Item 7A. 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. Fluctuations in these factors could impact the Company’s consolidated results of operations or financial condition. The Company regularly monitors its market risks and uses a variety of strategies to manage its exposure

to these market risks.

Currency Risk

The functional currency of Aflac Japan's insurance operations is the Japanese yen. Aflac Japan’s premiums and approximately half 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 U.S. dollars for financial reporting purposes. Most of Aflac Japan's cash and liabilities are yen-denominated. Aflac Japan's yen-denominated investments consisted of fixed income securities of $71.8 billion, at amortized cost, and equity securities of $561 million, at cost, at December 31, 2017. However, Aflac Japan also owns U.S. dollar-denominated investments of $9.3 billion, at cost or amortized cost, whose carrying value is hedged against currency risk using foreign currency forwards and in-the-money foreign currency options and $13.0 billion of investments, at amortized cost, that are not hedged as of December 31, 2017. Aflac Japan also owns Reverse Dual Currency bonds (RDCs) of $7.1 billion, which provide for coupon payments in fixed U.S. dollar amounts and principal payments in fixed yen amounts. RDCs expose the Company to changes in foreign exchange rates. The change in fair value of the yen-denominated securities is accounted for as a component of unrealized gains or losses on available-for-sale securities in accumulated other comprehensive income, while the foreign currency effect on the dollar coupons is realized in earnings.

The Company is exposed to currency risk as an economic event when yen funds are actually converted into U.S. dollars. This occurs when the Company repatriates yen-denominated funds from Aflac Japan to Aflac U.S and with quarterly settlements of its reinsurance retrocession transactions. The exchange rates prevailing at the time of profit repatriation will differ from the exchange rates prevailing at the time the yen profits were earned. A portion of the yen repatriation may be used to service Aflac Incorporated's yen-denominated notes payable with the remainder converted into U.S. dollars. In order to economically hedge foreign exchange risk for a portion of the profit repatriation received in yen from Aflac Japan, the Company had foreign exchange forwards and options as part of a hedging strategy on 90.9 billion yen received in 2017. As of December 31, 2017, the Company had foreign exchange forwards and options to economically hedge foreign exchange risk on 49.5 billion yen of future profit repatriation from Aflac Japan.

In addition to profit repatriation and the reinsurance retrocessions, certain investment activities for Aflac Japan expose the Company to economic currency risk when yen are converted into U.S. dollars. As noted above, the Company invests a portion of its yen cash flows in U.S. dollar-denominated assets. This requires that the Company convert the yen cash flows to U.S. dollars before investing. As previously discussed, for certain of its U.S. dollar-denominated securities, the Company enters into foreign currency forward and option contracts to hedge the currency risk on the fair value of hedged investments.

Aside from the activities discussed above, the Company generally does not convert yen into U.S. dollars; however, it does translate financial statement amounts from yen into U.S. dollars for financial reporting purposes. Therefore, reported amounts are affected by foreign currency fluctuations. The Company reports unrealized foreign currency translation gains and losses in accumulated other comprehensive income. In periods when the yen weakens against the dollar, translating yen into dollars causes fewer dollars to be reported. When the yen strengthens, translating yen into U.S. dollars causes more U.S. dollars to be reported. The weakening of the yen relative to the U.S. dollar will generally adversely affect the value of the Company's yen-denominated investments in U.S. dollar terms. The Company also considers the stressed economic surplus in Aflac Japan and related exposure to foreign currency. The Company manages this currency risk by investing a portion of Aflac Japan's investment portfolio in U.S. dollar-denominated securities and by the Parent Company's issuance of yen-denominated debt (for additional information, see the discussion under the Investments subsection within Item 1, Business). As a result, the effect of currency fluctuations on the Company's net assets is reduced.

As discussed above in the Investment subsection of Item 1, Business, the Company engages in hedging activities to mitigate certain currency risks from holding U.S. dollar-denominated investments in Aflac Japan. However, this hedging program in turn poses a countervailing long-term risk of loss on hedging currency derivatives under the long-term scenario of weakening yen, and related derivative rollover risk that could amplify hedge cost in unfavorable market conditions and significantly increase liquidity requirements to support negative derivative settlements. Additionally, as discussed in detail in the Risk Factors section titled “Lack of availability of acceptable yen-denominated investments could adversely affect the Company’s results of operations, financial position or liquidity,” there is a risk that losses realized on derivative settlements during periods of weakening yen may not be recouped through realization of the corresponding holding currency gains on the hedged U.S. dollar-denominated investments if these investments are not ultimately converted to yen.

As noted above, in late 2017, the Company took steps to refine the strategy to mitigate currency exposure of Aflac Japan from U.S. dollar-denominated investments while balancing the consideration of the stressed economic surplus in Aflac Japan. This refinement in strategy resulted in an increased amount of the unhedged U.S. dollar-denominated investments held in Aflac Japan while at the same time mitigating hedge cost increases. Generally, Aflac Japan’s exposure to the currency risk increases when its portfolio of unhedged U.S. dollar-denominated investments increases. This increases the volatility of the SMR and FSA earnings and may result in an adverse impact on these regulatory measures when yen appreciates relatively to U.S. dollar. This in turn may reduce Aflac Japan’s repatriation or dividend capacity, as well as increase the level of capital needed to support increased SMR volatility. The adverse impact on the regulatory measures could be amplified by regulatory accounting rules requiring impairment loss recognition on prolonged significant declines in U.S. dollar relative to yen. Furthermore, under the scenario where unhedged U.S. dollar-denominated investments are needed to pay Aflac Japan’s yen-denominated obligations, they would have to be converted to yen, which could force realization of the then potential currency losses. As the value of the U.S. dollar-denominated investment portfolio in Aflac Japan fluctuates and the Company’s business model evolves, the Company will periodically reevaluate this size of the unhedged portfolio and may accordingly adjust up or down its currency hedging targets.

The following table demonstrates the effect of foreign currency fluctuations by presenting the dollar values of the Company's yen-denominated assets and liabilities, and its consolidated yen-denominated net asset exposure at selected exchange rates as of December 31.

Dollar Value of Yen-Denominated Assets and Liabilities

at Selected Exchange Rates

(In millions)	2017												2016
Yen/dollar exchange rates	98.00				113.00 (1)				128.00				101.49				116.49(1)				131.49
Yen-denominated financial instruments:
Assets:
Securities available for sale:
Fixed maturities(2)	$	49,775			$	43,167			$	38,109			$	41,856			$	36,467			$	32,306
Fixed maturities - consolidated variable interest entities(3)	841				729				644				783				682				604
Perpetual securities	1,729				1,499				1,324				1,557				1,357				1,202
Perpetual securities - consolidated variable interest entities(3)	248				215				190				231				201				178
Equity securities	126				109				96				155				136				120
Equity securities - consolidated variable interest entities	675				586				517				653				569				504
Securities held to maturity:
Fixed maturities	36,240				31,430				27,747				38,279				33,350				29,545
Cash and cash equivalents	222				193				170				1,013				883				782
Derivatives	1,961				331				528				2,245				1,207				3,515
Other financial instruments	228				198				175				206				178				159
Subtotal	92,045				78,457				69,500				86,978				75,030				68,915
Liabilities:
Notes payable	1,535				1,331				1,175				304				265				235
Derivatives	516				474				2,177				1,712				1,998				5,549
Subtotal	2,051				1,805				3,352				2,016				2,263				5,784
Net yen-denominated financial instruments	89,994				76,652				66,148				84,962				72,767				63,131
Other yen-denominated assets	9,406				8,157				7,201				8,741				7,616				6,747
Other yen-denominated liabilities	107,761				93,456				82,504				102,132				88,981				78,830
Consolidated yen-denominated net assets (liabilities) subject to foreign currency fluctuation(2)	$	(8,361	)		$	(8,647	)		$	(9,155	)		$	(8,429	)		$	(8,598	)		$	(8,952	)

(1) Actual period-end exchange rate

(2) Does not include the U.S. dollar-denominated corporate bonds for which the Company has entered into foreign currency derivatives as discussed in the Aflac Japan Investment subsection of MD&A

(3) Does not include U.S. dollar-denominated bonds that have corresponding cross-currency swaps in consolidated VIEs

The Company is required to consolidate certain VIEs. Some of the consolidated VIEs in Aflac Japan's portfolio use foreign currency swaps to convert foreign denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. Foreign currency swaps exchange an initial principal amount in two currencies, agreeing to re-exchange the currencies at a future date, at an agreed upon exchange rate. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Prior to consolidation, the Company's beneficial interest in these VIEs was a yen-denominated available-for-sale fixed maturity security. Upon consolidation, the original yen-denominated investment was derecognized and the underlying fixed-maturity or perpetual securities and cross-currency swaps were recognized. The combination of a U.S. dollar-denominated investment and cross-currency swap economically creates a yen-denominated investment and has no impact on the Company's net investment hedge position.

Similarly, the combination of the U.S. corporate bonds and the foreign currency forwards and options that the Company has entered into, as discussed in the Aflac Japan Investment subsection of MD&A, economically creates a yen-denominated investment that qualifies for inclusion as a component of the Company's investment in Aflac Japan for net investment hedge purposes.

For additional information regarding the Company's Aflac Japan net investment hedge, see the Hedging Activities subsection of MD&A.

Interest Rate Risk

The Company's primary interest rate exposure is to the impact of changes in interest rates on the fair value of its investments in debt and perpetual securities. The Company monitors its investment portfolio on a quarterly basis utilizing a full valuation methodology, measuring price volatility, and sensitivity of the fair values of its investments to interest rate changes on the debt and perpetual securities the Company owns. For example, if the current duration of a debt security or perpetual security is 10 years, then the fair value of that security will increase by approximately 10% if market interest rates decrease by 100 basis points, assuming all other factors remain constant. Likewise, the fair value of the debt security or perpetual security will decrease by approximately 10% if market interest rates increase by 100 basis points, assuming all other factors remain constant.

The estimated effect of potential increases in interest rates on the fair values of debt and perpetual securities the Company owns; derivatives, excluding credit default swaps, and notes payable as of December 31 follows:

Sensitivity of Fair Values of Financial Instruments

to Interest Rate Changes

	2017											2016
(In millions)	Fair Value					+100 Basis Points						Fair Value					+100 Basis Points
Assets:
Debt and perpetual securities:
Fixed-maturity securities:
Yen-denominated		$	81,968				$	70,573					$	77,170				$	66,636
Dollar-denominated		38,628					35,452						36,611					33,611
Perpetual securities:
Yen-denominated		1,714					1,573						1,558					1,434
Dollar-denominated		75					66						75					68
Total debt and perpetual securities		$	122,385				$	107,664					$	115,414				$	101,749
Loans and loan receivables(1)		$	2,987				$	2,932					$	1,142				$	1,090
Derivatives		$	330				$	533					$	1,205				$	1,309
Liabilities:
Notes payable(2)		$	5,553				$	4,900					$	5,530				$	5,175
Derivatives		474					293						1,998					1,901

(1)Includes TREs, CMLs and MMLs, excludes policy loans

(2)Excludes capitalized lease obligations

There are various factors that affect the fair value of the Company's investment in debt and perpetual securities. Included in those factors are changes in the prevailing interest rate environment, which directly affect the balance of unrealized gains or losses for a given period in relation to a prior period. Decreases in market yields generally improve the fair value of debt and perpetual securities, while increases in market yields generally have a negative impact on the fair value of the Company's debt and perpetual securities. However, the Company does not expect to realize a majority of any unrealized gains or losses because it generally has the intent and ability to hold such securities until a recovery of value, which may be maturity. For additional information on unrealized losses on debt and perpetual securities, see Note 3 of the Notes to the Consolidated Financial Statements.

The Company attempts to match the duration of its assets with the duration of its liabilities. The following table presents the approximate duration of Aflac Japan's yen-denominated assets and liabilities, along with premiums, as of December 31.

(In years)	2017			2016
Yen-denominated debt and perpetual securities	15			15
Policy benefits and related expenses to be paid in future years	14			14
Premiums to be received in future years on policies in force	10			10

The following table presents the approximate duration of Aflac U.S. dollar-denominated assets and liabilities, along with premiums, as of December 31.

(In years)	2017			2016
Dollar-denominated debt and perpetual securities	10			10
Policy benefits and related expenses to be paid in future years	8			8
Premiums to be received in future years on policies in force	6			6

The following table shows a comparison of average required interest rates for future policy benefits and investment yields, based on amortized cost, for the years ended December 31.

Comparison of Interest Rates for Future Policy Benefits

and Investment Yields

(Net of Investment Expenses)

	2017								2016								2015
	U.S.				Japan				U.S.				Japan				U.S.				Japan
Policies issued during year:
Required interest on policy reserves		3.69	%			1.10	%	(1)		3.67	%			1.38	%	(1)		3.68	%			1.81	%	(1)
New money yield on investments		4.41				1.88				3.81				1.30				4.37				2.79
Policies in force at year-end:
Required interest on policy reserves		5.43				3.38		(1)		5.51				3.49		(1)		5.60				3.61		(1)
Portfolio book yield, end of period		5.44				2.46				5.52				2.52				5.69				2.70

(1)Represents investments for Aflac Japan that support policy obligations and therefore excludes Aflac Japan’s annuity products

The Company continues to monitor the spread between its new money yield and the required interest assumption for newly issued products in both the United States and Japan and will re-evaluate those assumptions as necessary. Over the next two years, the Company has yen-denominated securities that will mature with yields in excess of Aflac Japan's current net investment yield of 1.88%. These securities total $1.7 billion at amortized cost and have a weighted average yield of 3.57%. Currently, when debt and perpetual securities the Company owns mature, the proceeds may be reinvested at a yield below that of the interest required for the accretion of policy benefit liabilities on policies issued in earlier years. Overall, adequate profit margins exist in Aflac Japan's aggregate block of business because of changes in the mix of business and favorable experience from mortality, morbidity and expenses.

Periodically, the Company may enter into derivative transactions to hedge interest rate risk, depending on general economic conditions.

For further information on interest rate derivatives, see Note 4 of the accompanying Notes to the Consolidated Financial Statements.

Credit Risk

A significant portion of the Company's investment portfolio consists of debt securities or perpetual securities and loans that expose it to the credit risk of the underlying issuer or borrower. The Company carefully evaluates this risk on every new investment and closely monitors the credit risk of its existing investment portfolio. The Company incorporates the needs of its products and liabilities, the overall requirements of the business, and other factors in addition to its underwriting of the credit risk for each investment in the portfolio.

Evaluating the underlying risks in the Company's credit portfolio involves a multitude of factors including but not limited to its assessment of the issuer's or borrower's business activities, assets, products, market position, financial condition, and future prospects. The Company incorporates the assessment of the NRSROs in assigning credit ratings

and incorporates the rating methodologies of its specialist external managers in assigning loan ratings to portfolio holdings. The Company performs extensive internal assessments of the credit risks for all its portfolio holdings and potential new investments, which includes using analyses provided by the Company's specialist external managers. For assets managed by external asset managers, the Company provides investment and credit risk parameters that must be used when making investment decisions and require ongoing monitoring and reporting from the asset managers on significant changes in credit risks within the portfolio.

Investment Concentrations

The Company's 15 largest global investment exposures were as follows:

Largest Global Investment Positions

(In millions)

December 31, 2017

				Total				% of Total
No.		Consolidated Corporate/Sovereign Exposure		Consolidated				Debt & Perpetual			Credit
				Book Value				Securities			Rating
1		Japan National Government(1)		$	48,399			45.42	%		A
2		Republic of South Africa		442				.41			BB
3		Bank of America NA		398				.37
		Bank of America Corp.		221				.21			A
		Bank of America Corp.		177				.16			BBB
4		Bank of Tokyo-Mitsubishi UFJ Ltd.		398				.37			A
5		Investcorp Capital Limited		377				.35			BB
6		Banobras		327				.31			BBB
7		Sultanate of Oman		310				.29			BBB
8		Nordea Bank AB		298				.28			BBB
9		AXA		289				.27			BBB
10		Deutsche Telekom AG		287				.27			BBB
11		CFE		283				.27			BBB
12		Barclays Bank PLC		280				.27
		Barclays Bank PLC		157				.15			BB
		Barclays Bank PLC		123				.12			BBB
13		Petroleos Mexicanos (Pemex)		278				.26
		Pemex Proj FDG Master TR		265				.25			BBB
		Pemex Finance Ltd.		13				.01			A
14		Investor AB		265				.25			AA
15		Czech Republic		265				.25			A
		Subtotal		$	52,896			49.64	%
		Total debt and perpetual securities		$	106,562			100.00	%

(1)JGBs or JGB-backed securities

As previously disclosed, the Company owns long-dated debt instruments in support of its long-dated policyholder obligations. Some of the Company's largest global investment holdings are positions that were purchased many years ago and increased in size due to merger and consolidation activity among the issuing entities. In addition, many of the Company's largest holdings are yen-denominated, therefore strengthening of the yen can increase its position in dollars, and weakening of the yen can decrease its position in dollars. The Company's global investment guidelines establish concentration limits for its investment portfolios.

Geographical Exposure

The following table indicates the geographic exposure of the Company's debt and perpetual securities as of December 31.

	2017							2016
(In millions)	Amortized Cost				% of Total			Amortized Cost				% of Total
Japan	$	51,983			48.8	%		$	46,977			46.3	%
United States and Canada (1)	31,052				29.1			30,583				30.1
United Kingdom	2,603				2.4			2,396				2.5
Germany	2,323				2.2			2,558				2.6
France	1,983				1.9			1,741				1.7
Peripheral Eurozone	2,312				2.2			2,597				2.6
Portugal	211				.2			206				.2
Italy	1,261				1.2			1,567				1.6
Ireland	32				.0			118				.1
Spain	808				.8			706				.7
Nordic Region	1,611				1.5			1,728				1.7
Sweden	725				.7			704				.7
Norway	451				.4			520				.5
Denmark	177				.2			258				.3
Finland	258				.2			246				.2
Other Europe	2,489				2.3			2,295				2.3
Netherlands	1,183				1.1			1,184				1.2
Switzerland	307				.3			247				.3
Czech Republic	442				.4			429				.4
Austria	123				.1			119				.1
Belgium	168				.1			144				.1
Poland	177				.2			172				.2
Luxembourg	89				.1			0				.0
Asia excluding Japan	3,408				3.2			3,425				3.4
Africa and Middle East	2,460				2.3			2,559				2.5
Latin America	2,318				2.2			2,205				2.2
Australia	1,572				1.5			1,705				1.7
All Others	448				.4			450				.4
Total debt and perpetual securities	$	106,562			100.0	%		$	101,219			100.0	%

(1) Includes total exposure to Puerto Rico of $1 million of required deposits at December 31, 2017 and 2016, of which 100% had

principal and interest insurance as of December 31, 2017 and 2016.

The primary factor considered when determining the domicile of investment exposure is the legal country risk location of the issuer. However, other factors such as the location of the parent guarantor, the location of the company's headquarters or major business operations (including location of major assets), location of primary market (including location of revenue generation) and specific country risk publicly recognized by rating agencies can influence the assignment of the country (or geographic) risk location. When the issuer is a special financing vehicle or a branch or subsidiary of a global company, then the Company considers any guarantees and/or legal, regulatory and corporate relationships of the issuer relative to its ultimate parent in determining the proper assignment of country risk.

Derivative Counterparties

The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; foreign currency options; and interest rate swaptions, therefore the Company is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. 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 foreign exchange and/or credit loss due to counterparty default even though it is not a direct counterparty to those contracts. The risk of counterparty default for the Company's VIE and senior note and subordinated debenture swaps, foreign currency swaps, certain foreign currency forwards, foreign currency options and interest rate swaptions is mitigated by collateral posting requirements that counterparties to those transactions must meet. If collateral posting agreements are not in place, the counterparty risk associated with foreign currency forwards and foreign currency options is the risk that at expiry of the contract, the counterparty is unable to deliver the agreed upon amount of yen at the agreed upon price or delivery date, thus exposing the Company to additional unhedged exposure to U.S. dollars in the Aflac Japan investment portfolio. See Note 4 of the accompanying Notes to the Consolidated Financial Statements for more information.

Equity Risk

Market prices for equity securities are subject to fluctuation and consequently the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from the relative price of alternative investments and general market conditions. If equity prices experienced a hypothetical broad-based decline of 10%, the fair value of the Company's equity investments would decline by approximately $102 million.