


	June 30, 2021						December 31, 2020
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	5,155		$	6,356		$	5,477		$	6,767
Other investments (1)		218			218			178			178
Total investments in VIEs not consolidated		$	5,373		$	6,574		$	5,655		$	6,945

⁽¹⁾ Consists entirely of alternative investments in limited partnerships

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

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

Securities Lending and Pledged Securities

The Company lends fixed maturity and public equity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. The Company receives cash or other securities as collateral for such loans. The Company's security lending policy requires that the fair value of the securities received as collateral be 102% or more of the fair value of the loaned securities and that unrestricted cash received as collateral be 100% or more of the fair value of the loaned securities. The securities loaned continue to be carried as investment assets on the Company's balance sheet during the terms of the loans and are not reported as sales. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral. For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge, the collateral is not reflected on the consolidated financial statements.

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


Securities Lending Transactions Accounted for as Secured Borrowings	Securities Lending Transactions Accounted for as Secured Borrowings														Securities Lending Transactions Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements	Remaining Contractual Maturity of the Agreements														Remaining Contractual Maturity of the Agreements
	June 30, 2020								December 31, 2019							June 30, 2021						December 31, 2020
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		30-90 days		Total		Overnight and Continuous⁽¹⁾		Up to 30 days		Total		(In millions)	Overnight and Continuous(1)		Up to 30 days		Total			Overnight and Continuous(1)		Up to 30 days		Total
Securities lending transactions:															Securities lending transactions:
Fixed maturity securities:															Fixed maturity securities:
Japan government and agencies	$	0	$	1,720	$	155	$	1,875	$	0	$	1,013	$	1,013	Japan government and agencies	$	0	$	2,015	$	2,015		$	0	$	0	$	0

Public utilities	25		0		0		25		35		0		35		Public utilities	43		0		43			57		0		57
Sovereign and supranational	5		0		0		5		2		0		2		Sovereign and supranational	3		0		3			3		0		3
Banks/financial institutions	38		0		0		38		48		0		48		Banks/financial institutions	95		0		95			63		0		63
Other corporate	332		0		0		332		778		0		778		Other corporate	977		0		977			841		0		841
Total borrowings	$	400	$	1,720	$	155	$	2,275	$	863	$	1,013	$	1,876	Total borrowings	$	1,118	$	2,015	$	3,133		$	964	$	0	$	964
Gross amount of recognized liabilities for securities lending transactions	Gross amount of recognized liabilities for securities lending transactions						$	2,275					$	1,876	Gross amount of recognized liabilities for securities lending transactions					$	3,133						$	964

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

In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of ~~$4,731~~$8,202 million and ~~$4,759~~$6,654 million at June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which may not be sold or re-pledged, unless the counterparty is in default. Such securities collateral is not reflected on the consolidated financial statements.

The Company did ~~not~~0t have any repurchase agreements or repurchase-to-maturity transactions outstanding as of June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

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


4.	~~DERIVATIVE INSTRUMENTS~~

4. DERIVATIVE INSTRUMENTS

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

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

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

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

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

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

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

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

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

Derivative Types

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

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

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

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

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

Derivative Balance Sheet Classification

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


		June 30, 2021									December 31, 2020
(In millions)				Asset Derivatives			Liability Derivatives						Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value			Fair Value			Notional Amount			Fair Value			Fair Value
Cash flow hedges:
Foreign currency swaps - VIE		$	18		$	0		$	2		$	18		$	0		$	1
Total cash flow hedges		18			0			2			18			0			1
Fair value hedges:
Foreign currency forwards		62			0			2			64			2			0
Foreign currency options		8,680			1			1			8,865			0			0

Total fair value hedges		8,742			1			3			8,929			2			0
Net investment hedge:
Foreign currency forwards		5,015			258			1			5,010			14			84
Foreign currency options		1,951			0			0			2,027			1			0
Total net investment hedge		6,966			258			1			7,037			15			84
Non-qualifying strategies:
Foreign currency swaps		2,250			59			22			2,250			47			81
Foreign currency swaps - VIE		2,998			110			308			2,857			133			230
Foreign currency forwards		14,265			309			759			26,528			386			301
Foreign currency options		5,570			0			0			11,037			0			0

Interest rate swaps		3,500			1			1			0			0			0

Forward bond purchase commitment - VIE		18			1			0			0			0			0
Total non-qualifying strategies		28,601			480			1,090			42,672			566			612
Total derivatives		$	44,327		$	739		$	1,096		$	58,656		$	583		$	697

June 30, 2020 December 31, 2019
(In millions) Asset
Derivatives Liability
Derivatives Asset
Derivatives Liability
Derivatives
Hedge Designation/ Derivative
Type Notional
Amount Fair Value Fair Value Notional
Amount Fair Value Fair Value
Cash flow hedges:
Foreign currency swaps - VIE $ 75
$ 0
$ 13
$ 75
$ 0
$ 8

Total cash flow hedges 75
0
13
75
0
8

Fair value hedges:
Foreign currency forwards 62
0
0
964
0
38

Foreign currency options 8,689
0
2
11,573
0
5

Interest rate swaptions 243
0
0
243
0
0

Total fair value hedges 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 2,250
73
29
2,800
72
78

Foreign currency swaps - VIE 2,657
87
242
2,587
169
118

Foreign currency forwards 17,110
177
391
19,821
166
337

Foreign currency options 9,149
0
0
9,553
0
0

Interest rate swaps 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 33,225
351
663
41,888
410
533

Total derivatives $ 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 approximately 6five years. The derivatives in the Company's consolidated VIEs that are not designated as accounting hedges are discussed in the "non-qualifying strategies" section of this note.

Fair Value Hedges

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

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

Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge

effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment income. The change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term.

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

Fair Value Hedging Relationships

(In millions) Hedging Derivatives Hedged Items
Hedging Derivatives Hedged Items Total
Gains
(Losses)
Gains (Losses)
Excluded from Effectiveness Testing⁽¹⁾

Gains (Losses)
Included in Effectiveness Testing⁽²⁾

Gains (Losses)⁽²⁾
Net Investment Gains (Losses) Recognized for Fair Value Hedge
Three Months Ended 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) $ (2 ) $ (2 ) $ 0
$ 0
$ 0
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:
Foreign currency forwards Fixed maturity securities $ 6
$ (14 ) $ 20
$ (21 ) $ (1 )
Interest rate
swaptions Fixed maturity securities (2 ) (2 ) 0
0
0
Total gains (losses) 4
(16 ) 20
(21 ) (1 )
Six Months Ended June 30, 2019:
Foreign currency forwards Fixed maturity securities $ 15
$ (24 ) $ 39
$ (39 ) $ 0
Foreign currency options Fixed maturity securities (4 ) (4 ) 0
0
0
Interest rate
swaptions Fixed maturity securities (3 ) (3 ) 0
0
0
Total gains (losses) $ 8
$ (31 ) $ 39
$ (39 ) $ 0


(In millions)		Hedging Derivatives						Hedged Items
Hedging Derivatives	Hedged Items	Total Gains (Losses)		Gains (Losses) Excluded from Effectiveness Testing(1)		Gains (Losses) Included in Effectiveness Testing(2)		Gains (Losses)(2)		Net Investment Gains (Losses) Recognized for Fair Value Hedge
Three Months Ended June 30, 2021:

Foreign currency options	Fixed maturity securities	49		(7)		56		(55)		1

Total gains (losses)		$	49	$	(7)	$	56	$	(55)	$	1
Six Months Ended June 30, 2021:
Foreign currency forwards	Fixed maturity securities	$	(4)	$	0	$	(4)	$	4	$	0
Foreign currency options	Fixed maturity securities	(11)		(10)		(1)		4		3

Total gains (losses)		$	(15)	$	(10)	$	(5)	$	8	$	3
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)		$	(2)	$	(2)	$	0	$	0	$	0
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

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

⁽²⁾ Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statement of earnings as net investment gains (losses). For interest rate swaptions and related hedged items, gains and losses included in the hedge assessment, premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income. The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains and losses consistent with the impact of the hedged item. For the three-month and six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

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


(In millions)	Carrying Amount of the Hedged Assets/(Liabilities)⁽¹⁾					Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)				(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)
		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019				June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Fixed maturity securities		$	4,540	$	4,633	$	245	$	256	Fixed maturity securities		$	3,477	$	4,331	$	217	$	237

⁽¹⁾The balance includes hedging adjustment on discontinued hedging relationships of ~~$245~~$217 in ~~2020~~2021 and ~~$256~~$237 in ~~2019.~~2020.

~~The total notional amount of the Company's interest rate swaptions was $243 in 2020 and $243 in 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. Beginning in July 2019, certain foreign currency forwards and options were designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.

The Company's net investment hedge was effective during the three- and six-month periods ended June 30, 2021 and 2020, ~~and 2019,~~ respectively.

Non-qualifying Strategies

For the Company's derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within net investment gains (losses). The amount of gain or loss recognized in earnings for the Company's VIEs is attributable to the derivatives in those investment structures. While the change in value of the swaps is recorded through current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded through other comprehensive income.

As of June 30, ~~2020,~~2021, the Parent Company had $2.3 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 9 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report.

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

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


	Three Months Ended June 30,																													Three Months Ended June 30,
	2020														2019															2021										2020
(In millions)	Net Investment Income ⁽¹⁾				Net Investment Gains (Losses)						Other Comprehensive Income (Loss)⁽²⁾				Net Investment Income ⁽¹⁾				Net Investment Gains (Losses)						Other Comprehensive Income (Loss)⁽²⁾				(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:																													Qualifying hedges:
Cash flow hedges:																													Cash flow hedges:
Foreign currency swaps - VIE		$	0			$	0					$	(2	)		$	0			$	0					$	0		Foreign currency swaps - VIE		$	0		$	(1)			$	1		$	0		$	0			$	(2)
Total cash flow hedges		0				0			⁽³	⁾		(2		)		0				0			⁽³	⁾		0			Total cash flow hedges		0			(1)		(3)		1			0			0		(3)		(2)
Fair value hedges:																													Fair value hedges:
Foreign currency forwards ⁽³⁾						(1		)												(15		)							Foreign currency forwards (3)					0										(1)
Foreign currency options ⁽³⁾						(1		)												0									Foreign currency options (3)					(6)										(1)
Interest rate swaptions ⁽³⁾		(1		)		0						1				(1		)		0						(1		)	Interest rate swaptions (3)		0			0				0			(1)			0				1
Total fair value hedges		(1		)		(2		)				1				(1		)		(15		)				(1		)	Total fair value hedges		0			(6)				0			(1)			(2)				1
Net investment hedge:																													Net investment hedge:
Non-derivative hedging instruments						0						(28		)						0						(54		)	Non-derivative hedging instruments					0				8						0				(28)

Foreign currency forwards						101						(50		)						0						0			Foreign currency forwards					31				6						101				(50)
Foreign currency options						(7		)				0								0						0			Foreign currency options					(1)				0						(7)				0
Total net investment hedge						94						(78		)						0						(54		)	Total net investment hedge					30				14						94				(78)
Non-qualifying strategies:																													Non-qualifying strategies:
Foreign currency swaps						31														0									Foreign currency swaps					12										31
Foreign currency swaps - VIE						(30		)												13									Foreign currency swaps - VIE					(108)										(30)
Foreign currency forwards						30														114									Foreign currency forwards					(11)										30
Foreign currency options						(3		)												0									Foreign currency options					(15)										(3)

Interest rate swaps						2														10									Interest rate swaps					3										2
Forward bond purchase commitment- VIE						(2		)												0									Forward bond purchase commitment- VIE					0										(2)
Total non- qualifying strategies						28														137									Total non- qualifying strategies					(119)										28
Total		$	(1	)		$	120					$	(79	)		$	(1	)		$	122					$	(55	)	Total		$	0		$	(96)			$	15		$	(1)		$	120			$	(79)

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

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

⁽²⁾(3) Impact of cash flow hedges reported as net investment gains (losses) includes ~~an immaterial amount~~$1 million 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, 2021 and 2020. In addition, an immaterial amount of gain (loss) was reclassified from accumulated other comprehensive income (loss) into earnings during the three-month periods ended June 30, 2021 and 2020, ~~and 2019, respectively.~~

⁽³⁾respectively, related to fair value hedges excluded component.Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).

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 )
30


	Six Months Ended June 30,
	2021										2020
(In millions)	Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)			Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE		$	0		$	(2)			$	1		$	(1)		$	0			$	(6)
Total cash flow hedges		0			(2)		(3)		1			(1)			0		(3)		(6)
Fair value hedges:
Foreign currency forwards(3)					0										(7)
Foreign currency options(3)					(7)										(1)
Interest rate swaptions(3)		0			0				0			(1)			0				1
Total fair value hedges		0			(7)				0			(1)			(8)				1
Net investment hedge:
Non-derivative hedging instruments					0				196						0				(21)
Foreign currency forwards					49				341						152				(75)
Foreign currency options					(3)				0						(1)				0
Total net investment hedge					46				537						151				(96)
Non-qualifying strategies:
Foreign currency swaps					99										81
Foreign currency swaps - VIE					(79)										(225)
Foreign currency forwards					(443)										(6)
Foreign currency options					1										(5)
Interest rate swaps					3										49
Forward bond purchase commitment - VIE					(1)										(2)
Total non-qualifying strategies					(420)										(108)
Total		$	0		$	(383)			$	538		$	(2)		$	35			$	(101)

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

⁽²⁾(3) Impact of cash flow hedges reported as net investment gains (losses) includes ~~an immaterial amount~~$2 million 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, 2021 and 2020. In addition, an immaterial amount of income/(loss) was reclassified from accumulated other comprehensive income (loss) into earnings during the six-month periods ended June 30, 2021 and 2020, ~~and 2019, respectively.~~respectively, related to fair value hedges excluded component.

⁽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, ~~2020,~~2021, $5 million of 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.~~months.

Credit Risk Assumed through Derivatives

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

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

As of June 30, ~~2020,~~2021, all of the Company's derivative agreement counterparties were investment grade.

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

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

Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately ~~$339~~$555 million and ~~$301~~$268 million as of June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, ~~2020,~~2021, the Company estimates that it would be required to post a maximum of ~~$151~~$103 million of additional collateral to these derivative counterparties. The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights. (See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates.)

Offsetting of Financial Instruments and Derivatives

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

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

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

Offsetting of Financial Assets and Derivative Assets


June 30, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Received			Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	628		$	0		$	628		$	(332)	$	(45)		$	(194)		$	57
OTC - cleared		1			0			1			(1)		0			0			0
Total derivative assets subject to a master netting agreement or offsetting arrangement		629			0			629			(333)		(45)			(194)			57
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		110						110											110

Total derivative assets not subject to a master netting agreement or offsetting arrangement		110						110											110
Total derivative assets		739			0			739			(333)		(45)			(194)			167
Securities lending and similar arrangements		3,100			0			3,100			0		0			(3,100)			0
Total		$	3,839		$	0		$	3,839		$	(333)	$	(45)		$	(3,294)		$	167


June 30, 2020
December 31, 2020																								December 31, 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			(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Received			Net Amount
Derivative assets:																								Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement																								Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	373		$	0		$	373		$	(200	)	$	(6	)		$	(162	)		$	5	OTC - bilateral		$	450		$	0		$	450		$	(295)	$	(73)		$	(76)		$	6
OTC - cleared		14			0			14			0			0				(10		)		4

Total derivative assets subject to a master netting agreement or offsetting arrangement		387			0			387			(200		)	(6		)		(172		)		9		Total derivative assets subject to a master netting agreement or offsetting arrangement		450			0			450			(295)		(73)			(76)			6
Derivative assets not subject to a master netting agreement or offsetting arrangement																								Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		87						87														87		OTC - bilateral		133						133											133

Total derivative assets not subject to a master netting agreement or offsetting arrangement		87						87														87		Total derivative assets not subject to a master netting agreement or offsetting arrangement		133						133											133
Total derivative assets		474			0			474			(200		)	(6		)		(172		)		96		Total derivative assets		583			0			583			(295)		(73)			(76)			139
Securities lending and similar arrangements		2,260			0			2,260			0			0				(2,260		)		0		Securities lending and similar arrangements		940			0			940			0		0			(940)			0
Total		$	2,734		$	0		$	2,734		$	(200	)	$	(6	)		$	(2,432	)		$	96	Total		$	1,523		$	0		$	1,523		$	(295)	$	(73)		$	(1,016)		$	139

December 31, 2019
Gross Amounts Not Offset
in Balance Sheet
(In millions) Gross Amount of Recognized Assets
Gross Amount
Offset in
Balance Sheet

Net Amount of Assets Presented
in Balance Sheet
Financial Instruments
Securities
Collateral
Cash Collateral Received Net Amount
Derivative
  assets:

    Derivative
      assets subject to a
      master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral $ 310
$ 0
$ 310
$ (190 ) $ (7 ) $ (113 ) $ 0

          OTC - cleared 3
0
3
0
0
0
3

    Total derivative
      assets subject to a
      master netting
      agreement or
      offsetting
      arrangement
313
0
313
(190 ) (7 ) (113 ) 3

    Derivative
      assets not subject
      to a master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral 169
169
169

    Total derivative
      assets not subject
      to a master netting
      agreement or
      offsetting
      arrangement
169
169
169

    Total derivative
      assets
482
0
482
(190 ) (7 ) (113 ) 172

Securities lending
   and similar
   arrangements
1,860
0
1,860
0
0
(1,860 ) 0

    Total $ 2,342
$ 0
$ 2,342
$ (190 ) $ (7 ) $ (1,973 ) $ 172

Offsetting of Financial Liabilities and Derivative Liabilities


June 30, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities			Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Pledged			Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	785		$	0		$	785		$	(332)	$	(437)		$	(15)		$	1
OTC - cleared		1			0			1			(1)		0			0			0
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		786			0			786			(333)		(437)			(15)			1
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		310						310											310

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		310						310											310
Total derivative liabilities		1,096			0			1,096			(333)		(437)			(15)			311
Securities lending and similar arrangements		3,133			0			3,133			(3,100)		0			0			33
Total		$	4,229		$	0		$	4,229		$	(3,433)	$	(437)		$	(15)		$	344

June 30, 2020
Gross Amounts Not Offset
in Balance Sheet
(In millions) Gross Amount of Recognized Liabilities
Gross Amount
Offset in
Balance Sheet

Net Amount of Liabilities Presented
in Balance Sheet
Financial Instruments
Securities
Collateral
Cash Collateral Pledged Net Amount
Derivative
  liabilities:

    Derivative
      liabilities subject
      to a master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral $ 425
$ 0
$ 425
$ (200 ) $ (188 ) $ 0
$ 37

    Total derivative
      liabilities subject
      to a master netting
      agreement or
      offsetting
      arrangement
425
0
425
(200 ) (188 ) 0
37

    Derivative
      liabilities not
      subject to a
      master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral 255
255
255

    Total derivative
      liabilities not
      subject to a
      master netting
      agreement or
      offsetting
      arrangement
255
255
255

    Total derivative
      liabilities
680
0
680
(200 ) (188 ) 0
292

Securities lending
   and similar
   arrangements
2,275
0
2,275
(2,260 ) 0
0
15

    Total $ 2,955
$ 0
$ 2,955
$ (2,460 ) $ (188 ) $ 0
$ 307

December 31, 2019
Gross Amounts Not Offset
in Balance Sheet
(In millions) Gross Amount of Recognized Liabilities
Gross Amount
Offset in
Balance Sheet

Net Amount of Liabilities Presented
in Balance Sheet
Financial Instruments
Securities
Collateral
Cash Collateral Pledged Net Amount
Derivative
  liabilities:

    Derivative
      liabilities subject
      to a master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral $ 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
460
0
460
(190 ) (222 ) (33 ) 15

    Derivative
      liabilities not
      subject to a
      master netting
      agreement or
      offsetting
      arrangement

          OTC - bilateral 126
126
126

    Total derivative
      liabilities not
      subject to a
      master netting
      agreement or
      offsetting
      arrangement
126
126
126

    Total derivative
      liabilities
586
0
586
(190 ) (222 ) (33 ) 141

Securities lending
   and similar
   arrangements
1,876
0
1,876
(1,860 ) 0
0
16

    Total $ 2,462
$ 0
$ 2,462
$ (2,050 ) $ (222 ) $ (33 ) $ 157


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

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

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

For additional information on the Company's financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report.


5.	~~FAIR VALUE MEASUREMENTS~~

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, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies		$	34,344		$	1,338		$	0		$	35,682
Municipalities		0			2,965			0			2,965
Mortgage- and asset-backed securities		0			1,026			258			1,284
Public utilities		0			9,913			480			10,393
Sovereign and supranational		0			1,213			45			1,258
Banks/financial institutions		0			11,866			38			11,904
Other corporate		0			38,482			316			38,798
Total fixed maturity securities		34,344			66,803			1,137			102,284
Equity securities		1,231			86			158			1,475
Other investments		1,667			0			0			1,667
Cash and cash equivalents		5,469			0			0			5,469
Other assets:
Foreign currency swaps		0			59			110			169
Foreign currency forwards		0			567			0			567
Foreign currency options		0			1			0			1
Interest rate swaps		0			1			0			1
Forward bond purchase commitment		0			1			0			1

Total other assets		0			629			110			739
Total assets		$	42,711		$	67,518		$	1,405		$	111,634
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	22		$	310		$	332
Foreign currency forwards		0			762			0			762
Foreign currency options		0			1			0			1
Interest rate swaps		0			1			0			1


Total liabilities		$	0		$	786		$	310		$	1,096


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

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


Total liabilities		$	0		$	466		$	231		$	697

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


	June 30, 2020																June 30, 2021
(In millions)	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value			(In millions)	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:																Assets:
Securities held to maturity, carried at amortized cost:																Securities held to maturity, carried at amortized cost:
Fixed maturity securities:																Fixed maturity securities:
Government and agencies		$	22,528		$	27,781		$	249		$	0		$	28,030	Government and agencies		$	21,938		$	26,683		$	241		$	0		$	26,924
Municipalities		364			0			481			0			481		Municipalities		351			0			461			0			461

Public utilities		45			0			59			0			59		Public utilities		45			0			58			0			58
Sovereign and supranational		549			0			692			0			692		Sovereign and supranational		534			0			681			0			681

Other corporate		23			0			31			0			31		Other corporate		23			0			30			0			30
Commercial mortgage and other loans		10,717			0			0			10,650			10,650		Commercial mortgage and other loans		11,332			0			0			11,468			11,468
Other investments ⁽¹⁾		27			0			27			0			27		Other investments (1)		19			0			19			0			19
Total assets		$	34,253		$	27,781		$	1,539		$	10,650		$	39,970	Total assets		$	34,242		$	26,683		$	1,490		$	11,468		$	39,641
Liabilities:																Liabilities:
Other policyholders’ funds		$	7,484		$	0		$	0		$	7,393		$	7,393	Other policyholders’ funds		$	7,368		$	0		$	0		$	7,257		$	7,257
Notes payable (excluding leases)		7,618			0			8,200			276			8,476		Notes payable (excluding leases)		7,979			0			8,462			270			8,732
Total liabilities		$	15,102		$	0		$	8,200		$	7,669		$	15,869	Total liabilities		$	15,347		$	0		$	8,462		$	7,527		$	15,989

⁽¹⁾ Excludes policy loans of ~~$263~~$243 and equity method investments of ~~$718,~~$1,329, at carrying value

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
Assets:
Securities held to maturity,
carried at amortized cost:
  Fixed maturity securities:
Government and agencies $ 22,241
$ 27,937
$ 354
$ 0
$ 28,291

Municipalities 821
0
1,083
0
1,083

Mortgage and asset-backed
securities 16
0
7
10
17

Public utilities 2,535
0
2,954
0
2,954

Sovereign and
supranational 1,123
0
1,320
0
1,320

Banks/financial institutions 916
0
1,018
0
1,018

Other corporate 2,433
0
2,911
0
2,911

Commercial mortgage and
other loans 9,569
0
0
9,648
9,648

Other investments ⁽¹⁾
30
0
30
0
30

  Total assets $ 39,684
$ 27,937
$ 9,677
$ 9,658
$ 47,272

Liabilities:
Other policyholders’ funds $ 7,317
$ 0
$ 0
$ 7,234
$ 7,234

Notes payable
(excluding leases) 6,408
0
6,663
272
6,935

Total liabilities $ 13,725
$ 0
$ 6,663
$ 7,506
$ 14,169

39


	December 31, 2020
(In millions)	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies		$	23,445		$	28,810		$	260		$	0		$	29,070
Municipalities		377			0			499			0			499

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

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

(1) Excludes policy loans of ~~$250~~$260 and equity method investments of ~~$569,~~$1,004, at carrying value

Fair Value of Financial Instruments

Fixed maturity and equity securities

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

A third party pricing vendor has developed valuation models to determine fair values of privately issued ~~securities~~securities. Starting in June 2021, these models and associated processes and controls were substantially transitioned to ~~reflect the impact of the persistent economic environment~~ and ~~the changing regulatory framework.~~executed by company personnel. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the credit default swap (CDS) market to estimate expected cash flows. These models take into consideration any unique characteristics of the securities and make various adjustments to arrive at an appropriate issuer-specific loss adjusted credit curve. This credit curve is then used with the relevant recovery rates to estimate expected cash flows and modeling of additional features, including illiquidity adjustments, if necessary, to price the security by discounting those loss adjusted cash flows. In cases where a credit curve cannot be developed from the specific security features, the valuation methodology takes into consideration other market observable inputs, including:

1) the most appropriate comparable security(ies) of the issuer

2) issuer-specific CDS spreads

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

4) bond indices that are comparative in rating, industry, maturity and region.

The pricing data and market quotes the Company obtains from outside sources, including third party pricing services, are reviewed internally for reasonableness. If a fair value appears unreasonable, the Company will re-examine the inputs and assess the reasonableness of the pricing data with the vendor. Additionally, the Company may compare the inputs to relevant market indices and other performance measurements. Based on management's analysis, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data. Beginning in the third quarter of 2020, the Company refined these valuation models to explicitly incorporate currency

basis swap adjustments (market observable data) to assumed interest rate curves where appropriate. The Company has performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent reasonable estimates of fair value.

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

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


	June 30, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	34,344		$	837		$	0		$	35,181
Broker/other (1)		0			501			0			501
Total government and agencies		34,344			1,338			0			35,682
Municipalities:
Third party pricing vendor		0			2,117			0			2,117
Broker/other (1)		0			848			0			848
Total municipalities		0			2,965			0			2,965
Mortgage- and asset-backed securities:
Third party pricing vendor		0			1,023			0			1,023
Broker/other (1)		0			3			258			261
Total mortgage- and asset-backed securities		0			1,026			258			1,284
Public utilities:
Third party pricing vendor		0			4,644			0			4,644
Broker/other (1)		0			5,269			480			5,749
Total public utilities		0			9,913			480			10,393
Sovereign and supranational:
Third party pricing vendor		0			286			0			286
Broker/other (1)		0			927			45			972
Total sovereign and supranational		0			1,213			45			1,258
Banks/financial institutions:
Third party pricing vendor		0			5,243			0			5,243
Broker/other (1)		0			6,623			38			6,661
Total banks/financial institutions		0			11,866			38			11,904
Other corporate:
Third party pricing vendor		0			30,184			0			30,184
Broker/other (1)		0			8,298			316			8,614
Total other corporate		0			38,482			316			38,798
Total securities available for sale		$	34,344		$	66,803		$	1,137		$	102,284
Equity securities, carried at fair value:
Third party pricing vendor		$	1,231		$	86		$	0		$	1,317
Broker/other (1)		0			0			158			158
Total equity securities		$	1,231		$	86		$	158		$	1,475

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
Securities available for sale, carried at fair value:
      Fixed maturity securities:
         Government and agencies:
            Third party pricing vendor $ 34,980
$ 1,507
$ 0
$ 36,487

               Total government and agencies 34,980
1,507
0
36,487

         Municipalities:
            Third party pricing vendor 0
2,492
0
2,492

               Total municipalities 0
2,492
0
2,492

         Mortgage- and asset-backed securities:
            Third party pricing vendor 0
358
0
358

            Broker/other 0
0
188
188

               Total mortgage- and asset-backed securities 0
358
188
546

         Public utilities:
            Third party pricing vendor 0
9,620
0
9,620

            Broker/other 0
0
322
322

               Total public utilities 0
9,620
322
9,942

         Sovereign and supranational:
            Third party pricing vendor 0
1,377
0
1,377

               Total sovereign and supranational 0
1,377
0
1,377

         Banks/financial institutions:
            Third party pricing vendor 0
11,190
0
11,190

            Broker/other 0
0
24
24

               Total banks/financial institutions 0
11,190
24
11,214

         Other corporate:
            Third party pricing vendor 0
37,658
0
37,658

            Broker/other 0
0
243
243

               Total other corporate 0
37,658
243
37,901

                  Total securities available for sale $ 34,980
$ 64,202
$ 777
$ 99,959

Equity securities, carried at fair value:
            Third party pricing vendor $ 587
$ 76
$ 0
$ 663

            Broker/other 0
0
86
86

               Total equity securities $ 587
$ 76
$ 86
$ 749

(1) Other includes in-house valuations generated by DCF models which utilize observable market data inputs.


	June 30, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	26,683		$	241		$	0		$	26,924
Total government and agencies		26,683			241			0			26,924
Municipalities:
Third party pricing vendor		0			461			0			461
Total municipalities		0			461			0			461




Public utilities:
Third party pricing vendor		0			58			0			58

Total public utilities		0			58			0			58
Sovereign and supranational:
Third party pricing vendor		0			325			0			325
Broker/other (1)		0			356			0			356
Total sovereign and supranational		0			681			0			681




Other corporate:
Third party pricing vendor		0			30			0			30

Total other corporate		0			30			0			30
Total securities held to maturity		$	26,683		$	1,471		$	0		$	28,154

(1) Other includes in-house valuations generated by DCF models which utilize observable market data inputs.

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
Securities available for sale, carried at fair value:
      Fixed maturity securities:
         Government and agencies:
            Third party pricing vendor $ 34,878
$ 1,522
$ 0
$ 36,400

               Total government and agencies 34,878
1,522
0
36,400

         Municipalities:
            Third party pricing vendor 0
1,847
0
1,847

               Total municipalities 0
1,847
0
1,847

         Mortgage- and asset-backed securities:
            Third party pricing vendor 0
232
0
232

            Broker/other 0
0
178
178

               Total mortgage- and asset-backed securities 0
232
178
410

         Public utilities:
            Third party pricing vendor 0
6,556
0
6,556

            Broker/other 0
0
224
224

               Total public utilities 0
6,556
224
6,780

         Sovereign and supranational:
            Third party pricing vendor 0
1,042
0
1,042

               Total sovereign and supranational 0
1,042
0
1,042

         Banks/financial institutions:
            Third party pricing vendor 0
10,264
0
10,264

            Broker/other 0
0
23
23

               Total banks/financial institutions 0
10,264
23
10,287

         Other corporate:
            Third party pricing vendor 0
34,234
0
34,234

            Broker/other 0
0
262
262

               Total other corporate 0
34,234
262
34,496

                  Total securities available for sale $ 34,878
$ 55,697
$ 687
$ 91,262

Equity securities, carried at fair value:
            Third party pricing vendor $ 642
$ 80
$ 0
$ 722

            Broker/other 0
0
80
80

               Total equity securities $ 642
$ 80
$ 80
$ 802

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
Securities held to maturity, carried at amortized cost:
      Fixed maturity securities:
         Government and agencies:
            Third party pricing vendor $ 27,937
$ 354
$ 0
$ 28,291

               Total government and agencies 27,937
354
0
28,291

         Municipalities:
            Third party pricing vendor 0
1,083
0
1,083

               Total municipalities 0
1,083
0
1,083

         Mortgage- and asset-backed securities:
            Third party pricing vendor 0
7
0
7

            Broker/other 0
0
10
10

               Total mortgage- and asset-backed securities 0
7
10
17

         Public utilities:
            Third party pricing vendor 0
2,954
0
2,954

               Total public utilities 0
2,954
0
2,954

         Sovereign and supranational:
            Third party pricing vendor 0
1,320
0
1,320

               Total sovereign and supranational 0
1,320
0
1,320

         Banks/financial institutions:
            Third party pricing vendor 0
1,018
0
1,018

               Total banks/financial institutions 0
1,018
0
1,018

         Other corporate:
            Third party pricing vendor 0
2,911
0
2,911

               Total other corporate 0
2,911
0
2,911

                  Total securities held to maturity $ 27,937
$ 9,647
$ 10
$ 37,594


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


	December 31, 2020
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	28,810		$	260		$	0		$	29,070
Total government and agencies		28,810			260			0			29,070
Municipalities:
Third party pricing vendor		0			499			0			499
Total municipalities		0			499			0			499




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



Other corporate:
Third party pricing vendor		0			33			0			33

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

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

Derivatives

The Company uses derivative instruments to manage the risk associated with certain assets. However, the derivative instrument may not be classified in the same fair value hierarchy level as the associated asset. ~~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 Company uses present value techniques to value non-option based derivatives. It also uses option pricing models to value option based derivatives. Key inputs are as follows:


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

(1) Option-based only

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

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

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

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

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

Commercial mortgage and other loans

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

Other investments

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

Other policyholders' funds

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

Notes payable

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

Transfers between Hierarchy Levels and Level 3 Rollforward

Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.

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

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 as a net value.


Three Months Ended June 30, 2021
	Fixed Maturity Securities										Equity Securities		Derivatives
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	204	$	479	$	68	$	28	$	319	$	122	$	(80)	$	1,140
Net investment gains (losses) included in earnings	0		0		0		0		0		13		(120)		(107)
Unrealized gains (losses) included in other comprehensive income (loss)	0		8		0		0		14		0		0		22
Purchases, issuances, sales and settlements:
Purchases	54		0		0		10		0		6		0		70
Issuances	0		0		0		0		0		17		0		17
Sales	0		0		(23)		0		0		0		0		(23)
Settlements	0		(7)		0		0		(17)		0		0		(24)
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	$	258	$	480	$	45	$	38	$	316	$	158	$	(200)	$	1,095
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings	$	0	$	0	$	0	$	0	$	0	$	0	$	(120)	$	(120)

⁽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~~

Six 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 $ 178
$ 224
$ 23
$ 262
$ 80
$ 43
$ 810

Net investment gains (losses) included
in earnings 0
0
0
0
0
(205 ) (205 )
Unrealized gains (losses) included in other
comprehensive income (loss) 2
(9 ) 0
(16 ) 0
(6 ) (29 )
Purchases, issuances, sales and settlements:
Purchases 0
96
1
12
7
0
116

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 9
⁽²⁾
15
⁽³⁾
0
0
0
0
24

Transfers out of Level 3 0
0
0
(15 )
⁽³⁾
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
$ (205 ) $ (205 )

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

⁽²⁾


Three Months Ended June 30, 2020
	Fixed Maturity Securities								Equity Securities		Derivatives
(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
Net 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		0		0		0			0		15
Transfers out of Level 3	0		0		0		(15)		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)

~~Transfer due to reclassification of level 3 securities from HTM to AFS~~

⁽³⁾


Six Months Ended June 30, 2021
	Fixed Maturity Securities										Equity Securities		Derivatives
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	224	$	422	$	48	$	24	$	299	$	102	$	(98)	$	1,021
Net investment gains (losses) included in earnings	0		0		0		0		0		22		(101)		(79)
Unrealized gains (losses) included in other comprehensive income (loss)	(15)		(10)		(3)		(1)		2		0		(1)		(28)
Purchases, issuances, sales and settlements:
Purchases	64		78		0		15		0		17		0		174
Issuances	0		0		0		0		0		17		0		17
Sales	0		0		(23)		0		0		0		0		(23)
Settlements	0		(10)		0		0		(17)		0		0		(27)
Transfers into Level 3	0		0		23		0		32		0		0		55
Transfers out of Level 3	(15)		0		0		0		0		0		0		(15)
Balance, end of period	$	258	$	480	$	45	$	38	$	316	$	158	$	(200)	$	1,095
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings	$	0	$	0	$	0	$	0	$	0	$	0	$	(101)	$	(101)

~~Transfer due to sector classification change~~

Six 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 $ 177
$ 109
$ 23
$ 213
$ 46
$ 80
$ 648

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 ) 18

Purchases, issuances, sales and settlements:
Purchases 0
0
0
88
19
0
107

Issuances 0
0
0
0
0
0
0

Sales 0
0
0
(2 ) 0
0
(2 )
Settlements 0
(2 ) 0
0
0
0
(2 )
Transfers into Level 3 0
116
⁽²⁾
0
25
⁽²⁾
0
0
141

Transfers out of Level 3 0
(25 )
⁽²⁾
0
(132 )
^(2),(3)
0
0
(157 )
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
$ 16
$ 16

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

⁽²⁾ ~~Transfer due to sector classification change~~

⁽³⁾


Six Months Ended June 30, 2020
	Fixed Maturity Securities								Equity Securities		Derivatives
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	178	$	224	$	23	$	262	$	80	$	43	$	810
Net investment gains (losses) included in earnings	0		0		0		0		0		(205)		(205)
Unrealized gains (losses) included in other comprehensive income (loss)	2		(9)		0		(16)		0		(6)		(29)
Purchases, issuances, sales and settlements:
Purchases	0		96		1		12		7		0		116
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	9		15		0		0		0		0		24
Transfers out of Level 3	0		0		0		(15)		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	$	(205)	$	(205)

~~Transfer due to availability of observable market inputs~~

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, 2020
(In millions) Fair Value Valuation Technique(s) Unobservable Input Range
(Weighted Average)
Assets:
  Securities available for sale, carried at fair value:
    Fixed maturity securities:
       Mortgage- and asset-backed securities $ 188
Consensus pricing Offered quotes N/A
^(a)
       Public utilities 322
Discounted cash flow Credit spreads N/A
^(a)
       Banks/financial institutions 24
Consensus pricing Offered quotes N/A
^(a)
       Other corporate 243
Discounted cash flow Credit spreads N/A
^(a)
  Equity securities 86
Net asset value Offered quotes N/A
^(a)
  Other assets:

       Foreign currency swaps 12
Discounted cash flow Interest rates (USD) .61% - .88%
^(b)
Interest rates (JPY) .06% - .37%
^(c)
CDS spreads 12 - 119 bps
75
Discounted cash flow Interest rates (USD) .61% - .88%
^(b)
Interest rates (JPY) .06% - .37%
^(c)
            Total assets $ 950

Liabilities:
  Other liabilities:
       Foreign currency swaps $ 237
Discounted cash flow Interest rates (USD) .61% - .88%
^(b)
Interest rates (JPY) .06% - .37%
^(c)
CDS spreads 46 - 202 bps
18
Discounted cash flow Interest rates (USD) .61% - .88%
^(b)
Interest rates (JPY) .06% - .37%
^(c)
            Total liabilities $ 255

June 30, 2021

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

Assets:

Securities available for sale, carried at fair value:

Fixed maturity securities:

Mortgage- and asset-backed securities

258

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

480

Discounted cash flow

Credit spreads

N/A

(a)

Sovereign and supranational

Discounted cash flow

Historical volatility

N/A

(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

(a)

Other corporate

316

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

158

Net asset value

Offered quotes

N/A

(a)

Other assets:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

1.44%

1.77%

(b)

Interest rates (JPY)

.09%

.50%

(c)

CDS spreads

21 bps

118 bps

Discounted cash flow

Interest rates (USD)

1.44%

1.77%

(b)

Interest rates (JPY)

.09%

.50%

(c)

Total assets

1,405

Liabilities:

Other liabilities:

Foreign currency swaps

170

Discounted cash flow

Interest rates (USD)

1.44%

1.77%

(b)

Interest rates (JPY)

.09%

.50%

(c)

CDS spreads

15 bps

174 bps

140

Discounted cash flow

Interest rates (USD)

1.44%

1.77%

(b)

Interest rates (JPY)

.09%

.50%

(c)

Total liabilities

310

(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, 2019

December 31, 2020

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

Assets:

Securities available for sale, carried at fair value:

Fixed maturity securities:

Mortgage- and asset-backed securities

178

Consensus pricing

Offered quotes

N/A

^(a)

Mortgage- and asset-backed securities

224

Consensus pricing

Offered quotes

N/A

(a)

Public utilities

224

Discounted cash flow

Credit spreads

N/A

^(a)

Public utilities

422

Discounted cash flow

Credit spreads

N/A

(a)

Sovereign and supranational

Discounted cash flow

Historical volatility

N/A

(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(a)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

(a)

Other corporate

262

Discounted cash flow

Credit spreads

N/A

^(a)

Other corporate

299

Discounted cash flow

Credit spreads

N/A

(a)

Equity securities

Net asset value

Offered quotes

N/A

^(a)

Equity securities

102

Net asset value

Offered quotes

N/A

(a)

Other assets:

Foreign currency swaps

106

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

.93%

1.40%

(b)

Interest rates (JPY)

.12% - .43%

^(c)

Interest rates (JPY)

.05%

.43%

(c)

CDS spreads

10 - 100 bps

CDS spreads

22 bps

128 bps

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Interest rates (JPY)

.12% - .43%

^(c)

Discounted cash flow

Interest rates (USD)

.93%

1.40%

(b)

Interest rates (JPY)

.05%

.43%

(c)

Total assets

936

Total assets

1,252

Liabilities:

Other liabilities:

�� Foreign currency swaps

118

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Foreign currency swaps

160

Discounted cash flow

Interest rates (USD)

.93%

1.12%

(b)

Interest rates (JPY)

.05%

.35%

(c)

CDS spreads

41 bps

140 bps

Interest rates (JPY)

.12% - .43%

^(c)

CDS spreads

13 - 159 bps

Discounted cash flow

Interest rates (USD)

1.89% - 2.09%

^(b)

Discounted cash flow

Interest rates (USD)

.93%

1.12%

(b)

Interest rates (JPY)

.12% - .43%

^(c)

Interest rates (JPY)

.05%

.35%

(c)

Total liabilities

126

Total liabilities

231

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

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

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

Net Asset Value

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

Offered Quotes

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

Interest Rates and CDS Spreads

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

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

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

For additional information on the Company's investments and financial instruments, see the accompanying Notes 1, 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report.


6.	~~POLICY LIABILITIES~~

6. POLICY LIABILITIES

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


	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)		2021		2020			2021		2020
Unpaid supplemental health claims, beginning of period		$	4,192	$	3,983		$	4,389	$	3,968
Less reinsurance recoverables		37		33			39		31
Net balance, beginning of period		4,155		3,950			4,350		3,937
Add claims incurred during the period related to:
Current year		1,710		1,736			3,570		3,574
Prior years		(198)		(166)			(518)		(302)
Total incurred		1,512		1,570			3,052		3,272
Less claims paid during the period on claims incurred during:
Current year		1,139		1,127			1,657		1,681
Prior years		407		411			1,461		1,558
Total paid		1,546		1,538			3,118		3,239
Effect of foreign exchange rate changes on unpaid claims		4		22			(159)		34
Net balance, end of period		4,125		4,004			4,125		4,004
Add reinsurance recoverables		37		37			37		37
Unpaid supplemental health claims, end of period		4,162		4,041			4,162		4,041
Unpaid life claims, end of period		759		732			759		732
Total liability for unpaid policy claims		$	4,921	$	4,773		$	4,921	$	4,773

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Unpaid supplemental health claims, beginning of period $ 3,983
$ 3,967
$ 3,968
$ 3,952

Less reinsurance recoverables 33
29
31
28

Net balance, beginning of period 3,950
3,938
3,937
3,924

Add claims incurred during the period related to:
Current year 1,736
1,785
3,574
3,610

Prior years (166 ) (136 ) (302 ) (303 )
Total incurred 1,570
1,649
3,272
3,307

Less claims paid during the period on claims incurred during:
Current year 1,127
1,229
1,681
1,735

Prior years 411
430
1,558
1,568

Total paid 1,538
1,659
3,239
3,303

Effect of foreign exchange rate changes on unpaid claims 22
65
34
65

Net balance, end of period 4,004
3,993
4,004
3,993

Add reinsurance recoverables 37
31
37
31

Unpaid supplemental health claims, end of period 4,041
4,024
4,041
4,024

Unpaid life claims, end of period 732
682
732
682

Total liability for unpaid policy claims $ 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 ~~$302~~$518 million for the six-month period ended June 30, ~~2020~~2021 comprises approximately ~~$188~~$220 million from Japan ~~which represents~~and $298 million from the U.S., representing approximately ~~62%~~42% and 58% of the ~~total.~~total, respectively. Excluding the impact of foreign exchange of a ~~gain~~loss of approximately $1$5 million from December 31, ~~2019~~2020 to June 30, ~~2020,~~2021, the favorable claims development in Japan would have been approximately ~~$187~~$225 million, representing approximately ~~62%~~43% of the total.

The Company has experienced continued favorable claim trends in ~~2020~~2021 for its core health products in Japan. ~~The Company's experience in Japan related~~During the first six months of 2021, there were impacts from lower utilization of healthcare services, due to the ~~average length of stay~~COVID-19 pandemic. This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits, and was staying home more. This resulted in ~~the hospital for~~lower sickness, accident, and cancer ~~treatment has shown continued decline in the current period.~~incurred claims. In addition, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

~~The remainder~~For the majority of the ~~favorable~~Company's major U.S. accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability, the incurred claims development related to prior years ~~for the six-month period ended June 30, 2020,~~ reflects ~~Aflac U.S.~~ favorable claims experience compared to previous estimates. The U.S. portion of the favorable claims development includes $125 million related to refinements in estimates ~~primarily in the cancer~~for COVID and ~~accident lines of business.~~non-COVID claims as experience emerged.


7.	~~REINSURANCE~~

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 $926 million and $1.0 billion as of ~~both~~ June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of ~~$991~~$972 million and ~~$970 million~~$1.0 billion as of June 30, ~~2020~~2021 and December 31, ~~2019,~~

2020, 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~~weakened by approximately ~~1.7%~~6.4% and ceded reserves ~~increased~~decreased approximately ~~3.9%~~6.2% from December 31, ~~2019~~2020 to June 30, ~~2020.~~2021.

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


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2021			2020			2021			2020
Direct premium income		$	4,490		$	4,752		$	9,141		$	9,525
Ceded to other companies:
Ceded Aflac Japan closed blocks		(109)			(116)			(223)			(232)
Other		(15)			(24)			(34)			(48)
Assumed from other companies:
Retrocession activities		45			49			93			97
Other		30			3			57			4
Net premium income		$	4,441		$	4,664		$	9,034		$	9,346

Direct benefits and claims		$	2,687		$	2,975		$	5,463		$	6,003
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(94)			(105)			(193)			(210)
Eliminations		8			10			16			19
Other		(9)			(21)			(17)			(45)
Assumed from other companies:
Retrocession activities		42			47			84			87
Eliminations		(8)			(10)			(16)			(19)
Other		27			1			50			2
Benefits and claims, net		$	2,653		$	2,897		$	5,387		$	5,837

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Direct premium income $ 4,752
$ 4,766
$ 9,525
$ 9,542

Ceded to other companies:
    Ceded Aflac Japan closed blocks (116 ) (119 ) (232 ) (240 )
    Other (24 ) (17 ) (48 ) (32 )
Assumed from other companies:
    Retrocession activities 49
50
97
100

    Other 3
1
4
3

Net premium income $ 4,664
$ 4,681
$ 9,346
$ 9,373

Direct benefits and claims $ 2,975
$ 3,038
$ 6,003
$ 6,078

Ceded benefits and change in reserves for future benefits:
    Ceded Aflac Japan closed blocks (105 ) (109 ) (210 ) (219 )
    Eliminations 10
10
19
20

    Other (21 ) (12 ) (45 ) (24 )
Assumed from other companies:
    Retrocession activities 47
47
87
97

    Eliminations (10 ) (10 ) (19 ) (20 )
    Other 1
0
2
0

Benefits and claims, net $ 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~~¥120 billion of reserves. This reinsurance facility agreement was renewed in ~~2019~~2020 and is effective until December 31, ~~2020.~~2021. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if ~~Aflac‘s~~Aflac's Standard and Poor's (S&P) rating drops below BBB-. As of June 30, ~~2020,~~2021, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

8. NOTES PAYABLE AND LEASE OBLIGATIONS


8.	~~NOTES PAYABLE AND LEASE OBLIGATIONS~~

A summary of notes payable and lease obligations follows:

(In millions) June 30, 2020 December 31, 2019
4.00% senior notes paid January 2020 $ 0
$ 348

3.625% senior notes due June 2023 698
698

3.625% senior notes due November 2024 747
747

3.25% senior notes due March 2025 448
448

2.875% senior notes due October 2026 298
298

3.60% senior notes due April 2030 990
0

6.90% senior notes due December 2039 221
220

6.45% senior notes due August 2040 254
254

4.00% senior notes due October 2046 394
394

4.750% senior notes due January 2049 541
541

Yen-denominated senior notes and subordinated debentures:
.300% senior notes due September 2025 (principal amount ¥ 12.4 billion) 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 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 $ 7,771
$ 6,569


(In millions)	June 30, 2021			December 31, 2020
3.625% senior notes paid May 2021		$	0		$	698
3.625% senior notes due November 2024		747			747
3.25% senior notes due March 2025		448			448
1.125% senior sustainability notes due March 2026		397			0
2.875% senior notes due October 2026		298			298
3.60% senior notes due April 2030		991			990
6.90% senior notes due December 2039		221			221
6.45% senior notes due August 2040		254			254
4.00% senior notes due October 2046		394			394
4.750% senior notes due January 2049		541			541
Yen-denominated senior notes and subordinated debentures:
.300% senior notes due September 2025 (principal amount ¥12.4 billion)		112			119
.932% senior notes due January 2027 (principal amount ¥60.0 billion)		541			578
.500% senior notes due December 2029 (principal amount ¥12.6 billion)		113			121
.550% senior notes due March 2030 (principal amount ¥13.3 billion)		119			127
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)		264			282
.633% senior notes due April 2031 (principal amount ¥30.0 billion)		269			0
.843% senior notes due December 2031 (principal amount ¥9.3 billion)		84			90
.750% senior notes due March 2032 (principal amount ¥20.7 billion)		186			198
.844% senior notes due April 2033 (principal amount ¥12.0 billion)		108			0
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)		137			146
.934% senior notes due December 2034 (principal amount ¥9.8 billion)		88			94
.830% senior notes due March 2035 (principal amount ¥10.6 billion)		95			101
1.039% senior notes due April 2036 (principal amount ¥10.0 billion)		89			0
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)		80			85
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)		57			61
1.264% senior notes due April 2041 (principal amount ¥10.0 billion)		89			0
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)		538			575
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)		270			289
1.560% senior notes due April 2051 (principal amount ¥20.0 billion)		179			0
Yen-denominated loans:
Variable interest rate loan due September 2026 (.42% in 2021 and .43% in 2020, principal amount ¥5.0 billion)		45			48
Variable interest rate loan due September 2029 (.57% in 2021 and .58% in 2020, principal amount ¥25.0 billion)		225			240
Finance lease obligations payable through 2027		13			11
Operating lease obligations payable through 2049		129			143
Total notes payable and lease obligations		$	8,121		$	7,899

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

In April ~~2020,~~2021, the Parent Company issued ~~$1.0~~5 series of senior notes totaling ¥82.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥30.0 billion, bears interest at a fixed rate of .633% per annum, payable semi-annually, and will mature in April 2031. The second series, which totaled ¥12.0 billion, bears interest at a fixed rate of .844% per annum, payable semi-annually, and will mature in April 2033. The third series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.039% per annum, payable semi-annually, and will mature in April 2036. The fourth series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.264% per annum, payable semi-annually, and will mature in April 2041. The fifth series, which totaled ¥20.0 billion, bears interest at a fixed rate of 1.560% per annum, payable semi-annually, and will mature in April 2051. The notes are redeemable at the Parent Company’s option (i) at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance or (ii) on or after the date that is six months prior to the

stated maturity date of the series, in whole or in part, at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.

In May 2021, the Parent Company used a portion of the net proceeds from the April 2021 issuance of its various series of senior notes to redeem $700 million of the Parent Company's 3.625% senior notes due June 2023.

In March 2021, the Parent Company issued $400 million of senior sustainability notes through a U.S. public debt offering. The notes bear interest at a fixed rate of ~~3.60%~~1.125% per annum, payable semi-annually, and will mature in ~~April 2030.~~ March 2026. The Company intends, but is not contractually committed, to allocate an amount at least equivalent to the net proceeds from this issuance exclusively to existing or future investments in, or financing of, assets, businesses or projects that meet the eligibility criteria of the Company's sustainability bond framework described in the offering documentation in connection with such notes. These notes are redeemable at the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S. Treasury security with a maturity comparable to the remaining term of the notes, plus 4510 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.

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 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.~~

A summary of the Company's lines of credit as of June 30, ~~2020~~2021 follows:

Borrower(s)

Type

Term

Expiration Date

Capacity

Amount Outstanding

Interest Rate on Borrowed Amount

Maturity Period

Commitment Fee

Business Purpose

Aflac Incorporated
and Aflac

uncommitted bilateral

364 days

December ~~18, 2020~~17, 2021

$100 million

$0 million

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

Up to 3 months

None

General corporate purposes

Aflac Incorporated

unsecured revolving

5 years

March 29,

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

¥100.0 billion

¥0.0 billion

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

No later than
March 29, 2024

.30% to .50%, depending on the Parent Company's debt ratings as of the date of determination

General corporate purposes, including a capital contingency plan for the operations of the Parent Company

Aflac Incorporated
and Aflac

unsecured revolving

5 years

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

$1.0 billion

$0.0 billion

A rate per annum equal to, at the Company's option, either, (a) LIBOR adjusted for certain costs or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin

No later than November 18, 2024

.085% to

.225%, depending on the Parent Company's debt ratings as of the date of determination

General corporate purposes, including a capital contingency plan for the operations of the Parent Company

Aflac Incorporated
and Aflac

uncommitted bilateral

None specified

$50 million

$0 million

A rate per annum equal to, at the Parent Company's option, either (a) a eurocurrency rate determined by reference to the agent's LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the greater of (i) the prime rate as determined by the agent, and (ii) the sum of 0.50% and the federal funds rate for such day

Up to 3 months

None

General corporate purposes

Aflac⁽¹⁾

uncommitted revolving

364 days

November 30, ~~2020~~2021

$250 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated⁽¹⁾

uncommitted revolving

364 days

April ~~2, 2021~~4, 2022

¥50.0 billion

¥0.0 billion

Three-month TIBOR plus 70 basis points per annum

3 months

None

General corporate purposes

Aflac Incorporated⁽¹⁾

uncommitted revolving

364 days

November ~~25, 2020~~26, 2021

¥50.0 billion

¥0.0 billion

Three-month TIBOR plus 70 basis points per annum

3 months

None

General corporate purposes

Aflac New York⁽¹⁾

uncommitted revolving

364 days

April ~~7, 2021~~8, 2022

$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~~21, 2022

$15 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

Tier One Insurance Company⁽¹⁾

uncommitted revolving

364 days

March ~~20, 2021~~21, 2022

$.30.3 million

$0 million

USD three-month LIBOR plus 75 basis points per annum

3 months

None

General corporate purposes

(1) Intercompany credit agreement

(continued)

Borrower(s)

Type

Term

Expiration Date

Capacity

Amount Outstanding

Interest Rate on Borrowed Amount

Maturity Period

Commitment Fee

Business Purpose

AGV Management Services Japan K.K.⁽¹⁾

uncommitted revolving

364 days

May ~~1, 2021~~2, 2022

¥500 million

¥0350 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~~

2, 2022

None

General corporate purposes

Hatch Healthcare K.K.(1)

uncommitted revolving

364 days

January 3, 2022

¥900 million

¥0 million

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

No later than January 3, 2022

None

General corporate purposes

Hatch Insight K.K.(1)

uncommitted revolving

364 days

January 3, 2022

¥600 million

¥0 million

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

No later than January 3, 2022

None

General corporate purposes

⁽¹⁾ Intercompany credit agreement

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, ~~2020. No~~2021. NaN events of default or defaults occurred during the six-month period ended June 30, ~~2020.~~2021.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 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.9. SHAREHOLDERS’ EQUITY


~~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.


(In thousands of shares)	2021	2020
Common stock - issued:
Balance, beginning of period	1,351,018	1,349,309
Exercise of stock options and issuance of restricted shares	1,374	1,426
Balance, end of period	1,352,392	1,350,735
Treasury stock:
Balance, beginning of period	658,564	622,516
Purchases of treasury stock:
Share repurchase program	22,614	15,193
Other	381	521
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(717)	(1,116)
Exercise of stock options	(223)	(45)
Other	(217)	(242)
Balance, end of period	680,402	636,827
Shares outstanding, end of period	671,990	713,908

(In thousands of shares) 2020 2019
Common stock - issued:
Balance, beginning of period 1,349,309
1,347,540
Exercise of stock options and issuance of restricted shares 1,426
1,504
Balance, end of period 1,350,735
1,349,044
Treasury stock:
Balance, beginning of period 622,516
592,254
Purchases of treasury stock:
Share repurchase program 15,193
17,179
Other 521
574
Dispositions of treasury stock:
Shares issued to AFL Stock Plan (1,116 ) (836 )
Exercise of stock options (45 ) (305 )
Other (242 ) (287 )
Balance, end of period 636,827
608,579
Shares outstanding, end of period 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,
(In thousands)	2021		2020		2021		2020
Anti-dilutive share-based awards		0		1,257		1		989

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

Share Repurchase Program

During the first six months of 2021, the Company repurchased 22.6 million shares of its common stock for $1.2 billion as part of its 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.~~ As of June 30, ~~2020,~~2021, a remaining balance of ~~21.9~~76.5 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, 2020
(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 March 31, 2020 $ (1,543 ) $ 6,043
$ (35 ) $ (277 ) $ 4,188

Other comprehensive
income (loss) before
reclassification 74
2,433
(1 ) (5 ) 2,501

Amounts reclassified from
accumulated other
comprehensive income
(loss) 0
56
0
5
61

Net current-period other
comprehensive
income (loss) 74
2,489
(1 ) 0
2,562

Balance at June 30, 2020 $ (1,469 ) $ 8,532
$ (36 ) $ (277 ) $ 6,750


Three Months Ended June 30, 2021
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at March 31, 2021		$	(1,674)		$	8,794		$	(33)		$	(280)		$	6,807
Other comprehensive income (loss) before reclassification		13			1,202			(1)			(6)			1,208
Amounts reclassified from accumulated other comprehensive income (loss)		0			(4)			1			7			4
Net current-period other comprehensive income (loss)		13			1,198			0			1			1,212
Balance at June 30, 2021		$	(1,661)		$	9,992		$	(33)		$	(279)		$	8,019

All amounts in the table above are net of tax.

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
Balance at March 31, 2019 $ (1,848 ) $ 6,561
$ (26 ) $ (206 ) $ 4,481

Other comprehensive
income (loss) before
reclassification 393
1,512
(1 ) (5 ) 1,899

Amounts reclassified from
accumulated other
comprehensive income
(loss) 0
(18 ) 0
2
(16 )
Net current-period other
comprehensive
income (loss) 393
1,494
(1 ) (3 ) 1,883

Balance at June 30, 2019 $ (1,455 ) $ 8,055
$ (27 ) $ (209 ) $ 6,364


Three Months Ended June 30, 2020
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at March 31, 2020		$	(1,543)		$	6,043		$	(35)		$	(277)		$	4,188
Other comprehensive income (loss) before reclassification		74			2,433			(1)			(5)			2,501
Amounts reclassified from accumulated other comprehensive income (loss)		0			56			0			5			61
Net current-period other comprehensive income (loss)		74			2,489			(1)			0			2,562
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, 2020
(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, 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 154
(975 ) (3 ) (11 ) (835 )
Amounts reclassified from
accumulated other
comprehensive income
(loss) 0
111
0
11
122

Net current-period other
comprehensive
income (loss) 154
(864 ) (3 ) 0
(713 )
Balance at June 30, 2020 $ (1,469 ) $ 8,532
$ (36 ) $ (277 ) $ 6,750

59


Six Months Ended June 30, 2021
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at December 31, 2020		$	(1,109)		$	10,361		$	(34)		$	(284)		$	8,934


Other comprehensive income (loss) before reclassification		(552)			(381)			(1)			(10)			(944)
Amounts reclassified from accumulated other comprehensive income (loss)		0			12			2			15			29
Net current-period other comprehensive income (loss)		(552)			(369)			1			5			(915)
Balance at June 30, 2021		$	(1,661)		$	9,992		$	(33)		$	(279)		$	8,019

All amounts in the table above are net of tax.

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


Six Months Ended June 30, 2020
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at December 31, 2019		$	(1,623)		$	8,548		$	(33)		$	(277)		$	6,615
Cumulative effect of change in accounting principle - ASU 2019-04		0			848			0			0			848
Balance at January 1, 2020		$	(1,623)		$	9,396		$	(33)		$	(277)		$	7,463
Other comprehensive income (loss) before reclassification		154			(975)			(3)			(11)			(835)
Amounts reclassified from accumulated other comprehensive income (loss)		0			111			0			11			122
Net current-period other comprehensive income (loss)		154			(864)			(3)			0			(713)
Balance at June 30, 2020		$	(1,469)		$	8,532		$	(36)		$	(277)		$	6,750

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, 2020
Details about Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the
Statements of Earnings
Unrealized gains (losses) on available-for-sale
securities $ (75 ) Net investment gains (losses)
19

Tax (expense) or benefit⁽¹⁾
$ (56 ) 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 $ (61 ) Net of tax


(In millions)	Three Months Ended June 30, 2021
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	5	Net investment gains (losses)
		(1)		Tax (expense) or benefit(1)
		$	4	Net of tax
Unrealized gains (losses) on derivatives		$	(1)	Net investment gains (losses)
		0		Tax (expense) or benefit(1)
		$	(1)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(9)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		2		Tax (expense) or benefit(1)
		$	(7)	Net of tax
Total reclassifications for the period		$	(4)	Net of tax

⁽¹⁾ Based on ~~25% blended~~21% tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1211 for additional details).

(In millions) 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
Unrealized gains (losses) on available-for-sale
securities $ 25
Net investment gains (losses)
(7 )
Tax (expense) or benefit⁽¹⁾
$ 18
Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses) $ (3 )
Acquisition and operating expenses⁽²⁾
Prior service (cost) credit 0

Acquisition and operating expenses⁽²⁾
1

Tax (expense) or benefit⁽¹⁾
$ (2 ) Net of tax
Total reclassifications for the period $ 16
Net of tax


(In millions)	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
Unrealized gains (losses) on available-for-sale securities		$	(75)	Net investment gains (losses)
		19		Tax (expense) or benefit(1)
		$	(56)	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		$	(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 1211 for additional details).

(In millions) 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
Unrealized gains (losses) on available-for-sale
securities $ (145 ) Net investment gains (losses)
34

Tax (expense) or benefit⁽¹⁾
$ (111 ) Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses) $ (15 )
Acquisition and operating expenses⁽²⁾
Prior service (cost) credit 0

Acquisition and operating expenses⁽²⁾
4

Tax (expense) or benefit⁽¹⁾
$ (11 ) Net of tax
Total reclassifications for the period $ (122 ) Net of tax


(In millions)	Six Months Ended June 30, 2021
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	(15)	Net investment gains (losses)
		3		Tax (expense) or benefit(1)
		$	(12)	Net of tax
Unrealized gains (losses) on derivatives		$	(2)	Net investment gains (losses)
		0		Tax (expense) or benefit(1)
		$	(2)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(19)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		4		Tax (expense) or benefit(1)
		$	(15)	Net of tax
Total reclassifications for the period		$	(29)	Net of tax

(1) Based on ~~23% blended~~21% tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1211 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


(In millions)	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
Unrealized gains (losses) on available-for-sale securities		$	(145)	Net investment gains (losses)
		34		Tax (expense) or benefit(1)
		$	(111)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(15)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		4		Tax (expense) or benefit(1)
		$	(11)	Net of tax
Total reclassifications for the period		$	(122)	Net of tax

⁽¹⁾ Based on ~~26%~~23% blended tax rate

⁽²⁾These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 1211 for additional details).

~~11.~~10. 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, ~~2020,~~2021, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan). Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors.

The Plan, as amended on February 14, 2017, allows for a maximum number of shares issuable over its term of 75 million shares including 38 million shares that may be awarded in respect of awards other than options or stock appreciation rights. If any awards granted under the Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture, then the shares underlying the awards will again be available under the Plan.

The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. As of June 30, ~~2020,~~2021, approximately ~~37.9~~36.7 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of June 30, ~~2020,~~2021, the only performance-based awards issued and outstanding were restricted stock awards and units.

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

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

The following table provides information on stock options outstanding and exercisable at June 30, ~~2020.~~2021.


	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		2,419		3.8		$	56		$	30.72
Exercisable		2,419		3.8		56			30.72

Stock
Option Shares
(in thousands) Weighted-Average
Remaining Term
(in years) Aggregate
Intrinsic
Value
(in millions) Weighted-Average
Exercise Price Per
Share
Outstanding 3,366
4.3 $ 21
$ 30.11

Exercisable 3,307
4.2 21
30.01

The Company received cash from the exercise of stock options in the amount of $7$18 million during the first six months of ~~2020,~~2021, compared with ~~$30~~$7 million in the first six months of ~~2019.~~2020. The tax benefit realized as a result of stock option exercises and restricted stock releases was $15 million in the first six months of 2021, compared with $18 million in the first six months of ~~2020, compared with $25 million in the first six months of 2019.~~2020.

As of June 30, ~~2020,~~2021, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was ~~$59~~$60 million, of which $27 million (1(1.7 million shares) was related to restricted stock awards and units with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.8 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, ~~2020.~~2021.


(In thousands of shares)	Shares	Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2020	2,580		$	48.57
Granted in 2021	1,419		47.61
Canceled in 2021	(83)		49.19
Vested in 2021	(1,229)		45.90
Restricted stock at June 30, 2021	2,687		$	49.05

(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 ~~2020,~~2021, the Company granted ~~409~~474 thousand performance-based stock awards, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company estimated the fair value of restricted stock awards with market-based conditions using a Monte Carlo simulation model. The model discounts the value of the stock at the assumed vesting date based on the risk-free interest rate. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage pay-out estimate will be updated each quarter.

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

For additional information on the Company's long-term share-based compensation plans and the types of share-based awards, see Note 12 of the Notes to the Consolidated Financial Statements included in the ~~2019~~2020 Annual Report.


~~12.~~	~~BENEFIT PLANS~~

11. BENEFIT PLANS

The Company has funded defined benefit plans in Japan and the U.S., however the U.S. plan was frozen to new participants effective October 1, 2013. The Company also maintains non-qualified, unfunded supplemental retirement plans that provide defined pension benefits in excess of limits imposed by federal tax law for certain Japanese, U.S. and former employees, however the U.S. plan was frozen to new participants effective January 1, 2015. U.S. employees who are not participants in the defined benefit plan receive a nonelective 401(k) employer contribution. Effective January 1, 2021, the Company increased this nonelective contribution to 4% of an employee's annual cash compensation.

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

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statement of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) ~~of $6~~$7 million and $7$6 million for the three-month periods and $14 million and $12 million for ~~both of~~ the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Total net periodic cost includes the following components:

Three 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 $ 6
$ 5
$ 7
$ 6
$ 0
$ 0

Interest cost 1
2
8
9
1
1

Expected return on plan assets (2 ) (1 ) (9 ) (7 ) 0
0

Amortization of net actuarial loss 1
1
6
2
0
0

Net periodic (benefit) cost $ 6
$ 7
$ 12
$ 10
$ 1
$ 1


	Three Months Ended June 30,
	Pension Benefits												Other
	Japan						U.S.						Postretirement Benefits
(In millions)	2021			2020			2021			2020			2021			2020
Components of net periodic benefit cost:
Service cost		$	6		$	6		$	7		$	7		$	0		$	0
Interest cost		1			1			8			8			1			1
Expected return on plan assets		(2)			(2)			(10)			(9)			0			0
Amortization of net actuarial loss		0			1			8			6			1			0

Net periodic (benefit) cost		$	5		$	6		$	13		$	12		$	2		$	1


	Six Months Ended June 30,																							Six Months Ended June 30,
	Pension Benefits																Other							Pension Benefits												Other
	Japan								U.S.								Postretirement Benefits							Japan						U.S.						Postretirement Benefits
(In millions)	2020				2019				2020				2019				2020			2019			(In millions)	2021			2020			2021			2020			2021			2020
Components of net periodic benefit cost:																							Components of net periodic benefit cost:
Service cost		$	12			$	10			$	14			$	12			$	0		$	0	Service cost		$	12		$	12		$	14		$	14		$	0		$	0
Interest cost		2				3				16				18				1			1		Interest cost		2			2			16			16			1			1
Expected return on plan assets		(4		)		(3		)		(18		)		(14		)		0			0		Expected return on plan assets		(4)			(4)			(20)			(18)			0			0
Amortization of net actuarial loss		2				2				12				5				1			0		Amortization of net actuarial loss		1			2			16			12			2			1

Net periodic (benefit) cost		$	12			$	12			$	24			$	21			$	2		$	1	Net periodic (benefit) cost		$	11		$	12		$	26		$	24		$	3		$	2

During the six months ended June 30, ~~2020,~~2021, Aflac Japan contributed approximately ~~$18~~$19 million (using the weighted-average yen/dollar exchange rate for the six-month period ~~ending~~ended June 30, ~~2020)~~2021) to the Japanese funded defined benefit plan, and Aflac U.S. did ~~not~~0t 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 ~~2019~~2020 Annual Report.

12. COMMITMENTS AND CONTINGENT LIABILITIES


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

Effective for ~~2020,~~2021, the Company entered into an outsourcing agreement with a technology and consulting company to provide mainframe computer operations for Aflac Japan. As of June 30, 2021, the agreement has a remaining term of four years and an aggregate remaining cost of ¥31.6 billion ($285 million using the June 30, 2021 exchange rate).

Effective for 2021, the Company entered into an outsourcing agreement with a management consulting and technology services company to provide application maintenance and development services for Aflac Japan. As of June 30, 2021, the agreement has a remaining term of six years and an aggregate remaining cost of ¥17.8 billion ($161 million using the June 30, 2021 exchange rate).

Effective for 2021, the Company entered into an enterprise agreement with an information technology and data services company to ~~provide application maintenance and development services~~license software for ~~its Japanese operation.~~Aflac Japan. As of June 30, ~~2020,~~2021, the agreement has a remaining term of ~~five~~three years and an aggregate remaining cost of ~~¥15.3~~¥1.9 billion ($~~142~~17 million using the June 30, ~~2020,~~2021 exchange rate).

The Company is a defendant in various lawsuits considered to be in the normal course of business. Members of the Company's senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. Although some of this litigation is pending in states where large punitive damages, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, the Company believes the outcome of pending litigation will not have a material adverse effect on its financial position, results of operations, or cash flows.

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

Guaranty Fund Assessments

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

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company (collectively referred to as Penn Treaty), neither of which is affiliated with Aflac, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. A final order of liquidation was granted by a recognized judicial authority on March 1, 2017, and as a result, Penn Treaty is in the process of liquidation. The Company estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation using a discounted rate of 4.25%. The Company recognized a discounted liability for the assessments of $62 million (undiscounted $94 million), offset by discounted premium tax credits of $48 million (undiscounted $74 million), for a net $14 million impact to net income in the quarter ended March 31, 2017. The Company paid a majority of these assessments by June 30, ~~2020.~~2021. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the six-month period ended June 30, ~~2020~~2021 were immaterial.

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

FORWARD-LOOKING INFORMATION

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

• expect

• anticipate

• believe

• goal

• objective

• may

• should

• estimate

• intends

• projects

• will

• assumes

• potential

• target

• outlook

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

•difficult conditions in global capital markets and the economy, including those caused by COVID-19

•defaults and credit downgrades of investments

•exposure to significant interest rate risk

•concentration of business in Japan

•limited availability of acceptable yen-denominated investments

•foreign currency fluctuations in the yen/dollar exchange rate

•differing judgments applied to investment valuations

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

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

•decline in creditworthiness of other financial institutions

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

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

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

~~events related to the Japan Post investigation and other matters~~

~~competitive environment and ability to 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

~~defaults and credit downgrades of investments~~

~~exposure to 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 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

•subsidiaries' ability to pay dividends to the Parent Company

•inherent limitations to risk management policies and procedures

•the level of sales of Aflac Japan products in the Japan Post channel

•tax rates applicable to the Company may change

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

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

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

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

~~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~~

~~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

•changes in accounting standards

•level and outcome of litigation

•allegations or determinations of worker misclassification in the United States

MD&A OVERVIEW

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the ~~three- and~~ six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, the following discussion should be read in conjunction with the consolidated financial statements and notes that are included in the Company's annual report on Form 10-K for the year ended December 31, ~~2019 (2019~~2020 (2020 Annual Report). In this MD&A, amounts may not foot due to rounding. For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part II. Other Information.

This MD&A is divided into the following sections:

EXECUTIVE SUMMARY

Company Overview

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

COVID-19

~~On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic.~~ The impact of the COVID-19 global pandemic on the Company continues to evolve, and its future effects remain uncertain. At the onset of the pandemic in 2020, the majority of the Company’s employees in Japan and the U.S. shifted to remote working environments, with returns to office undertaken as warranted by local conditions. Both Aflac Japan and Aflac U.S. have taken measures to address employee health and safety and increase employees’ ability to develop and maintain more flexible working conditions, and operations remained stable throughout the first six months of 2021. The Company also took prompt action at the beginning of the pandemic to strengthen its capital and liquidity position, and continues to monitor its investment portfolios to adjust to market conditions, including the continuing recovery and inflation expectations. Both Aflac Japan and Aflac U.S. have accelerated investments in digital initiatives to improve productivity, efficiency and customer service over the long term.

In the three- and six-month periods ended June 30, 2021, sales for Aflac Japan, in yen terms, increased 38.4% and 15.7%, respectively, compared to the same periods in 2020, reflecting the launch of a new medical product in January 2021 and favorable comparisons due to pandemic conditions in 2020. In the three-month period ended June 30, 2021, sales for Aflac U.S. increased 64.1%, compared to the same period in 2020, reflecting increased sales activity as a result of the ongoing economic reopening in the U.S. and favorable comparisons due to pandemic conditions in 2020. In the six-month period ended June 30, 2021, Aflac U.S. sales increased 6.6%. Pandemic-related claims and associated reserve increases in both Japan and the U.S. have not materially impacted financial results in the first six months of 2021 and were more than offset by a reduction in claims related to non-COVID-19 medical needs. The pandemic’s impact on economic conditions have contributed to sales declines, pressuring premium growth rates. This has been partially offset by lower lapse rates in the U.S. The Company has not experienced material realized losses or impairments and credit losses associated with the pandemic. The Company continues to ~~closely~~ monitor the effects and risks of COVID-19, including its variants, to assess its impact on economic conditions in Japan and the U.S. and on the Company's business, financial condition, results of operations, liquidity and capital ~~position in a number of ways, and~~position. Those impacts may cause changes to estimates of future earnings, capital deployment, regulatory capital position, segment dividend payout ratios and other ~~guidance~~measures the Company provided under ~~2020~~2021 Outlook in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the ~~2019~~2020 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 tactical approach to capital allocation.~~management. In terms of ~~repurchase guidance,~~repurchases, 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 $150 million to CAIC in May 2020. The Company also has a committed reinsurance facility in the amount of ¥110 billion of reserves that could be deployed to support SMR. Additionally, Aflac Japan and Aflac U.S. have to date reduced

dividends they provide to the Parent Company in 2020 by ¥75 billion and $75 million, respectively, compared to initial 2020 plans. Taking into consideration the strong liquidity position of the Parent Company as well as the continuing development of economic conditions in Japan and the U.S., 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 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~~regularly evaluates 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~~including changes 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 possibilitylevel of hedging ~~additional~~employed with the U.S dollar-denominated investments. See the Liquidity and Capital Resources section of this MD&A for additional information regarding other potential sources of liquidity and capital resources.

•Investment Portfolio

The Company's investment portfolio was well-positioned entering the crisis, and the Company continues to follow its strategy of investing primarily in fixed maturity securities to generate a reliable stream of income. Fundamental credit analysis and de-risking activity in prior periods contributed to the current quality of the Company’s investments. ~~The~~Although economic and market conditions have continued to improve, the Company remains cautious about the continued ~~with de-risking activity~~path of the recovery and the potential longer term impacts of the pandemic. In addition, the reopening and supply shortages have triggered price increases which have, among other things, increased inflation expectations and which may ultimately result in ~~the second quarter, reducing positions~~an increase in ~~the portfolios seen as more vulnerable in the current environment.~~ inflation.The Company continues working with certain borrowers to ~~closely monitor the impact~~provide temporary relief 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 ofterms by providing payment deferrals and other modifications ~~with respect to underperforming debt investments.~~or waivers where the Company believes it improves its overall position. For additional information on these loan modifications, see Note 3 of the Notes to the Consolidated Financial Statements.

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


•	~~Crisis Management~~

The Company ~~has crisis~~established command centers ~~set up~~ in Japan and the U.S. ~~These command centers are generally utilized for any type of crisis, including natural disasters~~to monitor and ~~cybersecurity events.~~communicate pandemic developments to the Company's leadership. The command centers participate in regular updates to the Company's leadership, ~~regarding Japan and U.S.~~including government and regulatory actions, operations, employee policies and conditions and distribution status. In addition, ~~capital market, central bank and government stimulus~~ updates on cybersecurity 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~~has been meeting more frequently since the onset of the pandemic and has focused on the capital markets, capital and liquidity position, stress testing and any defensive actions that may be ~~necessary as the crisis unfolds.~~necessary.


•	~~Aflac Japan initiatives~~

~~In February 2020,~~ Aflac Japan ~~began to implement actions~~initiatives

Aflac Japan has maintained certain measures implemented at the onset of the pandemic, such as restrictions on travel, working from home, staggered work hours and 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.meetings. As of June 30, ~~2020,~~2021, Aflac Japan ~~has~~had approximately ~~50%~~54% of its workforce working ~~from home.~~remotely. Aflac Japan ~~is evaluating~~continues to evaluate return to the office measures; however, throughout the pandemic, Aflac Japan has evaluated its operational capabilities and anticipates that the remote configuration could remain for an indefinite period of time without materially impacting operations.

In June 2021, in response to the Government of Japan's initiative to accelerate vaccinations, Aflac Japan ~~has announced several additional actions taken~~began offering workplace vaccinations to employees, temporary workers and contractors, including employee co-resident spouses, children and relatives who wish to be vaccinated. Aflac Japan also introduced a special paid leave system for ~~its~~ employees ~~including travel restrictions and extended paid leave.~~who wish to receive a COVID-19 vaccination.

Aflac Japan remains focused on generating new business ~~through direct mail made~~ to existing and prospective ~~customers. In addition, Aflac Japan is promoting~~customers through direct mail and digital and web-based sales to groups and preparing to introduce a new system that enables smartphone-based insurance 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.

methods. Aflac Japan has also ~~followed the guidance of the FSA~~accelerated investments in ~~terms of treating customers with care, ensuring ease~~digital and ~~timeliness of claims payments~~paperless initiatives designed to increase long term productivity, efficiency, customer service and ~~extended coverage for temporary medical facilities~~business continuity.

•Aflac U.S. and ~~telemedicine in certain circumstances,~~Corporate 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.Other initiatives

~~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~~continue to ~~implement Company mandates~~maintain certain employee and worksite safety measures that were first implemented at the onset of the pandemic, including restrictions on international travel, ~~and~~as well as protocols to limit 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.~~employees. As of June 30, ~~2020, approximately 98%~~2021, over 85% of U.S. employees were working ~~remotely, with 100%~~remotely. While a small number of U.S. employees ~~working remotely in certain areas including New York City, including all investment employees based in~~remained at or previously returned to one of the ~~United States. The Company currently anticipates that~~Company's worksites, a ~~return~~company-wide effort to ~~the worksite for~~return U.S. based employees of the Parent Company, ~~and~~ Aflac U.S. ~~will be conducted~~and the U.S. asset management subsidiary to the worksite began in ~~phases beginning no sooner than early~~July 2021. The return to worksite is a phased approach throughout the rest of 2021 and into 2022, 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,~~For those employees who are working in one of the Company's worksites, safety protocols have been put in place that align with or exceed those recommended by the Centers for Disease Control and Prevention (CDC). After the return to worksite, the Parent Company and Aflac U.S. ~~anticipates that the~~expect to adopt a workforce model

comprised of a mix of full time office employees, full time remote ~~configuration could remain for an indefinite period of~~employees, and employees who will split their time ~~without materially impacting operations.~~ between office and remote work.

The Parent Company and Aflac U.S. ~~continue~~also continues 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~~Throughout the pandemic, 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~~Notwithstanding the general improvement of ~~newly recruited agents has been delayed~~economic conditions to date in ~~some states due to~~2021, the ~~unavailability or difficulty~~impact of ~~temporary licenses or online training. Further, despite government stimulus measures, the economic effects of the~~ pandemic conditions on ~~prospective and existing customers is still largely unknown. Similar to Aflac Japan, the~~ Aflac U.S. sales ~~team is working~~remains subject to ~~adjust its sales approach given~~uncertainty as the ~~reduction in face-to-face sales. Key elements~~effects of varying levels of vaccination and the emergence of COVID-19 variants continue 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. Thedevelop. Aflac U.S. ~~broker sales team is focused on product enhancements due~~has accelerated investments in digital initiatives designed to ~~COVID-19 as well as leveraging technology based solutions to drive enrollment in the second half of 2020. Finally,~~improve long term productivity, efficiency and customer service. Further, Aflac U.S. is in its ~~second~~third year of the build-out of the Consumer Markets business for the digital direct-to-consumer sale of insurance and sales made through that platform have continued to grow.

Face-to-face sales have been challenged and are having an impact on sales results. During the three- and six-periods ended June 30, 2020, Aflac U.S. experienced a sales decline of 55.6% and 31.2%, respectively, compared to the same respective periods in 2019, reflecting the impacts of the pandemic. The Aflac U.S. benefit ratio decreased in the three- and six-month 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~~

In January 2021, in response to ~~determine what impacts these initiatives have had or will have on~~ the ~~Company’s business, results~~spread of ~~operations, financial condition, liquidity, capital position, investment portfolio, workforce, distribution partners and vendors.~~

~~On April 7, 2020, Prime Minister Abe~~COVID-19, the Government of Japan issued a state of emergency declaration ~~targeting seven~~covering 11 prefectures, ~~based~~including Tokyo and Osaka. The declaration was lifted in stages in areas where improvements in infection rates and lower healthcare system utilization were observed, and it was lifted in all areas on ~~the revised Act on Special Measures for Pandemic Influenza and New Infectious Diseases Preparedness and Response.~~March 21, 2021. On April ~~16, 2020,~~23, 2021, due to the continued spread of COVID-19, the Government of Japan issued a state of emergency declaration covering four prefectures, including Tokyo and Osaka, from April 25, 2021 until May 11, 2021. This declaration was expanded to ~~all 47 prefectures.~~ten prefectures and extended until June 20, 2021, due to the emergence of COVID-19 variants and the continued increase in infections and impacts on the healthcare system. On June 20, 2021, the declaration was lifted in nine prefectures, including Tokyo and Osaka, and extended only in Okinawa until July 11. On July 8, 2021, due to a rise in COVID-19 infections, the Government of Japan issued a new state of emergency declaration for Tokyo for the period from July 12, 2021 to August 22, 2021. The state of emergency declaration for Okinawa was ~~lifted in phases, with 39 prefectures released on May 14, 2020, three additional prefectures released on May 21,~~also further extended to August 22, 2021. In addition to the restrictions imposed by these emergency declarations, certain local governments continue to request a reduction of the onsite workforce and ~~the state of emergency lifted nationwide on May 25. On June 19, 2020,~~restraint from non-urgent traveling.

~~restrictions on intraprefecture travel were lifted.~~

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

OnThroughout the pandemic, Aflac Japan has also followed the guidance of the FSA in terms of treating customers with care, ensuring ease and timeliness of claims payments and extended coverage for temporary medical facilities and telemedicine in certain circumstances, and waiver of interest on certain policyholder loans. In January 2021, the grace period on premium payments was extended to July 31, 2021 for the policyholders who live in areas under the state of emergency and in February 2021, the scope was expanded to all regions in Japan. Furthermore, in response to the state of emergency declaration in April ~~20, 2020,~~2021, in May 2021 and July 2021, the ~~Cabinet~~grace period on premium payments was extended to October, 31, 2021, November 30, 2021 and January 31, 2022, respectively. Aflac Japan will continue to provide flexibility for policyholders who live in areas under the state of emergency, including extending the payment grace period for a maximum of six months from the state of emergency declaration. Policyholders are required to file for relief through this extension.

During 2021, in response to fluctuations in COVID-19 infection rates and the declaration of a state of emergency by the Government of Japan, ~~approved ¥117 trillion or more than 20% of GDP in emergency stimulus measures, including various tax measures~~Aflac Japan has responded to address the 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 stagesrequests of 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~~Government of Japan ~~approved a second ¥117 trillion stimulus package. The Diet passed a supplementary budget~~and local governments while also giving priority to ~~fund the package on June 12, 2020. The second stimulus package is intended to help small~~customer service quality and ~~mid-sized businesses fund leave allowances for furloughed workers and provides rent assistance for~~ business ~~operations.~~continuity.

In the U.S., initial statewide shelter in place or stay at home orders were lifted and economic activity restrictions are easing in most states and have been lifted ~~although reopening plans have been paused~~in a number of other states.

Throughout the pandemic, Aflac U.S. has taken steps to comply with COVID-19-related directives issued by state regulatory authorities, including those requiring or ~~reversed~~requesting premium grace periods. As of June 30, 2021, premium grace periods remained in effect in six states, Puerto Rico and the District of Columbia. Aflac U.S. experienced some increase in policy lapses in the first six months of 2021 in certain states ~~experiencing~~where premium grace periods expired. If the premium grace periods continue to expire throughout 2021, Aflac U.S. would expect an increase in ~~cases.~~lapse rates, and a decrease in corresponding persistency rates.

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

The ~~Families First Coronavirus Response~~American Rescue Plan (ARP) Act of 2021 was signed into law onin 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~~2021 and was designed to provide approximately $2$1.9 trillion in financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states, and municipalities. Among other measures, the ~~CARES~~ARP Act ~~provided~~provides funding for ~~$260 billion in expanded unemployment benefits~~vaccines and ~~$290 billion of direct payments to individuals,~~testing; for states, tribal and ~~established a $349 billion~~local governments; and for small businesses. The ARP Act also expands eligibility for the 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 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 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~~created by the Coronavirus (~~Interagency statement) applicable for all entities, which offers practical expedients for evaluating whether loan modifications~~ Aid, Relief, and Economic Security (CARES) Act enacted 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.March 2020.

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 $5.6 billion in the second quarter of 2021, compared with $5.4 billion in the second quarter of ~~2020, compared with $5.5~~2020. Net earnings were $1.1 billion, or $1.62 per diluted share in the second quarter of ~~2019. Net earnings were~~2021, compared with $805 million, or $1.12 per diluted share, in the second quarter of 2020, ~~compared with $817 million, or $1.09 per diluted share, in the second quarter of 2019. The declines in total revenues and net earnings in the second quarter of 2020 were both~~ driven ~~primarily~~ by ~~an increase in~~higher net investment ~~losses.~~gains.

Total revenues were $11.4 billion in the first six months of 2021, compared with $10.6 billion in the first six months of ~~2020, compared with $11.2~~2020. Net earnings were $2.4 billion, or $3.49 per diluted share in the first six months of ~~2019. Net earnings were~~2021, compared with $1.4 billion, or $1.89 per diluted share, in the first six months of 2020, ~~compared with $1.7 billion, or $2.32 per diluted share, in the first six months of 2019. The declines in total revenues and net earnings in the first six months of 2020 were both~~ driven ~~primarily~~ by ~~an increase in~~higher net investment ~~losses.~~gains.

Results in the second quarter of ~~2020~~2021 included pretax net investment ~~losses~~gains of ~~$170~~$89 million, compared with net investment losses of ~~$66~~$170 million in the second quarter of ~~2019.~~2020. Net investment ~~losses~~gains in the second quarter of ~~2020~~2021 included ~~$176~~a decrease in credit loss allowances of $12 million; $99 million of net losses from certain derivative and foreign currency gains or losses; $170 million of net gains on equity securities; and $6 million of net gains from sales and redemptions.

Results in the first six months of 2021 included pretax net investment gains of $396 million, compared with net investment losses of $633 million in the first six months of 2020. Net investment gains in the first six months of 2021 included a decrease in credit ~~losses; $27~~loss allowances of $34 million; $265 million of net gains from certain derivative and foreign currency gains or losses; ~~$31~~$102 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~~2021 was ~~107.65,~~109.48, or ~~2.1% stronger~~1.7% weaker than the average yen/dollar exchange rate(1) of ~~109.94~~107.65 for the same period in ~~2019.~~2020. The average yen/dollar exchange rate⁽¹⁾ for the six-month period ended June 30, ~~2020~~2021 was ~~108.25,~~107.79, or ~~1.7%~~.4% stronger than the average yen/dollar exchange rate(1) of ~~110.09~~108.25 for the same period in ~~2019.~~2020.

Adjusted earnings⁽²⁾ in the second quarter of ~~2020~~2021 were ~~$921 million,~~$1.1 billion, or ~~$1.28~~$1.59 per diluted share, compared with ~~$846~~$921 million, or ~~$1.13~~$1.28 per diluted share, in the second quarter of ~~2019,~~2020, driven by lower-than-expected benefit ratios and higher net investment income, primarily ~~by favorable Aflac U.S. benefit ratios.~~in Japan. The ~~stronger~~weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $.01. Adjusted earnings⁽²⁾ in the first six months of ~~2020~~2021 were ~~$1.8~~$2.1 billion, or ~~$2.49~~$3.11 per diluted share, compared with ~~$1.7~~$1.8 billion, or ~~$2.25~~$2.49 per diluted share, in the first six months of ~~2019.~~2020. The stronger yen/dollar exchange rate impacted adjusted earnings per diluted share by ~~$.02.~~$(.01).

Total investments and cash at ~~the end of~~ June ~~2020~~30, 2021 were ~~$142.2~~$146.7 billion, compared with ~~$136.6~~$142.2 billion at June 30, ~~2019.~~2020. In the first six months of ~~2020,~~2021, Aflac Incorporated repurchased ~~$637 million,~~$1.2 billion, or ~~15.2~~22.6 million of its common shares. At ~~the end of~~ June ~~2020,~~30, 2021, the Company had ~~21.9~~76.5 million remaining shares authorized for repurchase.

Shareholders’ equity was $33.7 billion, or $50.20 per share, at June 30, 2021, compared with $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.~~2020. Shareholders’ equity at June 30, ~~2020~~2021 included a net unrealized gain on investment securities and derivatives of ~~$8.5~~$10.0 billion, compared with a net unrealized gain of ~~$8.0~~$8.5 billion at June 30, ~~2019.~~2020. Shareholders’ equity

at June 30, ~~2020~~2021 also included an unrealized foreign currency translation loss of ~~$1.5~~$1.7 billion, compared with an unrealized foreign currency translation loss of $1.5 billion at June 30, ~~2019.~~2020. The annualized return on average shareholders’ equity in the second quarter of ~~2020~~2021 was ~~11.5%~~13.4%.

Shareholders’ equity excluding accumulated other comprehensive income (AOCI)⁽²⁾ (adjusted book value) was $25.7 billion, or $38.27 per share at June 30, 2021, compared with $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.~~2020. The annualized adjusted return on equity (ROE) excluding foreign currencyimpact⁽²⁾ in the second quarter of ~~2020~~2021 was ~~16.3%~~17.0%.

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

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

RESULTS OF OPERATIONS

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

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~~This document includes references to the ~~Company's~~Company’s financial performance measures ~~adjusted earnings, adjusted earnings per diluted share, and amortized hedge costs/income,~~ which are not calculated in accordance with ~~U.S.~~United States generally accepted accounting principles ~~(GAAP)~~(U.S. GAAP) (non-U.S. GAAP). ~~These~~The financial measures exclude items that the Company believes may obscure the underlying fundamentals and trends in ~~the Company's~~ insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with ~~its~~ insurance operations. ~~The~~

Due to the size of Aflac Japan, where the functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. A significant portion of the Company’s business is conducted in yen and never converted into dollars but translated into dollars for U.S. GAAP reporting purposes, which results in foreign currency impact to earnings, cash flows and book value on a U.S. GAAP basis. Management evaluates the Company's ~~management uses adjusted earnings and adjusted earnings per diluted share to evaluate the~~ financial performance both including and excluding the impact of ~~its insurance operations~~foreign currency translation to monitor, respectively, cumulative currency impacts on ~~a consolidated basis,~~book value and the ~~Company believes that a presentation of these measures~~currency-neutral operating performance over time. The average yen/dollar exchange rate 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, measurebased on the ~~periodic currency risk management costs/income related to hedging certain foreign currency exchange risks and are an important component of net investment income.~~published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

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

•Adjusted earnings ~~are the profits derived from operations. The most comparable U.S. GAAP measure is net earnings. Adjusted earnings~~ are adjusted revenues less benefits and adjusted expenses. Adjusted earnings per share (basic or diluted) are the adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding adjusted net investment gains and ~~losses, 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.~~losses. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect the Company's underlying business performance.

~~Adjusted~~ Management uses adjusted earnings and adjusted earnings per diluted share to evaluate the financial performance of the Company’s insurance operations on a consolidated basis and believes that a presentation of these financial measures is vitally important to an understanding of the underlying profitability drivers and trends of the Company’s insurance business. The most comparable U.S. GAAP financial measures for adjusted earnings and adjusted earnings per share (basic or diluted) are net earnings and net earnings per share, respectively.

•Adjusted net investment gains and losses are net investment gains and losses adjusted ~~earnings~~ for i) amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity, ii) net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies, which are both reclassified to net investment income, and iii) the ~~period divided by~~impact of interest cash flows from

derivatives associated with notes payable, which is reclassified to interest expense as a component of total adjusted expenses. The Company considers adjusted net investment gains and losses important as it represents the ~~weighted average outstanding shares (basic or diluted) for~~remainder amount that is considered outside management’s control, while excluding the ~~period presented.~~components that are within management’s control and are accordingly reclassified to net investment income and interest expense. The most comparable U.S. GAAP financial measure for adjusted net investment gains and losses is net ~~earnings per share.~~investment gains and losses.

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

•Adjusted earnings excluding current period foreign currency impact are computed using the average foreign currency exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by foreign currency exchange rate changes. ~~The most comparable U.S. GAAP measure is net earnings.~~

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

•Adjusted book value is the U.S. GAAP book value (representing total shareholders’ equity), less AOCI as recorded on the U.S. GAAP balance sheet. Adjusted book value per common share is adjusted book value at the period end divided by the ending outstanding common shares for the period presented. The Company considers adjusted book value and adjusted book value per common share important as they exclude AOCI, which fluctuates due to market movements that are outside management’s control. The most comparable U.S. GAAP financial measures for adjusted book value and adjusted book value per common share are total book value and total book value per common share, respectively.

•Adjusted return on equity excluding foreign currency impact is adjusted earnings excluding the current period foreign currency impact divided by average shareholders’ equity, excluding AOCI. The Company considers adjusted return on equity excluding foreign currency impact important as it excludes changes in foreign currency and components of AOCI, which fluctuate due to market movements that are outside management's control. The most comparable U.S. GAAP financial measure for adjusted return on equity excluding foreign currency impact is ROE as determined using net earnings and average total shareholders’ equity.

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

~~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)~~U.S. dollar-denominated investment income excluding foreign currency impact ~~is calculated using adjusted earnings excluding current period~~important as it eliminates the impact of foreign currency ~~impact divided by average shareholders’ equity, excluding AOCI.~~changes on the Aflac Japan segment results, which are outside management’s control. The most comparable U.S. GAAP financial measure for U.S. dollar-denominated investment income excluding foreign currency impact is ~~return on average equity as determined using~~the corresponding net ~~earnings and average total shareholders’ equity.~~investment income amount from the U.S. dollar denominated investments translated to yen.

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

Reconciliation of Net Earnings to Adjusted Earnings⁽¹⁾


	In Millions						Per Diluted Share						In Millions						Per Diluted Share							In Millions				Per Diluted Share				In Millions				Per Diluted Share
	Three Months Ended June 30,												Six Months Ended June 30,													Three Months Ended June 30,								Six Months Ended June 30,
	2020			2019			2020			2019			2020			2019			2020			2019				2021		2020		2021		2020		2021		2020		2021		2020
Net earnings	$	805		$	817		$	1.12		$	1.09		$	1,370		$	1,745		$	1.89		$	2.32		Net earnings	$	1,105	$	805	$	1.62	$	1.12	$	2,398	$	1,370	$	3.49	$	1.89
Items impacting net earnings:																									Items impacting net earnings:
Net investment (gains) losses ^{(2),(3),(4),(5)}	166			33			.23			.04			614			(70		)	.85			(.09		)
Adjusted net investment (gains) losses (2)																									Adjusted net investment (gains) losses (2)	(85)		166		(.12)		.23		(388)		614		(.57)		.85
Other and non-recurring (income) loss	0			0			.00			.00			15			1			.02			.00			Other and non-recurring (income) loss	53		0		.08		.00		59		15		.09		.02
Income tax (benefit) expense on items excluded from adjusted earnings	(50		)	(5		)	(.07		)	(.01		)	(196		)	18			(.27		)	.02			Income tax (benefit) expense on items excluded from adjusted earnings	7		(50)		.01		(.07)		69		(196)		.10		(.27)

Adjusted earnings	921			846			1.28			1.13			1,803			1,695			2.49			2.25			Adjusted earnings	1,080		921		1.59		1.28		2,138		1,803		3.11		2.49
Current period foreign currency impact ⁽⁶⁾	(5		)	N/A			(.01		)	N/A			(14		)	N/A			(.02		)	N/A
Current period foreign currency impact (3)																									Current period foreign currency impact (3)	6		N/A		.01		N/A		(7)		N/A		(.01)		N/A
Adjusted earnings excluding current period foreign currency impact	$	916		$	846		$	1.27		$	1.13		$	1,789		$	1,695		$	2.47		$	2.25		Adjusted earnings excluding current period foreign currency impact	$	1,086	$	921	$	1.59	$	1.28	$	2,131	$	1,803	$	3.10	$	2.49

⁽¹⁾ Amounts may not foot due to rounding.

⁽²⁾Amortized hedge 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 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 $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 have been reclassified from 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 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 componentreconciliation of net investment ~~income.~~(gains) losses to adjusted net investment (gains) losses below

⁽⁵⁾ A gain of $14 and $17 for the three-month periods and $30 and $33 for the six-month periods ended June 30, 2020 and 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 net investment gains (losses) and included in adjusted earnings as a component of interest expense.

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

Reconciling Items

Net Investment Gains and Losses

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Net investment (gains) losses	$	(89)	$	170	$	(396)	$	633
Items impacting net investment (gains) losses:
Amortized hedge costs	(17)		(50)		(36)		(105)
Amortized hedge income	16		27		33		56
Net interest cash flows from derivatives associated with certain investment strategies	(9)		6		(17)		0
Interest rate component of the change in fair value of foreign currency swaps on notes payable	14		14		27		30
Adjusted net investment (gains) losses	$	(85)	$	166	$	(388)	$	614

(1) Amounts may not foot due to rounding.

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s growth and profitability. This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure. The Company does not purchase securities with the intent of generating investment gains or losses. However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing. The realization of investment gains and losses

is independent of the underwriting and administration of the Company's insurance products. Net investment gains and losses excluded from adjusted earnings include ~~securities transactions, credit losses, derivative~~the following:

•Securities Transactions

•Credit Losses

•Changes in the Fair Value of Equity Securities

•Certain Derivative and ~~foreign currency activities and changes in fair value of equity securities.~~Foreign Currency Activities.

Securities Transactions, Credit Losses and ~~Gains (Losses) on~~Changes in the Fair Value of Equity Securities

Securities transactions include gains and losses from sales and redemptions of investments where the amount received is different from the amortized cost of the investment. 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. Effective January 1, 2020, creditCredit losses include losses for held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities, loan receivables, loan commitments and reinsurance recoverables. Changes in the fair value of equity securities are the result of gains or losses driven by fluctuations in market prices.

Certain Derivative and Foreign Currency ~~Gains (Losses)~~Activities

The Company's derivative activities include:

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

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

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

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

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

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

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

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

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

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

Other and Non-recurring Items

The U.S. insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. The system can result in periodic charges to the Company as a result of insolvencies/bankruptcies that occur with other companies in the life insurance industry. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. These charges neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance, but result from external situations not controlled by the Company. The Company excludes any charges associated with U.S. guaranty fund assessments and the corresponding tax benefit or expense from adjusted earnings.

In Japan, the government also requires the insurance industry to contribute to a policyholder protection corporation that provides funds for the policyholders of insolvent insurers; however, these costs are calculated and administered differently

than in the U.S. In Japan, these costs are not directly related to specific insolvencies or bankruptcies, but are rather a regular operational cost for an insurance company. Based on this structure, the Company does not remove the Japan policyholder protection expenses from adjusted earnings.

Other items excluded from adjusted earnings included integration costs related to the Company's acquisition of Zurich North America's U.S. Corporate Life and Pensions business; these costs primarily consist of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services. These integration costs amounted to $5 million and $12 million for the three- and six-month periods ended June 30, 2021, respectively.

Income Taxes

The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was ~~24.8%~~19.5% for the three-month period ended June 30, ~~2020,~~2021, compared with ~~26.3%~~24.8% for the same period in ~~2019.The~~2020. The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was ~~23.4%~~19.4% for the six-month period ended June 30, ~~2020,~~2021, compared with ~~25.8%~~23.4% for the same period in ~~2019. This~~2020. The reduction in the effective tax rate for the three- and six-month periods ended June 30, 2021 was driven by new tax regulations released in the third quarter of 2020 and historic and solar tax credits. The combined effective tax rate differs from the U.S. statutory rate primarily due to foreign earnings taxed at different rates. For ~~further~~additional information, see Critical Accounting Estimates - Income Taxes section of the MD&A in the ~~2019~~2020 Annual Report.

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

Foreign Currency Translation

Aflac Japan’s premiums and a significant portion of its investment income are received in yen, and its claims and most expenses are paid in yen. Aflac Japan purchases yen-denominated assets and U.S. dollar-denominated assets, which may be hedged to yen, to support yen-denominated policy liabilities. ~~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~~Yen-denominated income statement ~~into~~accounts are translated to U.S. dollars using ~~the~~a weighted average Japanese yen/U.S. dollar foreign exchange rate, ~~for the reporting period,~~except realized gains and ~~the Company translates its yen-denominated balance sheet using~~losses on security transactions which are translated at 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~~trade date of each transaction. Yen-denominated balance sheet accounts are translated to U.S. 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 ofusing a spot Japanese yen/U.S. dollar foreign ~~currency translation to monitor, respectively, cumulative currency impacts on book value and the currency-neutral operating performance over time.~~exchange rate.

RESULTS OF OPERATIONS BY SEGMENT

U.S. GAAP financial reporting requires that a company report financial and descriptive information about operating segments in its annual and interim period financial statements. Furthermore, the Company is required to report a measure of segment profit or loss, certain revenue and expense items, and segment assets. ~~Aflac's~~The Company's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to consolidated earnings. Businesses that are not individually reportable, such as the Parent Company, ~~and~~ asset management subsidiaries and other business activities, including reinsurance retrocession activities, are included in the Corporate and other segment. See the Item 1. Business section of the ~~2019~~2020 Annual Report for a summary of each segment's products and distribution 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 yen basis, primarily due to continued effects of the 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 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 strong capital position, business continuity and employee safety during this pandemic. See the Executive Summary subsection of 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 believes that a presentation of this measure is vitally important to an understanding of the underlying profitability drivers and trends of its business. Additional performance measures used to evaluate the financial condition and performance of the Company's segments are listed below.

~~operating ratios~~•Operating Ratios

~~expense ratio~~•New Annualized Premium Sales

~~new annualized premium sales~~•New Money Yield

~~new money yield~~•Return on Average Invested Assets

~~return on average invested assets~~•Average Weekly Producer

~~average weekly producer~~

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

AFLAC JAPAN SEGMENT

Aflac Japan Pretax Adjusted Earnings

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

Aflac Japan Summary of Operating Results


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Net premium income	$	2,987	$	3,158	$	6,111	$	6,308
Net investment income: (1)
Yen-denominated investment income	315		319		643		641
U.S. dollar-denominated investment income	493		364		890		740
Net investment income	808		683		1,533		1,381
Amortized hedge costs related to certain foreign currency exposure management strategies	17		50		36		105
Adjusted net investment income	792		633		1,497		1,276
Other income (loss)	10		12		22		22
Total adjusted revenues	3,789		3,803		7,630		7,606
Benefits and claims, net	1,998		2,205		4,134		4,391
Adjusted expenses:
Amortization of deferred policy acquisition costs	169		155		341		328
Insurance commissions	179		184		366		369
Insurance and other expenses	438		420		898		824
Total adjusted expenses	786		759		1,605		1,521
Total benefits and adjusted expenses	2,785		2,964		5,739		5,912
Pretax adjusted earnings	$	1,004	$	839	$	1,891	$	1,694
Weighted-average yen/dollar exchange rate	109.48		107.65		107.79		108.25

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Net premium income $ 3,158
$ 3,172
$ 6,308
$ 6,352

Net investment income: ⁽¹⁾

Yen-denominated investment income 319
311
641
628

U.S. dollar-denominated investment income 364
360
740
715

Net investment income 683
671
1,381
1,343

Amortized hedge costs related to certain foreign currency exposure management strategies 50
62
105
124

Adjusted net investment income 633
609
1,276
1,219

Other income (loss) 12
11
22
22

Total adjusted revenues 3,803
3,792
7,606
7,593

Benefits and claims, net 2,205
2,185
4,391
4,384

Adjusted expenses:
Amortization of deferred policy acquisition costs 155
177
328
359

Insurance commissions 184
179
369
362

Insurance and other expenses 420
420
824
822

Total adjusted expenses 759
776
1,521
1,543

Total benefits and adjusted expenses 2,964
2,961
5,912
5,927

Pretax adjusted earnings $ 839
$ 831
$ 1,694
$ 1,666

Weighted-average yen/dollar exchange rate 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,				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,
	2020		2019		2020		2019		2020		2019		2020		2019			2021		2020		2021		2020		2021		2020		2021		2020
Net premium income	(.4	)%	(1.7	)%	(.7	)%	(2.1	)%	(2.5	)%	(.9	)%	(2.3	)%	(.9	)%	Net premium income	(5.4)	%	(.4)	%	(3.1)	%	(.7)	%	(3.8)	%	(2.5)	%	(3.7)	%	(2.3)	%
Adjusted net investment income	3.9		.5		4.7		2.1		2.0		.8		3.0		3.1		Adjusted net investment income	25.1		3.9		17.3		4.7		27.4		2.0		17.0		3.0
Total adjusted revenues	.3		(1.4	)	.2		(1.5	)	(1.8	)	(.7	)	(1.4	)	(.3	)	Total adjusted revenues	(.4)		.3		.3		.2		1.4		(1.8)		(.2)		(1.4)
Pretax adjusted earnings	1.0		(.6	)	1.7		.7		(1.2	)	(.1	)	.0		1.9		Pretax adjusted earnings	19.7		1.0		11.6		1.7		22.0		(1.2)		11.3		.0

⁽¹⁾Net interest cash flows from derivatives associated with certain investment strategies of $6$(9) and ~~$(7)~~$6 for the three-month periods and $(17) and an immaterial amount ~~and $(14)~~ for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In the three- and six-month periods ended June 30, ~~2020,~~2021, Aflac Japan's net premium income decreased, in yen terms, ~~primarily~~ due to an anticipated decrease in first sector premiums as savings products reached premium paid-up ~~status.~~status and constrained sales during the COVID-19 pandemic. Adjusted net investment income increased in the three- and six-month periods ended June 30, 2021, primarily due to higher alternative and floating rate income ~~from U.S. dollar denominated assets~~ and lower hedge costs.

Annualized premiums in force decreased ~~3.4%~~4.5% to ¥1.39 trillion as of June 30, 2021, compared with ¥1.46 trillion as of June 30, ~~2020, compared with ¥1.51 trillion as of June 30, 2019.~~2020. The decrease in annualized premiums in force in yen was driven primarily by limited-pay products reaching paid up ~~status.~~status and lower sales during the COVID-19 pandemic. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $12.6 billion at June 30, 2021, compared with $13.5 billion at June 30, ~~2020, compared with $13.9 billion a year ago.~~2020.

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

The following table illustrates the effect of translating Aflac Japan’s U.S. dollar-denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had foreign currency exchange rates remained unchanged from the comparable period in the prior year. Amounts excluding foreign currency impact on U.S. ~~dollar denominated~~dollar-denominated investment income were determined using the average foreign currency exchange rate for the comparable prior year period. See non-U.S. GAAP financial measures defined above.

Aflac Japan Percentage Changes Over Previous Period

(Yen Operating Results)

For the Periods Ended June 30,


	Including Foreign Currency Changes												Excluding Foreign Currency Changes												Including Foreign Currency Changes								Excluding Foreign Currency Changes
	Three Months						Six Months						Three Months						Six Months						Three Months				Six Months				Three Months				Six Months
	2020			2019			2020			2019			2020			2019			2020		2019				2021		2020		2021		2020		2021		2020		2021	2020
Adjusted net investment income	2.0		%	.8		%	3.0		%	3.1		%	3.3		%	.4		%	4.0		2.3		%	Adjusted net investment income	27.4	%	2.0	%	17.0	%	3.0	%	26.2	%	3.3	%	17.2	4.0	%
Total adjusted revenues	(1.8	)		(.7	)		(1.4	)		(.3	)		(1.6	)		(.7	)		(1.3	)	(.4	)		Total adjusted revenues	1.4		(1.8)		(.2)		(1.4)		1.2		(1.6)		(.2)	(1.3)
Pretax adjusted earnings	(1.2	)		(.1	)		.0			1.9			(.3	)		(.4	)		.7		1.3			Pretax adjusted earnings	22.0		(1.2)		11.3		.0		21.1		(.3)		11.4	.7

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


	Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total adjusted revenues:	2021		2020		2021		2020
Benefits and claims, net	52.7	%	58.0	%	54.2	%	57.8	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	4.5		4.1		4.5		4.3
Insurance commissions	4.7		4.8		4.8		4.9
Insurance and other expenses	11.6		11.0		11.8		10.8
Total adjusted expenses	20.8		20.0		21.0		20.0
Pretax adjusted earnings	26.5		22.0		24.8		22.2
Ratios to total premiums:
Benefits and claims, net	66.9	%	69.8	%	67.6	%	69.6	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	5.7		4.9		5.6		5.2

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

In the three- and six-month periods ended June 30, ~~2020,~~2021, the benefit ratio ~~increased,~~decreased, compared with the same periods in the prior 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~~favorable third sector ~~products become paid-up.~~claim experience, and higher surrenders in Aflac Japan's medical products. In the three- and six-month periods ended June 30, ~~2020,~~2021, the adjusted expense ratio ~~decreased~~increased due to an increase in expenses, mainly due to ~~lower~~increased outsourcing expenses related primarily to enhancement of business continuity infrastructure in times of crises such as the COVID-19 pandemic situation, paperless and digital experience and an increase in DAC amortization ~~and sales promotion expenses, partially offset~~caused by ~~the decrease~~higher surrenders in ~~total revenue.~~Aflac Japan's medical products. In total, the pretax adjusted profit margin increased in the three- and six-month periods ended June 30, ~~2020.~~2021. For the full year of ~~2020,~~2021, the Company ~~is monitoring~~will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

Aflac Japan Sales

The following table presents Aflac Japan’s new annualized premium sales for the periods ended 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)	2020			2019			2020			2019			2020			2019			2020			2019			(In millions of dollars and billions of yen)	2021			2020			2021			2020			2021			2020			2021			2020
New annualized premium sales	$	91		$	218		$	220		$	388		¥	9.8		¥	23.9		¥	23.8		¥	42.7		New annualized premium sales	$	124		$	91		$	256		$	220		¥	13.6		¥	9.8		¥	27.6		¥	23.8
Increase (decrease) over prior period	(58.1		)%	(17.9		)%	(43.3		)%	(12.4		)%	(58.8		)%	(17.6		)%	(44.1		)%	(11.4		)%	Increase (decrease) over prior period	36.5		%	(58.1)		%	16.5		%	(43.3)		%	38.4		%	(58.8)		%	15.7		%	(44.1)		%

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
	2020		2019		2020		2019			2021		2020		2021		2020
Cancer	54.7	%	65.3	%	55.1	%	62.6	%	Cancer	48.9	%	54.7	%	47.1	%	55.1	%
Medical	32.5		26.5		32.4		28.0		Medical	39.7		32.5		41.5		32.4
Income support	.9		1.0		1.1		1.2		Income support	.6		.9		.6		1.1
Ordinary life:									Ordinary life:
WAYS	.8		.4		.7		.5		WAYS	.8		.8		.7		.7
Child endowment	.4		.2		.4		.2		Child endowment	.4		.4		.3		.4
Other ordinary life ⁽¹⁾	10.0		6.1		9.6		6.9		Other ordinary life (1)	8.9		10.0		8.9		9.6
Other	.7		.5		.7		.6		Other	.7		.7		.9		.7
Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%

⁽¹⁾Includes term and whole life

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical and income support insurance products. 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 59.6%~~increased 38.6% in the second quarter of ~~2020,~~2021, compared with the same ~~respective~~ period in ~~2019. The decline~~2020, primarily due to the launch of a new medical product in ~~sales primarily reflects the impact~~January 2021 and favorable comparisons as a result of ~~the COVID-19~~ pandemic ~~and reduced sales of cancer insurance through the Japan Post channel.~~conditions in 2020.

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.~~the first six months of 2021. On March 24, 2021, Japan Post Group announced that it planned to begin resuming proactive sales of financial products on April 1, 2021, which the Company believes will lead to gradual improvement of cancer insurance sales in the second half of the year. For additional information, see the risk factor entitled "Events related to the ongoing Japan Post investigation and other matters regarding sales of Japan Post Insurance products could negatively impact the Company’s sales and results of operations," in ~~Part II,~~ Item 1A. Risk Factors in the 2020 Annual Report. Beginning in the second quarter of ~~the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2020.~~2020 and continuing into 2021, Aflac Japan experienced a sharp drop-off in total sales, ~~in the second quarter~~as compared to pre-pandemic levels, due to the ongoing effects of 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.~~pandemic.

~~Independent corporate agencies~~

In response to the COVID-19 pandemic, Aflac Japan continues to promote digital and ~~individual agencies contributed 53.8%~~web-based sales to groups and use of ~~total~~its system that enables smart device-based insurance application by allowing the customer and an Aflac Japan operator to see the same screen through their smart devices. Further, Aflac Japan continues to utilize its virtual sales tool that enables online consultations and policy applications to be completed entirely online.

The following table details the contributions to Aflac Japan's new annualized premium sales ~~for Aflac Japan in the second quarter of 2020, compared with 39.2%~~by agency type for the ~~same period in 2019. Affiliated corporate agencies, which include~~three-month periods ended June 30.


	2021		2020
Independent corporate and individual	51.1	%	53.8	%
Affiliated corporate (1)	44.0		42.8
Bank	4.9		3.4
Total	100.0	%	100.0	%

(1) Includes Japan Post contributed 42.8% of total new annualized premium sales in the second quarter of 2020, compared with 57.8% in the second quarter of 2019. Japan Post offers Aflac's cancer insurance products in more than 20,000 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 benefit its cancer insurance sales over the long term.

During the three-month period ended June 30, ~~2020,~~2021, Aflac Japan recruited 522 new sales agencies. At June 30, ~~2020,~~2021, Aflac Japan was represented by more than ~~8,700~~8,300 sales agencies, with more than ~~109,000~~113,000 licensed sales associates employed by those agencies. The number of sales agencies has declined in recent years due to Aflac Japan's focus on supporting agencies with strong management frameworks, high productivity and more producing agents.

At June 30, ~~2020,~~2021, Aflac Japan had agreements to sell its products at ~~364~~359 banks, approximately 90% of the total number of banks in Japan. ~~Bank channel sales accounted for 3.4% of new annualized premium sales for Aflac Japan in the second quarter of 2020, compared with 3.0% in the second quarter of 2019.~~

Strategic Alliance with Japan Post Holdings

OnAs previously reported, on December 19, 2018, the Parent Company and Aflac Japan entered into a Basic Agreement with Japan Post Holdings Co., Ltd., a Japanese ~~corporation.~~corporation (Japan Post Holdings). Pursuant to the terms of the Basic Agreement, ~~Japan Post Holdings agreed to form a capital relationship with the Parent Company, and~~among other items, 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 and 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 Shareholders Agreement, Japan Post Holdings agreed to cause the Trust 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 Common Stock in connection with the Basic Agreement. According to a Schedule 13G/A filed by Japan Post Holdings 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 registered the sale of 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 outstanding shares, under the 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 four years after the Trust 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 inJune 2021, the Parent Company and ~~further restrict the trustee’s voting rights with respect to certain change in control transactions.~~Aflac Japan, Japan Post Holdings, ~~will not have~~Japan Post Co., Ltd. and Japan Post Insurance Co., Ltd. agreed to pursue several specific initiatives toward building a ~~Board seat on~~"'Co-creation Platform' to support customers and local communities," consistent with Japan Post Group's medium-term management plan announced in May 2021. The initiatives are directed at, among other items, the ~~Parent Company’s Board~~promotion of ~~Directors~~Aflac Japan cancer insurance, digital transformation within the Japan Post Group, and ~~will not have rights to control, manage or intervene in the management of the Parent Company.~~certain diversity efforts.

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 and qualified in 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 terms of 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 and public equity 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,
(In millions)	2021		2020		2021		2020
Yen-denominated:
Fixed maturity securities:
Japan government and agencies	$	0	$	0	$	1,181	$	736
Private placements	98		23		311		113
Other fixed maturity securities	29		194		136		271
Equity securities	5		139		122		142
Other investments	4		0		6		0
Total yen-denominated	$	136	$	356	$	1,756	$	1,262

U.S. dollar-denominated:
Fixed maturity securities:
Other fixed maturity securities	$	396	$	390	$	1,001	$	917
Infrastructure debt	0		20		0		55

Collateralized loan obligations	36		0		153		0
Equity securities	8		0		8		0
Commercial mortgage and other loans:
Transitional real estate loans	638		97		699		465
Commercial mortgage loans	17		0		17		12
Middle market loans	484		240		1,266		1,427
Other investments	91		48		147		98
Total dollar-denominated	$	1,670	$	795	$	3,291	$	2,974
Total Aflac Japan purchases	$	1,806	$	1,151	$	5,047	$	4,236

Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2020 2019 2020 2019
Yen-denominated:
  Fixed maturity securities:
     Japan government and agencies $ 0
$ 0
$ 736
$ 583

     Private placements 23
469
113
893

     Other fixed maturity securities 194
107
271
356

  Equity securities 139
12
142
121

        Total yen-denominated $ 356
$ 588
$ 1,262
$ 1,953

U.S. dollar-denominated:
  Fixed maturity securities:
     Other fixed maturity securities $ 390
$ 854
$ 917
$ 1,522

     Infrastructure debt 20
10
55
10

  Equity securities 0
2
0
29

  Commercial mortgage and other loans:
     Transitional real estate loans 97
347
465
670

     Commercial mortgage loans 0
38
12
38

     Middle market loans 240
313
1,427
688

  Other investments 48
32
98
73

        Total dollar-denominated $ 795
$ 1,596
$ 2,974
$ 3,030

            Total Aflac Japan purchases $ 1,151
$ 2,184
$ 4,236
$ 4,983

See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report for more information regarding loans and loan receivables.

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


	Three Months						Six Months							Three Months						Six Months
	2020			2019			2020			2019				2021			2020			2021			2020
Total purchases for the period (in millions) ⁽¹⁾	$	1,103		$	2,152		$	4,138		$	4,910		Total purchases for the period (in millions) (1)	$	1,711		$	1,103		$	4,894		$	4,138
New money yield ^{(1), (2)}	3.41		%	3.77		%	3.86		%	3.50		%	New money yield (1), (2)	4.05		%	3.41		%	3.18		%	3.86		%
Return on average invested assets ⁽³⁾	2.28			2.28			2.32			2.31			Return on average invested assets (3)	2.83			2.28			2.65			2.32
Portfolio book yield, including U.S. dollar-denominated investments, end of period ⁽¹⁾	2.63		%	2.59		%	2.63		%	2.59		%	Portfolio book yield, including U.S. dollar-denominated investments, end of period (1)	2.61		%	2.63		%	2.61		%	2.63		%

⁽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~~increase in the Aflac Japan new money yield in the three-month period ended June 30, ~~2020~~2021 was primarily due to ~~lower U.S. interest rates.~~higher allocations to floating rate asset classes. The ~~increase~~decrease in the Aflac Japan new money yield in the six-month period ended June 30, ~~2020~~2021 was primarily due to ~~increased~~higher allocations to ~~higher~~lower yielding ~~floating rate~~yen-denominated asset classes.

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

AFLAC U.S. SEGMENT

Aflac U.S. Pretax Adjusted Earnings

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

Aflac U.S. Summary of Operating Results


	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2021			2020		2021			2020
Net premium income	$	1,408		$	1,458	$	2,830		$	2,941
Adjusted net investment income	189			172		366			348
Other income	30			26		58			54
Total adjusted revenues	1,627			1,656		3,254			3,343
Benefits and claims	613			646		1,169			1,359
Adjusted expenses:
Amortization of deferred policy acquisition costs	111			134		250			293
Insurance commissions	136			148		275			299
Insurance and other expenses	354			302		701			640
Total adjusted expenses	601			584		1,226			1,232
Total benefits and adjusted expenses	1,213			1,230		2,396			2,591
Pretax adjusted earnings	$	413		$	426	$	859		$	752
Percentage change over previous period:
Net premium income	(3.4)		%	(.1)		(3.8)		%	.7		%
Adjusted net investment income	9.9			(4.4)		5.2			(2.5)
Total adjusted revenues	(1.8)			.9		(2.7)			1.9
Pretax adjusted earnings	(3.1)			26.0		14.2			13.8

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Net premium income $ 1,458
$ 1,459
$ 2,941
$ 2,920

Net investment income 172
180
348
357

Other income 26
2
54
4

Total adjusted revenues 1,656
1,641
3,343
3,281

Benefits and claims 646
732
1,359
1,452

Adjusted expenses:
Amortization of deferred policy acquisition costs 134
131
293
290

Insurance commissions 148
150
299
299

Insurance and other expenses 302
290
640
579

Total adjusted expenses 584
571
1,232
1,168

Total benefits and adjusted expenses 1,230
1,303
2,591
2,620

             Pretax adjusted earnings $ 426
$ 338
$ 752
$ 661

Percentage change over previous period:
Net premium income (.1 ) % 2.3
% .7
% 2.3
%
Net investment income (4.4 ) (1.1 ) (2.5 ) .0

Total adjusted revenues .9
1.9
1.9
2.1

  Pretax adjusted earnings 26.0
(.6 ) 13.8
(2.4 )

In the three- and six-month periods ended June 30, 2021, net premium income for Aflac U.S. decreased primarily due to constrained sales as a result of the COVID-19 pandemic. Total adjusted revenues decreased in the three- and six-month periods ended June 30, 2021, mainly due to the decline in net premium income from reduced sales activity, partially offset by the increase in adjusted net investment income from higher variable net investment income. Pretax adjusted earnings decreased in the three-month period ended June 30, 2021, primarily driven by lower net premium income and higher adjusted expenses despite lower benefits. Pretax adjusted earnings increased in the six-month period ended June 30, 2021, driven primarily by the lower-than-expected benefit ratios due to lower incurred claims related to pandemic conditions.

Annualized premiums in force decreased ~~1.7%~~1.5% to $6.0 billion at June 30, 2021, compared with $6.1 billion at June 30, ~~2020, compared with $6.2 billion at June 30, 2019. Net investment income decreased primarily due to the lower interest rate environment and ongoing capital management activity.~~2020.

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


	Three Months Ended June 30,				Six Months Ended June 30,
Ratios to total adjusted revenues:	2021		2020		2021		2020
Benefits and claims	37.7	%	39.0	%	35.9	%	40.7	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	6.8		8.1		7.7		8.8
Insurance commissions	8.4		8.9		8.5		8.9
Insurance and other expenses	21.8		18.2		21.5		19.1
Total adjusted expenses	36.9		35.3		37.7		36.9
Pretax adjusted earnings	25.4		25.7		26.4		22.5
Ratios to total premiums:
Benefits and claims	43.5	%	44.3	%	41.3	%	46.2	%
Adjusted expenses:
Amortization of deferred policy acquisition costs	7.9		9.2		8.8		10.0

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

For the three- and six-month periods ended June 30, ~~2020,~~2021, the benefit ratio decreased compared with the same ~~periods~~period in ~~2019,~~2020, reflecting reduced ~~accidents, wellness medical visits~~estimates of both COVID-19-related and ~~routine procedures due to shelter-in-place orders and heightened social distancing due to COVID-19.~~non-COVID-19-related incurred claims since the advent of the pandemic. The adjusted expense ratio increased in the three- and six-month periods ended June 30, ~~2020,~~2021, when compared with the same periods in ~~2019,~~2020, primarily due to ~~anticipated spending increases reflecting ongoing investments~~the decline in ~~the U.S. platform, distribution,~~total adjusted revenues, partially offset by lower acquisition costs and ~~customer experience, and TPA related expenses from~~

~~the acquisition of Argus, as well as~~ lower ~~unit cost capitalization reflecting a second quarter~~DAC amortization, due to the decline in sales and ~~lower general administrative expense due to lower sales, travel and claims activity.~~impacted by higher persistency. The pretax adjusted profit margin increased in the ~~three- and~~ six-month ~~periods, when~~period ended June 30, 2021, as compared with the same ~~periods~~period in ~~2019,~~2020, primarily due to lower benefit ~~ratios, offset somewhat by higher expense~~ ratios. For the full year of ~~2020,~~2021, the Company ~~is monitoring~~will continue to monitor the situation with respect to COVID-19, and potential impacts on the pretax adjusted profit margin and benefit ratio.

Aflac U.S. Sales

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


	Three Months								Six Months									Three Months						Six Months
(In millions)	2020				2019				2020				2019				(In millions)	2021			2020			2021			2020
New annualized premium sales	$	161			$	362			$	484			$	702			New annualized premium sales	$	264		$	161		$	515		$	484
Increase (decrease) over prior period	(55.6		)	%	(2.0		)	%	(31.2		)	%	(.3		)	%	Increase (decrease) over prior period	64.1		%	(55.6)		%	6.6		%	(31.2)		%

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


	Three Months				Six Months					Three Months				Six Months
	2020		2019		2020		2019			2021		2020		2021		2020
Accident	25.7	%	28.7	%	26.7	%	28.7	%	Accident	27.2	%	25.7	%	26.7	%	26.7	%
Short-term disability	23.9		23.8		23.0		23.7
Disability									Disability	22.7		23.9		22.9		23.0
Critical care⁽¹⁾	20.6		19.9		21.0		20.4		Critical care(1)	21.0		20.6		21.8		21.0
Hospital indemnity	17.1		16.0		17.0		15.6		Hospital indemnity	16.4		17.1		16.6		17.0
Dental/vision	4.1		5.2		4.3		5.1		Dental/vision	5.4		4.1		5.0		4.3
Life	8.6		6.4		8.0		6.5		Life	7.3		8.6		7.0		8.0
Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%

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

New annualized premium sales for accident insurance, the leading Aflac U.S. product category, ~~decreased 60.3%~~increased 73.4%; ~~short-term~~ disability sales ~~decreased~~increased 55.4%; critical care insurance sales (including cancer insurance) ~~decreased 54.0%~~increased 67.7%; and hospital indemnity insurance sales ~~decreased 52.5%~~increased 57.0% in the second quarter of ~~2020,~~2021, compared with the same period in ~~2019. Primarily, the decline is~~2020. The increase in sales for Aflac U.S. in the second quarter of 2021 is primarily attributable ~~COVID-19 social distancing efforts, which limited face-to-face~~to increased sales ~~opportunities beginning~~activity as a result of the ongoing economic reopening in ~~mid-March~~the U.S. and favorable comparisons due to pandemic conditions in 2020. See the Executive Summary section entitled ~~"COVID-19"~~COVID-19 of this MD&A for additional information.

In the second quarter of ~~2020,~~2021, the Aflac U.S. sales force included an average of approximately ~~4,300~~5,900 U.S. agents, including brokers, who were actively producing business on a weekly basis. The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and needs, as well as serve as a leading indicator of future production capacity. Aflac U.S. believes that limitations on face-to-face sales opportunities during the COVID-19 pandemic have tended to suppress the development of newly recruited agents into business producers and the productivity of veteran agents and brokers, which since the onset of the pandemic has resulted in fewer average weekly producers and has acted as a headwind to Aflac U.S. sales. While gains were made in recruiting during the second quarter of 2021 compared with the second quarter of 2020, most notably among recruited brokers, Aflac U.S. remains focused on mitigating and reversing this trend as the U.S. economy continues to recover from the pandemic.

In ~~March 2020,~~response to the ~~Company,~~COVID-19 pandemic, Aflac U.S. remains focused on supporting its agency channel, most of which are small businesses, by offering financial support and an extended value proposition. The Aflac U.S. sales team has pivoted to accommodate preferred enrollment conditions which include realizing sales at the worksite through ~~its insurance subsidiaries~~in-person enrollment, an enrollment call center, video enrollment through co-browsing and self-enrollment. The traditional agent sales team is also using virtual recruiting and training through video conferencing in order to maintain or increase the recruiting pipeline. The Aflac ~~and Aflac New York, entered into an agreement~~U.S. broker sales team is focused on product enhancements due to acquire Zurich North America’s U.S. Corporate Life and Pensions business, which consists of group life, disability and absence management products. Aflac and Aflac New York will reinsure on an indemnity basis Zurich North America’s U.S. in-force group life and disability policies with annualized earned premium in the anticipated range of $115 million. Aflac will also acquire assets neededCOVID-19 as well as leveraging technology based solutions to support the group life and disability business, along with an absence management platform. Subject to regulatory approvals and customary closing conditions, this transaction is expected to close in the second half of 2020.drive enrollment.

Aflac U.S. Investments

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

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Fixed maturity securities:
Other fixed maturity securities	$	130	$	85	$	376	$	267
Infrastructure debt	0		4		0		20
Collateralized loan obligations	18		11		30		11
Equity securities	113		1		113		5
Commercial mortgage and other loans:
Transitional real estate loans	113		7		137		45
Commercial mortgage loans	129		10		163		37
Middle market loans	41		5		100		43
Other investments	10		5		16		11
Total Aflac U.S. Purchases	$	554	$	128	$	935	$	439

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 ~~2019~~2020 Annual Report for more information regarding loans and loans receivables.

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


	Three Months						Six Months							Three Months						Six Months
	2020			2019			2020			2019				2021			2020			2021			2020
Total purchases for period (in millions) ⁽¹⁾	$	123		$	469		$	428		$	1,242		Total purchases for period (in millions) (1)	$	544		$	123		$	919		$	428
New money yield ^{(1), (2)}	3.04		%	4.45		%	3.54		%	4.47		%	New money yield (1), (2)	3.63		%	3.04		%	3.47		%	3.54		%
Return on average invested assets ⁽³⁾	4.81			5.05			4.91			5.07			Return on average invested assets (3)	4.94			4.81			4.83			4.91
Portfolio book yield, end of period⁽¹⁾	5.30		%	5.43		%	5.30		%	5.43		%	Portfolio book yield, end of period (1)	5.07		%	5.30		%	5.07		%	5.30		%

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

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

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

The increase in the Aflac U.S. new money yield for the three-month period ended June 30, 2021 was primarily due to higher allocations to floating rate asset classes. The decrease in the Aflac U.S. new money yield for the ~~three- and~~ six-month ~~periods~~period ended June 30, ~~2020~~2021 was primarily due to lower ~~U.S. interest rates.~~yields in fixed rate asset classes. See Notes 3 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on the Company's investments.

CORPORATE AND OTHER

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

Corporate and Other Summary of Operating Results


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2021		2020		2021		2020
Premium income	$	45	$	49	$	93	$	97
Net investment income (loss) (1)	(13)		21		3		45
Amortized hedge income related to certain foreign currency management strategies	16		27		33		56
Adjusted net investment income	3		48		36		101
Other income	2		3		5		6
Total adjusted revenues	50		100		133		204
Benefits and claims, net	41		47		84		87
Adjusted expenses:
Interest expense	43		43		87		76
Other adjusted expenses	42		40		65		69
Total adjusted expenses	85		83		152		145
Total benefits and adjusted expenses	126		130		236		232
Pretax adjusted earnings	$	(76)	$	(30)	$	(102)	$	(28)

Three Months Ended
June 30, Six Months Ended
June 30,
(In millions) 2020 2019 2020 2019
Premium income $ 49
$ 50
$ 97
$ 100

Net investment income 21
20
45
42

Amortized hedge income related to certain foreign currency management strategies 27
20
56
40

Adjusted net investment income 48
40
101
82

Other income 3
5
6
8

Total adjusted revenues 100
95
204
190

Benefits and claims, net 47
48
87
95

Adjusted expenses:
Interest expense 43
33
76
66

Other adjusted expenses 40
40
69
74

Total adjusted expenses 83
73
145
140

Total benefits and adjusted expenses 130
121
232
235

Pretax adjusted earnings $ (30 ) $ (26 ) $ (28 ) $ (45 )

~~Adjusted net investment income benefited from the Company’s enterprise corporate hedging program~~(1) Amortization of federal historic rehabilitation and solar investments in partnerships of $30 for the three- and six-month periods ended June 30, ~~2020~~2021, is included as a reduction to net investment income. Offsetting tax credits on these investments of $12 and ~~2019, respectively.~~$25 for the three- and six-month periods ended June 30, 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

In the three- and six-month periods ended June 30, 2021, the decrease in total adjusted revenues was primarily driven by a decline in adjusted net investment income as a result of the amortization for federal historic rehabilitation and solar investments in partnerships discussed below, as well as lower amortized hedge income. The decrease in pretax adjusted earnings in the three-month period ended June 30, 2021, was primarily driven by lower adjusted net investment income. The decrease in pretax adjusted earnings for the six-month period ended June 30, 2021, was primarily driven by lower adjusted net investment income and higher interest expense associated with debt issuances.

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

INVESTMENTS

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

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

The following tables detail investments by segment.

Investment Securities by Segment


	June 30, 2020									June 30, 2021
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total		(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total
Available for sale, fixed maturity securities, at fair value	$	83,819	$	14,250	$	1,890	$	99,959	Available for sale, fixed maturity securities, at fair value	$	85,243	$	15,036	$	2,005	$	102,284
Held to maturity, fixed maturity securities, at amortized cost⁽¹⁾	23,509		0		0		23,509		Held to maturity, fixed maturity securities, at amortized cost (1)	22,891		0		0		22,891
Equity securities	603		63		83		749		Equity securities	729		180		566		1,475
Commercial mortgage and other loans:									Commercial mortgage and other loans:
Transitional real estate loans ⁽¹⁾	4,716		911		0		5,627		Transitional real estate loans (1)	4,329		886		0		5,215
Commercial mortgage loans ⁽¹⁾	1,275		423		0		1,698		Commercial mortgage loans (1)	1,268		582		5		1,855
Middle market loans ⁽¹⁾	3,126		266		0		3,392		Middle market loans (1)	3,977		285		0		4,262
Other investments:									Other investments:
Policy loans	247		16		0		263		Policy loans	224		19		0		243
Short-term investments ⁽²⁾	177		101		486		763		Short-term investments (2)	579		240		848		1,667
Limited partnerships	591		66		61		718		Limited partnerships	1,105		122		102		1,329
Other	0		27		0		27		Other	0		19		0		19
Total investments	118,063		16,123		2,520		136,705		Total investments	120,345		17,369		3,526		141,240
Cash and cash equivalents	1,693		808		3,027		5,528		Cash and cash equivalents	2,025		815		2,629		5,469
Total investments and cash	$	119,756	$	16,931	$	5,547	$	142,233	Total investments and cash	$	122,370	$	18,184	$	6,155	$	146,709

⁽¹⁾ Net of allowance for credit losses

⁽²⁾Includes securities lending collateral


	December 31, 2019									December 31, 2020
(In millions)	Aflac Japan		Aflac U.S.		Corporate and Other		Total		(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	Available for sale, fixed maturity securities, at fair value	$	88,757	$	15,133	$	1,992	$	105,882
Held to maturity, fixed maturity securities, at amortized cost	30,085		0		0		30,085
Held to maturity, fixed maturity securities, at amortized cost (1)									Held to maturity, fixed maturity securities, at amortized cost (1)	24,464		0		0		24,464
Equity securities	657		67		78		802		Equity securities	674		66		543		1,283
Commercial mortgage and other loans:									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
Transitional real estate loans (1)									Transitional real estate loans (1)	4,331		900		0		5,231
Commercial mortgage loans (1)									Commercial mortgage loans (1)	1,268		420		0		1,688
Middle market loans (1)									Middle market loans (1)	3,365		270		0		3,635
Other investments:									Other investments:
Policy loans	234		16		0		250		Policy loans	242		18		0		260
Short-term investments ⁽¹⁾	386		242		1		629
Short-term investments (2)									Short-term investments (2)	449		242		448		1,139
Limited partnerships	496		55		17		568		Limited partnerships	828		91		85		1,004
Other	0		30		0		30		Other	0		26		0		26
Total investments	115,594		15,726		1,875		133,195		Total investments	124,378		17,166		3,068		144,612
Cash and cash equivalents	1,674		417		2,805		4,896		Cash and cash equivalents	2,001		785		2,355		5,141
Total investments and cash	$	117,268	$	16,143	$	4,680	$	138,091	Total investments and cash	$	126,379	$	17,951	$	5,423	$	149,753

⁽¹⁾ Net of allowance for credit losses

(2) Includes securities lending collateral

The ratings of the Company's securities referenced in the table below are based on the ratings designations provided by major rating organizations such as Moody's, Standard & Poor's and Fitch or, if not rated, are determined based on the Company's internal analysis of such securities. When the ratings issued by the rating agencies differ, the Company utilizes

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

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

Composition of Fixed Maturity Securities by Credit Rating


		June 30, 2021						December 31, 2020
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.0	%		0.9	%		1.0	%		.9	%
AA		5.0	%		5.1	%		4.5			4.6
A		68.6	%		68.4	%		69.3			69.5
BBB		22.2	%		22.4	%		21.9			21.9
BB or lower		3.2	%		3.2	%		3.3			3.1
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, ~~2020,~~2021, the Company's direct and indirect exposure to securities in its investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

The following table presents the 10 largest unrealized loss positions in the Company's portfolio as of June 30, ~~2020.~~2021.


(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
Transocean Inc.		CCC		$	49		$	35		$	(14)
KLM Royal Dutch Airlines		B		147			135			(12)
Grenke Finance PLC		BBB		63			55			(8)
Intesa Sanpaolo Spa		BBB		141			134			(7)
Nippon Prologis REIT Inc.		A		90			84			(6)
Kommunal Landspensjonskasse (KLP)		BBB		136			131			(5)
Alphabet Inc.		AA		175			170			(5)
National Football League		A		145			141			(4)
Lloyds Banking Group PLC		A		208			204			(4)
Mitsui Fudosan Co. Ltd.		A		94			91			(3)

(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. The Company believes these issuers have the ability to continue making timely payments of principal and interest. See the Unrealized Investment Gains and Losses section in Note 3 of the Notes to the Consolidated Financial Statements for further discussions of unrealized losses related to financial institutions and other corporate investments.

Below-Investment-Grade Securities

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

Below-Investment-Grade Investments


	June 30, 2020										June 30, 2021
(In millions)	Par Value		Amortized Cost ⁽¹⁾		Fair Value		Unrealized Gain (Loss)			(In millions)	Par Value		Amortized Cost (1)		Fair Value		Unrealized Gain (Loss)
Investcorp Capital Limited	$	393	$	393	$	348	$	(45	)	Investcorp Capital Limited	$	385	$	384	$	402	$	18
Commerzbank	371		247		370		123			Commerzbank	362		250		420		170
Pemex Project Funding Master Trust	278		278		258		(20		)	Pemex Project Funding Master Trust	271		271		278		7
Autostrade Per Litalia Spa										Autostrade Per Litalia Spa	181		179		212		33
KLM Royal Dutch Airlines	186		142		109		(33		)	KLM Royal Dutch Airlines	181		147		135		(12)
Autostrade Per Litalia Spa	186		185		169		(16		)
Telecom Italia SpA	186		186		230		44			Telecom Italia SpA	181		181		241		60
Barclays Bank PLC	186		119		137		18			Barclays Bank PLC	181		122		202		80
Apache Corporation	138		127		126		(1		)	Apache Corporation	138		124		159		35
Ovintiv Inc.										Ovintiv Inc.	134		132		173		41
IKB Deutsche Industriebank AG	121		53		78		25			IKB Deutsche Industriebank AG	118		53		110		57
Republic of South Africa	93		93		94		1
Other Issuers	828		684		702		18			Other Issuers	806		718		884		166
Subtotal ⁽²⁾	2,966		2,507		2,621		114			Subtotal (2)	2,938		2,561		3,216		655
Senior secured bank loans	275		290		257		(33		)	Senior secured bank loans	120		124		118		(6)
High yield corporate bonds	706		712		699		(13		)	High yield corporate bonds	798		782		830		48
Middle market loans	3,559		3,392		3,388		(4		)	Middle market loans	4,116		4,002		4,036		34
Grand Total	$	7,506	$	6,901	$	6,965	$	64		Grand Total	$	7,972	$	7,469	$	8,200	$	731

⁽¹⁾Net of allowance for credit losses

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

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

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

Fixed Maturity Securities by Sector

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


	June 30, 2020												June 30, 2021
(In millions)	Amortized Cost ⁽¹⁾		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		% of Total		(In millions)	Amortized Cost (1)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		% of Total
Government and agencies	$	54,841	$	9,722	$	(45	)	$	64,517	49.1	%	Government and agencies	$	54,067	$	8,617	$	(78)	$	62,606	48.6	%
Municipalities	2,477		504		(9		)	2,973		2.2		Municipalities	2,799		635		(7)		3,427		2.5
Mortgage- and asset-backed securities	509		38		(1		)	547		.5		Mortgage- and asset-backed securities	1,236		49		(1)		1,285		1.1
Public utilities	8,475		1,556		(31		)	10,001		7.6		Public utilities	8,531		1,927		(6)		10,451		7.7
Electric	6,603		1,224		(20		)	7,808		5.9		Electric	6,906		1,584		(4)		8,485		6.2
Natural Gas	396		52		(7		)	441		.4		Natural Gas	298		56		0		354		.3
Other	717		147		0			863		.6		Other	583		129		0		711		.5
Utility/Energy	759		133		(4		)	889		.7		Utility/Energy	744		158		(2)		901		.7
Sovereign and Supranational	1,824		257		(12		)	2,069		1.6		Sovereign and Supranational	1,641		298		0		1,939		1.5
Banks/financial institutions	10,288		1,250		(323		)	11,214		9.3		Banks/financial institutions	10,313		1,657		(67)		11,903		9.3
Banking	6,213		737		(159		)	6,791		5.6		Banking	6,111		1,091		(24)		7,180		5.5
Insurance	1,967		381		(74		)	2,274		1.8		Insurance	1,917		388		(22)		2,282		1.7
Other	2,108		132		(90		)	2,149		1.9		Other	2,285		178		(21)		2,441		2.1
Other corporate	33,234		5,148		(450		)	37,931		29.7		Other corporate	32,766		6,151		(90)		38,827		29.3
Basic Industry	3,316		546		(19		)	3,843		3.0		Basic Industry	3,154		712		(10)		3,855		2.8
Capital Goods	3,353		510		(16		)	3,846		3.0		Capital Goods	3,367		571		(7)		3,931		3.0
Communications	4,021		786		(32		)	4,776		3.6		Communications	3,463		770		(12)		4,220		3.1
Consumer Cyclical	3,085		466		(29		)	3,522		2.8		Consumer Cyclical	2,699		533		(2)		3,229		2.4
Consumer Non-Cyclical	6,692		1,171		(34		)	7,828		6.0		Consumer Non-Cyclical	7,028		1,238		(15)		8,253		6.2
Energy	4,138		506		(167		)	4,477		3.7		Energy	3,744		750		4		4,498		3.4
Other	1,493		138		(41		)	1,590		1.3		Other	1,506		217		(5)		1,717		1.4
Technology	3,291		349		(32		)	3,608		2.9		Technology	4,197		512		(22)		4,688		3.8
Transportation	3,845		676		(80		)	4,441		3.4		Transportation	3,608		848		(21)		4,436		3.2
Total fixed maturity securities	$	111,648	$	18,475	$	(871	)	$	129,252	100.0	%	Total fixed maturity securities	$	111,353	$	19,334	$	(249)	$	130,438	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, 2020						December 31, 2019							June 30, 2021						December 31, 2020
(In millions)	Amortized Cost ⁽¹⁾			Fair Value			Amortized Cost			Fair Value			(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Publicly issued securities:													Publicly issued securities:
Fixed maturity securities		$	91,701		$	107,052		$	89,625		$	105,557	Fixed maturity securities		$	91,868		$	106,856		$	95,545		$	111,479
Equity securities		658			658			717			717		Equity securities		899			899			740			740
Total publicly issued		92,359			107,710			90,342			106,274		Total publicly issued		92,767			107,755			96,285			112,219
Privately issued securities: ⁽²⁾													Privately issued securities: (2)
Fixed maturity securities ⁽³⁾		19,947			22,200			19,831			23,299		Fixed maturity securities (3)		19,485			23,582			20,511			24,802
Equity securities		91			91			85			85		Equity securities		576			576			543			543
Total privately issued		20,038			22,291			19,916			23,384		Total privately issued		20,061			24,158			21,054			25,345
Total investment securities		$	112,397		$	130,001		$	110,258		$	129,658	Total investment securities		$	112,828		$	131,913		$	117,339		$	137,564

⁽¹⁾Net of allowance for credit losses

⁽²⁾ Primarily consists of securities owned by Aflac Japan

⁽³⁾ Excludes Rule 144A securities

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

Reverse-Dual Currency Securities⁽¹⁾


(Amortized cost, in millions)	June 30, 2020				December 31, 2019				(Amortized cost, in millions)	June 30, 2021				December 31, 2020
Privately issued reverse-dual currency securities		$	5,084			$	4,993		Privately issued reverse-dual currency securities		$	4,968			$	5,300
Publicly issued collateral structured as reverse-dual currency securities		1,706				1,678			Publicly issued collateral structured as reverse-dual currency securities		1,661				1,775
Total reverse-dual currency securities		$	6,790			$	6,671		Total reverse-dual currency securities		$	6,629			$	7,075
Reverse-dual currency securities as a percentage of total investment securities		6.0		%		6.1		%	Reverse-dual currency securities as a percentage of total investment securities		5.9		%		6.0		%

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

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

HEDGING ACTIVITIES

The Company uses derivative contracts to hedge foreign currency exchange rate risk and interest rate risk. The Company uses various strategies, including derivatives, to manage these risks. See item “7A. Quantitative and Qualitative Disclosures About Market Risk” in the ~~2019~~2020 Annual Report for more information about market risk and the Company’s use of derivatives.

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


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

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

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

Foreign Currency Exchange Rate Risk Hedge Program

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

•

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

•Aflac Japan maintains certain unhedged U.S. dollar-denominated securities, which serve as an economic currency hedge of a portion of the Company's investment in Aflac Japan (see Aflac Japan’s U.S. Dollar-Denominated Hedge Program below).

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

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

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


•	~~Aflac Japan maintains certain unhedged U.S. dollar-denominated securities, which serve as an economic currency hedge of a portion of the Company's investment in Aflac Japan (see~~ ~~Aflac Japan’s U.S. Dollar-Denominated Hedge Program~~ ~~below).~~


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


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

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

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


	June 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
(In millions)	Amortized Cost ⁽¹⁾		Fair Value		Amortized Cost		Fair Value		(In millions)	Amortized Cost (1)		Fair Value		Amortized Cost (1)		Fair Value
Available-for-sale securities:									Available-for-sale securities:
Fixed maturity securities (excluding bank loans)	$	18,439	$	20,506	$	18,012	$	19,542	Fixed maturity securities (excluding bank loans)	$	18,272	$	20,771	$	19,249	$	21,108
Fixed maturity securities - bank loans (floating rate)	377		337		677		649		Fixed maturity securities - bank loans (floating rate)	172		164		319		283
Equity securities	18		18		19		19		Equity securities	24		24		20		20
Commercial mortgage and other loans:									Commercial mortgage and other loans:
Transitional real estate loans (floating rate)	4,716		4,573		4,507		4,543		Transitional real estate loans (floating rate)	4,330		4,324		4,331		4,298
Commercial mortgage loans	1,275		1,350		1,308		1,319		Commercial mortgage loans	1,268		1,338		1,268		1,365
Middle market loans (floating rate)	3,126		3,126		2,141		2,153		Middle market loans (floating rate)	3,977		4,016		3,365		3,377
Other investments	591		591		496		496		Other investments	1,105		1,105		828		828
Total U.S. Dollar Program	28,542		30,501		27,160		28,721		Total U.S. Dollar Program	29,148		31,742		29,380		31,279
Available-for-sale securities:									Available-for-sale securities:
Fixed maturity securities - economically converted to yen	1,750		2,671		1,700		2,608		Fixed maturity securities - economically converted to yen	2,109		3,170		2,085		3,094
Total U.S. dollar-denominated investments in Aflac Japan	$	30,292	$	33,172	$	28,860	$	31,329	Total U.S. dollar-denominated investments in Aflac Japan	$	31,257	$	34,912	$	31,465	$	34,373

⁽¹⁾Net of allowance for credit losses

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

Aflac Japan maintains a collar program on a portion of its US dollar program to mitigate against more extreme moves in foreign exchange and therefore support SMR. 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 continually evaluating other adjustments, including the possibility of changing the level of hedging ~~additional~~employed with the U.S dollar-denominated investments.

As of June 30, ~~2020,~~2021, Aflac Japan had ~~$9.1~~$6.4 billion outstanding notional amounts of foreign currency forwards and ~~$17.8~~$8.0 billion outstanding notional amounts of foreign currency options, of which none were in-the-money, hedging its U.S. dollar-denominated investments. The fair value of Aflac Japan's unhedged U.S. dollar-denominated portfolio was ~~$21.4~~$15.2 billion (excluding certain U.S. dollar-denominated assets shown in the table above as a result of consolidation that have been economically converted to yen using derivatives).

Foreign exchange derivatives used for hedging are periodically settled, which results in cash receipt or payment at maturity or early termination. The Company had net cash ~~inflows~~outflows of $1$6 million and net cash ~~outflows~~inflows of ~~$11~~$1 million for the three-month periods and net cash inflows of $102 million and net cash outflows of $32 ~~million and $23~~ million for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, associated with the currency derivatives used for hedging Aflac Japan’s U.S. dollar-denominated investments.

Enterprise Corporate Hedging Program

The Company has designated certain yen-denominated liabilities and foreign currency forwards and options of the Parent Company as accounting hedges of its net investment in Aflac Japan. The Company's consolidated yen-denominated net asset position was partially hedged at ~~$10.5~~$10.4 billion as of June 30, ~~2020,~~2021, compared with ~~$9.1~~$9.9 billion as of December 31, ~~2019.~~2020.

The Company makes its accounting designation of net investment hedge at the beginning of each quarter. If the total of the designated Parent Company non-derivative and derivative notional is equal to or less than the Company's net investment in Aflac Japan, the hedge is deemed to be effective, and the currency exchange effect on the yen-denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income. The Company's net investment hedge was effective during the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. For additional information on the Company's net investment hedging strategy, see Note 4 of the Notes to the Consolidated Financial Statements.

In order to economically mitigate risks associated with the enterprise-wide exposure to the yen and the level and volatility of hedge costs, the Parent Company enters into foreign exchange forward and option contracts. By buying U.S. dollars and selling yen, the Parent Company is effectively lowering its overall economic exposure to the yen, while Aflac Japan's U.S dollar exposure remains reduced as a result of Aflac Japan's U.S. dollar-denominated hedge program that economically creates yen assets. Among other objectives, this strategy is intended to offset the enterprise-wide amortized hedge costs by generating amortized hedge income. The portion of the enterprise-wide amortized hedge income contributed by this strategy was ~~$27~~$16 million and ~~$20~~$27 million for the three-month periods and ~~$56~~$33 million and ~~$40~~$56 million for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. This activity is reported in Corporate and Other. As this program evolves, the Company will continue to evaluate the program’s efficacy. See the Results of Operations section of this MD&A for the Company's definition of amortized hedge costs/income.

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

~~Aflac Japan~~

Hedge Cost/Income Metrics⁽¹⁾


	Three Months		Six Months			Three Months		Six Months
	2020	2019	2020	2019		2021	2020	2021	2020
Aflac Japan:					Aflac Japan:
FX Forwards					FX Forwards
FX forward (sell USD, buy yen) notional at end of period (in billions)⁽²⁾	$9.1	$9.1	$9.1	$9.1	FX forward (sell USD, buy yen) notional at end of period (in billions)(2)	$6.4	$9.1	$6.4	$9.1
Weighted average remaining tenor (in months)⁽³⁾	8.1	11.2	8.1	11.2	Weighted average remaining tenor (in months)(3)	6.6	8.1	6.6	8.1
Amortized hedge income (cost) for period (in millions)	$(50)	(62)	$(105)	$(124)	Amortized hedge income (cost) for period (in millions)	$(13)	$(48)	$(29)	$(101)
Parent Company:
FX Options					FX Options
FX option notional at the end of period (in billions) (2)					FX option notional at the end of period (in billions) (2)	$8.0	8.9	$8.0	8.9
Weighted average remaining tenor (in months) (3)					Weighted average remaining tenor (in months) (3)	3.9	1.2	3.9	1.2
Amortized hedge income (cost) for period (in millions)					Amortized hedge income (cost) for period (in millions)	$(4)	$(2)	$(7)	$(4)
Corporate and Other (Parent Company):					Corporate and Other (Parent Company):
FX Forwards					FX Forwards
FX forward (buy USD, sell yen) notional at end of period (in billions)⁽²⁾	$5.0	$3.0	$5.0	$3.0	FX forward (buy USD, sell yen) notional at end of period (in billions)(2)	$5.0	$5.0	$5.0	$5.0
Weighted average remaining tenor (in months)⁽³⁾	12.1	10.6	12.1	10.6	Weighted average remaining tenor (in months)(3)	12.6	12.1	12.6	12.1
Amortized hedge income (cost) for period (in millions)	$27	$20	$56	$40	Amortized hedge income (cost) for period (in millions)	$17	$28	$35	$58
FX Options					FX Options
FX option notional at the end of period (in billions) (2)					FX option notional at the end of period (in billions) (2)	$2.0	$2.7	$2.0	$2.7
Weighted average remaining tenor (in months) (3)					Weighted average remaining tenor (in months) (3)	7.2	5.6	7.2	5.6
Amortized hedge income (cost) for period (in millions)					Amortized hedge income (cost) for period (in millions)	$(1)	$(1)	$(2)	$(2)

⁽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

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

For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A., Quantitative and Qualitative Disclosures about Market Risk, and Item 1A, specifically to the Risk Factor ~~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 ~~2019~~2020 Annual Report.

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

DEFERRED POLICY ACQUISITION COSTS

The following table presents deferred policy acquisition costs by segment.


(In millions)	June 30, 2020			December 31, 2019			% Change				(In millions)	June 30, 2021			December 31, 2020			% Change
Aflac Japan		$	6,726		$	6,584		2.2	%	⁽¹⁾	Aflac Japan		$	6,501		$	6,991		(7.0)	%	(1)
Aflac U.S.		3,495			3,544			(1.4	)		Aflac U.S.		3,309			3,450			(4.1)
Total		$	10,222		$	10,128		.9	%		Total		$	9,810		$	10,441		(6.0)	%

⁽¹⁾Aflac Japan’s deferred policy acquisition costs ~~increased .5%~~decreased .7% in yen during the six months ended June 30, ~~2020.~~2021.

See Note 6 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report for additional information on the Company's deferred policy acquisition costs.

POLICY LIABILITIES

The following table presents policy liabilities by segment.


(In millions)	June 30, 2020				December 31, 2019				% Change				(In millions)	June 30, 2021			December 31, 2020			% Change
Aflac Japan		$	98,171			$	95,793			2.5	%	⁽¹⁾	Aflac Japan		$	96,940		$	103,128		(6.0)	%	(1)
Aflac U.S.		11,474				11,295				1.6			Aflac U.S.		11,837			11,810			.2
Other		251				223				12.6			Other		280			274			2.2
Intercompany eliminations⁽²⁾		(793		)		(757		)		4.8			Intercompany eliminations(2)		(771)			(821)			(6.1)
Total		$	109,103			$	106,554			2.4	%		Total		$	108,286		$	114,391		(5.3)	%

⁽¹⁾Aflac Japan’s policy liabilities increased ~~.8%~~.4% in yen during the six months ended June 30, ~~2020.~~2021.

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

BENEFIT PLANS

Aflac Japan and Aflac U.S. have various benefit plans. For additional information on the Company's Japanese and U.S. plans, see Note 1211 of the accompanying Notes to the Consolidated Financial Statements and Note 14 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report.

POLICYHOLDER PROTECTION

Policyholder Protection Corporation

The Japanese insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. Legislation enacted regarding the framework of the Life Insurance Policyholder Protection Corporation (LIPPC) included government fiscal measures supporting the LIPPC. In November 2016, Japan's Diet passed legislation that extended the government's fiscal support of the LIPPC through March 2022. Effective April 2014, the annual LIPPC contribution amount for the total life industry was lowered from ¥40 billion to ¥33 billion. Aflac Japan recognized an expense of ~~¥1.0~~¥.9 billion and ~~¥.9~~¥1.0 billion for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, for LIPPC assessments.

Guaranty Fund Assessments

Under U.S. state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business. The amount of the guaranty fund assessment that an insurer is assessed is based on its proportionate share of premiums in that state. Guaranty fund assessments for the six-month periods ended June 30, ~~2020~~2021 and ~~2019,~~2020, were immaterial.

OFF-BALANCE SHEET ARRANGEMENTS

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

As of June 30, ~~2020,~~2021, the Company had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations. See Note 15 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report for information on material unconditional purchase obligations that are not recorded on the Company's balance sheet.

LIQUIDITY AND CAPITAL RESOURCES

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

•business investment and growth needs

•strategic growth objectives

•financial flexibility and obligations

•capital support for hedging activity

•a constantly evolving business and economic environment

•a balanced approach to capital allocation and shareholder deployment.

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

The Company's cash and cash equivalents include unrestricted cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure. The target minimum amount for the Parent Company’s cash and cash equivalents is approximately $2.0 billion to provide a capital buffer and liquidity support at the holding company. This amount excludes $400 million of proceeds from the issuance of senior sustainability notes discussed below, which proceeds contribute to the capital buffer but are not intended to support holding company liquidity. Amid the COVID-19 pandemic, the Company remains committed to prudent liquidity and capital management. At June 30, ~~2020,~~2021, 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,~~dividends, with Aflac Japan being the largest contributor. The primary uses of cash by the Parent Company ~~anticipates a reduction in~~are shareholder dividends, the ~~dividends it receives from Aflac Japan~~repurchase of its common stock and ~~Aflac U.S. to maintain a strong capital position for~~interest on 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.

outstanding indebtedness and operating expenses.

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

Liquidity Provided by Subsidiaries to Parent Company


(In millions)	2021		2020
Dividends declared or paid by subsidiaries	$	1,552	$	892
Management fees paid by subsidiaries	64		68

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

Management fees paid by subsidiaries 68
74

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)	2021		2020
Aflac Japan management fees paid to Parent Company	$	30	$	38

Aflac Japan dividends declared or paid to Parent Company (in dollars)	1,402		667
Aflac Japan dividends declared or paid to Parent Company (in yen)	¥	154.5	¥	72.8

(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

The Company intends to maintain higher than historical levels of liquidity and capital at the Parent Company for stress conditions and with the goals of addressing the Company’s hedge costs and related potential need for collateral and mitigating against long-term weakening of the Japanese yen. Further, the Company plans to continue to maintain a portfolio of unhedged U.S. dollar based investments at Aflac Japan and to consider whether the amount of such

investments should be increased or decreased relative to the Company’s view of economic equity surplus in Aflac Japan in light of potentially rising hedge costs and other factors. See the Hedging Activity subsection inof this MD&A for more information.

In addition to cash and equivalents, the Company also maintains credit facilities, both intercompany and with external partners, and a number of other available tools to support liquidity needs on a global basis. In September 2018, the Parent Company filed a shelf registration statement with the SEC that allows the Company to issue an indefinite amount of debt securities, in one or more series, from time to time until September 2021. The Company believes outside sources for additional debt and equity capital, if needed, will continue to be available. Additionally, as of June 30, ~~2020,~~2021, the Parent Company and Aflac had four lines of credit with third parties as well as ~~seven~~nine intercompany lines of credit. For additional information, see Note 8 of the Notes to the Consolidated Financial Statements.

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

The 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, ~~2020.~~2021. The Company has not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards, including securities lending transactions. See Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 1, 3, and 4 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report for more information on the Company's securities lending and derivative activities. With the exception of disclosed activities in those referenced footnotes and the Risk Factors in the ~~2019~~2020 Annual Report entitled, "The Company is exposed to foreign currency fluctuations in the yen/dollar exchange rate" and "Lack of availability of acceptable yen-denominated investments could adversely affect the Company's results of operations, financial position or liquidity," the Company ~~does~~is not ~~have a known~~aware of any trend, demand, commitment, event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount.

Consolidated Cash Flows

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

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


(In millions)	2021		2020
Operating activities	$	2,328	$	2,601
Investing activities	(839)		(2,120)
Financing activities	(1,141)		152
Exchange effect on cash and cash equivalents	(20)		(1)
Net change in cash and cash equivalents	$	328	$	632

(In millions) 2020 2019
Operating activities $ 2,601
$ 2,357

Investing activities (2,120 ) (2,727 )
Financing activities 152
(978 )
Exchange effect on cash and cash equivalents (1 ) 30

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

As part of an arrangement with ~~FHLB,~~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 ~~2020,~~2021, Aflac U.S. borrowed and repaid ~~$177~~$51 million under this program. As of June 30, ~~2020,~~2021, Aflac U.S. had outstanding borrowings of ~~$337~~$317 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 ~~provided~~used by financing activities was ~~$152 million~~$1.1 billion in the first six months of ~~2020,~~2021, compared with consolidated cash ~~used~~provided by financing activities of ~~$978~~$152 million for the same period of ~~2019.~~

2020.

In April ~~2020,~~2021, the Parent Company issued ~~$1.0~~five series of senior notes totaling ¥82.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥30.0 billion, bears interest at a fixed rate of .633% per annum, payable semi-annually, and will mature in April 2031. The second series, which totaled ¥12.0 billion, bears interest at a fixed rate of .844% per annum, payable semi-annually, and will mature in April 2033. The third series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.039% per annum, payable semi-annually, and will mature in April 2036. The fourth series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.264% per annum, payable semi-annually, and will mature in April 2041. The fifth series, which totaled ¥20.0 billion, bears interest at a fixed rate of 1.560% per annum, payable semi-annually, and will mature in April 2051. The notes are redeemable at the Parent Company’s option (i) at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance or (ii) on or after the date that is six months prior to the stated maturity date of the series, in whole or in part, at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.

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

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 Notes to the Consolidated Financial Statements for further information on the debt ~~issuances~~issuance discussed above.

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, ~~2020.~~2021.

Cash returned to shareholders through treasury stock purchases and dividends was $1.6 billion during the six-month period ended June 30, 2021, compared with $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.~~2020.

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)	2021		2020
Treasury stock purchases	$	1,150	$	637
Number of shares purchased:
Share repurchase program	22,614		15,193
Other	381		521
Total shares purchased	22,995		15,714

(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)	2021		2020
Stock issued from treasury:
Cash financing	$	13	$	21
Noncash financing	28		28
Total stock issued from treasury	$	41	$	49
Number of shares issued	1,157		1,403

(In millions of dollars and thousands of shares) 2020 2019
Stock issued from treasury:
   Cash financing $ 21
$ 26

   Noncash financing 28
27

   Total stock issued from treasury $ 49
$ 53

Number of shares issued 1,403
1,428

During the first six months of ~~2020,~~2021, the Company repurchased ~~15.2~~22.6 million shares of its common stock for ~~$637 million~~$1.2 billion as part of its share repurchase program. As of June 30, ~~2020,~~2021, a remaining balance of ~~21.9~~76.5 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors. For information on the impact of COVID-19 on the Company's share repurchase program, see the Executive Summary section of this MD&A.

Cash dividends paid to shareholders were $.33 per share in the second quarter of 2021, compared with $.28 per share in the second quarter of ~~2020, compared with $.27 per share in the second quarter of 2019.~~2020. The following table presents the dividend activity for the six-month periods ended June 30.


(In millions)	2021		2020
Dividends paid in cash	$	430	$	388
Dividends through issuance of treasury shares	16		14
Total dividends to shareholders	$	446	$	402

(In millions) 2020 2019
Dividends paid in cash $ 388
$ 389

Dividends through issuance of treasury shares 14
14

Total dividends to shareholders $ 402
$ 403

In July ~~2020,~~2021, the board of directors declared the ~~second~~third quarter cash dividend of ~~$.28~~$.33 per share, an increase of ~~3.7%~~17.9% compared with the same period in ~~2019.~~2020. The dividend is payable on September 1, ~~2020~~2021 to shareholders of record at the close of business on August ~~19, 2020.~~18, 2021.

Regulatory Restrictions

Aflac ~~CAIC and 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. 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 New 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 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, 2020, Aflac’s RBC ratio remains high and reflects a strong capital and surplus 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 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 2020 in excess of $864 million would be considered extraordinary and require such approval. Similar laws apply in New York, the domiciliary jurisdiction of Aflac New York.

~~In addition to limitations and restrictions imposed by U.S. insurance regulators, the 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 SMR. Japan's FSA maintains its own solvency standard which is quantified through the SMR. Aflac Japan's SMR is sensitive to interest rate, credit spread, and foreign exchange rate changes, therefore the Company continues to evaluate alternatives for reducing this sensitivity, including the reduction of subsidiary dividends paid to the Parent Company and Parent Company capital contributions. In the event of a rapid change in market risk conditions causing SMR to decline, the Company has one senior unsecured revolving credit facility in the amount of ¥100 billion and a committed reinsurance facility in the amount of approximately ~~¥110~~¥120 billion as a capital contingency plan. Additionally, the Company could take action to enter into derivatives on unhedged U.S.

dollar-denominated investments with foreign currency options or forwards. ~~(See~~See Notes 7 and 8 of the Notes to the Consolidated Financial Statements for additional information.)

The Company has already undertaken various measures to mitigate the sensitivity of Aflac Japan's SMR. For example, the Company employs policy reserve matching (PRM) investment strategies, which is a Japan-specific accounting treatment that reduces SMR interest rate sensitivity since PRM-designated investments are carried at amortized cost consistent with corresponding liabilities. In order for a PRM-designated asset to be held at amortized cost, there are certain criteria that must be maintained. The primary criterion relates to maintaining the duration of designated assets and liabilities within a specified tolerance range. If the duration difference is not maintained within the specified range without rebalancing, then a certain portion of the assets must be re-classified as available for sale and held at fair value with any associated unrealized gain or loss recorded in surplus. To rebalance, assets may need to be sold in order to maintain the duration with the specified range, resulting in realizing a gain or loss from the sale. For U.S. GAAP, PRM investments are categorized as available for sale. The Company also uses foreign currency derivatives to hedge a portion of its U.S. dollar-denominated investments. ~~(See~~See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report for additional information on the Company's investment strategies, hedging activities, and reinsurance, respectively.)

As of June 30, ~~2020,~~2021, Aflac Japan's SMR remains high and reflects a strong capital and surplus position. The Company is committed to maintaining strong capital levels throughout the ~~pandemic.~~pandemic, consistent with maintaining current insurance financial strength and credit ratings. For additional information see the Executive Summary COVID-19 section of this MD&A.

Aflac U.S.

A life insurance company’s statutory capital and surplus is determined according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance department in the insurance company’s state of domicile. Statutory accounting rules are different from U.S. GAAP and are intended to emphasize policyholder protection and company solvency. The continued long-term growth of the Company's business may require increases in the statutory capital and surplus of its insurance operations. The Company's insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, reduced dividends paid to the Parent Company, capital contributions by the Parent Company from funds generated through debt or equity offerings, or reinsurance transactions. The NAIC’s RBC formula is used by insurance regulators to help identify inadequately capitalized insurance companies. The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations. As of June 30, 2021, Aflac’s RBC ratio remains high and reflects a strong capital and surplus position.

Aflac, CAIC and TOIC are domiciled in Nebraska and are subject to its regulations. The maximum amount of dividends that can be paid to the Parent Company by Aflac, CAIC and TOIC without prior approval of Nebraska's director of insurance is the greater of the net income from operations, which excludes net investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end. Dividends declared by Aflac during 2021 in excess of $872 million would be considered extraordinary and require such approval. Similar laws apply in New York, the domiciliary jurisdiction of Aflac New York.

Privacy and Cybersecurity Governance

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

100

Other

For information regarding commitments and contingent liabilities, see Note 1312 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%~~80% of its liabilities are reported as of June 30, ~~2020,~~2021, and thus has a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items the Company has identified as critical accounting estimates during the 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.2021. For additional information, see the Critical Accounting Estimates section of MD&A included in the ~~2019~~2020 Annual Report.

New Accounting Pronouncements

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


~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~

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 ~~2019~~2020 Annual Report. There have been no changes to the Company's market risk exposures from the market risk exposures previously disclosed in the ~~2019~~2020 Annual Report except as outlined below.

~~As a result of recent market volatility caused by the COVID-19 pandemic, the Company has marginally widened~~

Item 4.Controls 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.Procedures


~~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.

101

Changes in Internal Control Over Financial Reporting

~~There~~Effective June 30, 2021, the Company changed the valuation process for privately issued securities within the investment portfolio. At the same time, the Company also implemented enhanced controls to validate the methodology used and the overall reasonableness of the valuations for the privately issued securities included in the Company's financial statements, including verification of the inputs and calculations in the models to confirm that the valuations represent reasonable estimates of fair value. Except for the change in controls over valuation of privately issued securities, 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 ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

~~The Company is a defendant in various lawsuits considered to be in the normal course~~Item 2.Unregistered Sales of ~~business. Members~~Equity Securities and Use 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.Proceeds


~~Item 1A.~~	~~Risk Factors~~

Readers should 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 2019 Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A. of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.


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

Issuer Purchases of Equity Securities

During the first six months of ~~2020,~~2021, the Company repurchased shares of its common stock as follows:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs	Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31	3,906,085		$	52.61	3,906,085	33,147,528	January 1 - January 31	2,850,664		$	45.60	2,850,664	96,304,954
February 1 - February 29	2,870,531		50.93		2,367,300	30,780,228
February 1 - February 28							February 1 - February 28	5,034,979		47.30		4,661,812	91,643,142
March 1 - March 31	3,715,439		33.46		3,710,430	27,069,798	March 1 - March 31	5,932,047		50.55		5,927,500	85,715,642
April 1 - April 30	1,890,000		35.74		1,890,000	25,179,798	April 1 - April 30	2,266,200		52.73		2,266,200	83,449,442
May 1 - May 31	1,721,653		34.95		1,720,900	23,458,898	May 1 - May 31	2,855,900		55.81		2,855,900	80,593,542
June 1 - June 30	1,609,905		37.48		1,597,741	21,861,157	June 1 - June 30	4,055,001		54.61		4,052,204	76,541,338

Total	15,713,613	⁽¹⁾	$	42.26	15,192,456	21,861,157	Total	22,994,791	(1)	$	50.81	22,614,280	76,541,338

⁽¹⁾During the first six months of ~~2020, 521,157~~2021, 380,511 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.

102

Item 6. Exhibits


~~Item 6.~~	~~Exhibits~~



(a)	EXHIBIT INDEX
	3.0	-	Articles of Incorporation, as amended – incorporated by reference from Form 10-Q for June 30, 2008, Exhibit 3.0.
	3.1	-	Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated April 6, 2020, Exhibit 3.1.
	~~4.0~~	-	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. The Company agrees to furnish a copy of any long-term debt instrument to the Securities and Exchange Commission upon request.
	4.1	-	~~Twenty-Seventh~~Twenty-Ninth Supplemental Indenture, dated as of April ~~1, 2020,~~15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of ~~3.60%~~0.633% Senior Note due ~~2030)~~2031) – incorporated by reference from Form 8-K dated April ~~1, 2020,~~15, 2021, Exhibit ~~4.1.~~4.1 (File No. 001-07434).
	~~10.1~~4.2*	-	~~First Amendment to the~~Thirtieth Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated ~~Executive Deferred Compensation Plan,~~and The Bank of New York Mellon Trust Company, N.A., as ~~amended and restated, effective January 1, 2020.~~trustee (including the form of 0.844% Senior Note due 2033) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.2 (File No. 001-07434).
	~~31.1~~4.3	-	Thirty-First Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.039% Senior Note due 2036) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.3 (File No. 001-07434).
	4.4	-	Thirty-Second Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.264% Senior Note due 2041) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.4 (File No. 001-07434).
	4.5	-	Thirty-Third Supplemental Indenture, dated as of April 15, 2021, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 1.560% Senior Note due 2051) – incorporated by reference from Form 8-K dated April 15, 2021, Exhibit 4.5 (File No. 001-07434).



	31.1	-	Certification of CEO dated July 29, ~~2020,~~2021, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	31.2	-	Certification of CFO dated July 29, ~~2020,~~2021, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
	32	-	Certification of CEO and CFO dated July 29, ~~2020,~~2021, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS	-	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
	101.SCH	-	Inline XBRL Taxonomy Extension Schema.
	101.CAL	-	Inline XBRL Taxonomy Extension Calculation Linkbase.
	101.DEF	-	Inline XBRL Taxonomy Extension Definition Linkbase.
	101.LAB	-	Inline XBRL Taxonomy Extension Label Linkbase.
	101.PRE	-	Inline XBRL Taxonomy Extension Presentation Linkbase.
	104	-	Cover Page Interactive Data File - formatted as Inline XBRL and contained in Exhibit 101.

~~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, new103

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~~ALM		~~Available-for-Sale~~Asset-Liability Matching
AOCI		Accumulated Other Comprehensive Income
~~ASC~~ARP		American Rescue Plan
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
CARES		Coronavirus Aid, Relief, and Economic Security
~~CDSs~~CDS		Credit Default ~~Swaps~~Swap
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~~ISDA		~~Held-to-Maturity~~
~~ISDA~~	International Swaps and Derivatives Association, Inc.
ISOs		Incentive Stock Options
~~Japan Post Holdings~~JGB		~~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~~NAIC		~~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~~PD		~~Purchased Credit-Deteriorated Financial Assets~~Probability-of-Default
PDPRM		~~Probability-of-Default~~
~~PPP~~	~~Paycheck Protection Program~~
~~PRM~~	Policy Reserve Matching
RBC		Risk-Based Capital
ROE		Return on Equity
S&P		Standard & Poor's
SEC		Securities and Exchange Commission
~~SMI~~SMR		~~Solvency Modernization Initiative~~
~~SMR~~	Solvency Margin Ratio
The Plan		Aflac Incorporated Long-Term Incentive Plan
TIBOR		Tokyo Interbank Market Rate
TDRs		~~Trouble~~Troubled 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

104

Glossary of Selected Terms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net 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.

105

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

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

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

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

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

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

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

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

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

106

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

	~~Aflac Incorporated~~

July 29, ~~2020~~2021	/s/ Max K. ~~Broden~~Brodén
		(Max K. ~~Broden)~~Brodén)
		Executive Vice President; Chief Financial Officer and Treasurer

July 29, ~~2020~~2021		/s/ June Howard
		(June Howard)
		Senior Vice President, Financial Services; Chief Accounting Officer

~~109~~

107



(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



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



Six 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	$	177	$	109			$	23	$	213			$	46	$	80		$	648
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		)	18
Purchases, issuances, sales and settlements:
Purchases	0		0				0		88				19		0			107
Issuances	0		0				0		0				0		0			0
Sales	0		0				0		(2		)		0		0			(2		)
Settlements	0		(2		)		0		0				0		0			(2		)
Transfers into Level 3	0		116			⁽²⁾	0		25			⁽²⁾	0		0			141
Transfers out of Level 3	0		(25		)	⁽²⁾	0		(132		)	^(2),(3)	0		0			(157		)
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	$	16		$	16



	Page
Executive Summary		6968
Results of Operations		7572
Investments		8786
Hedging Activities		91
Deferred Policy Acquisition Costs		95
Policy Liabilities		95
Benefit Plans		95
Policyholder Protection		9695
Off-Balance Sheet Arrangements		9695
Liquidity and Capital Resources		96
Critical Accounting Estimates		101