Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm			83
Consolidated Financial Statements			87
Consolidated Statements of Earnings			87
Consolidated Statements of Comprehensive Income (Loss)			88
Consolidated Balance Sheets			89
Consolidated Statements of Shareholders' Equity			90
Consolidated Statements of Cash Flows			92
Notes to the Consolidated Financial Statements			93
Note 1. Summary of Significant Accounting Policies			93
Note 2. Business Segment and Foreign Information			109
Note 3. Investments			112
Note 4. Derivative Instruments			127
Note 5. Fair Value Measurements			137
Note 6. Deferred Policy Acquisition Costs and Insurance Expenses			151
Note 7. Policy Liabilities			152
Note 8. Reinsurance			154
Note 9. Notes Payable and Lease Obligations			155
Note 10. Income Taxes			160
Note 11. Shareholders' Equity			162
Note 12. Share-Based Compensation			166
Note 13. Statutory Accounting and Dividend Restrictions			170
Note 14. Benefit Plans			172
Note 15. Commitments and Contingent Liabilities			176
Note 16. Unaudited Consolidated Quarterly Financial Data			177

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on the Company's evaluation under this framework, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2020.

KPMG LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2020, which is included herein.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Aflac Incorporated:

Opinion on Internal Control Over Financial Reporting

We have audited Aflac Incorporated and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedules II, III, and IV (collectively, the consolidated financial statements), and our report dated February 23, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Atlanta, Georgia

February 23, 2021

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Aflac Incorporated:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Aflac Incorporated and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement schedules II, III, and IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013, and our report dated February 23, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Item 8. Financial Statements and Supplementary Data

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the measurement of fair value of certain investments and derivatives

As discussed in Note 5 to the consolidated financial statements, the Company has certain privately issued securities and derivative instruments associated with variable interest entities (VIEs) that require significant judgment in the estimation of fair value. The fair value of privately issued securities are estimated using valuation models developed by a third party pricing vendor and require judgment to determine the inputs and assumptions used in the valuation models, such as credit default swap (CDS) spreads and the selection of comparable securities, when appropriate. The fair value of the Company’s derivatives associated with VIEs are also estimated using valuation models developed by a third party pricing vendor. Given the long duration of derivatives associated with VIEs, the estimate of the fair value requires judgment to extrapolate short-term observable data into long-term inputs for use in the valuation models. As of December 31, 2020, the value of privately issued securities are included within the financial statement captions of fixed maturity securities available for sale, at fair value; fixed maturity securities available for sale – consolidated variable interest entities, at fair value; and, fixed maturity securities held to maturity, at amortized cost, which totaled $101,286 million, $4,596 million, and $24,464 million, respectively. As of December 31, 2020, the fair value of derivatives associated with VIEs are included within the financial statement captions of other assets and other liabilities, which totaled $2,715 million and $3,612 million, respectively.

We identified the assessment of the measurement of fair value of certain privately issued securities and derivative instruments associated with VIEs as a critical audit matter. Due to the complexity of the valuation models, specialized valuation skills and knowledge and subjective auditor judgment were needed to evaluate the valuation models and the inputs and assumptions used in the models to estimate fair value.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls, with the involvement of valuation professionals when appropriate, over the Company’s process to estimate the fair value of such securities and derivative instruments. This included controls over the Company’s evaluation of the inputs, assumptions and estimates of fair value obtained from its third party pricing vendor. We involved valuation professionals with specialized skills and knowledge to assist in assessing the estimated fair values of such securities and derivative instruments, which included:

–Evaluating the inputs and assumptions used in the models to estimate the fair value of the privately issued securities, including an assessment of the determination of comparable securities and/or CDS spreads used by the third party pricing vendor for a selection of privately issued securities.

–Assessing the internal models used by the Company to evaluate the fair values for privately issued securities and derivatives associated with VIEs obtained from the third party pricing vendor. We observed that differences, if any, in fair value between the Company and the third party pricing vendor above pre-established tolerances were investigated by the Company.

–Developing an independent estimate of the fair value for a selection of privately issued securities and derivative instruments associated with VIEs and comparing our independent estimate to the fair value measurement recorded by the Company.

Item 8. Financial Statements and Supplementary Data

Assessment of the estimate of unpaid policy claims

As discussed in Note 1 to the consolidated financial statements, unpaid policy claims are estimates computed primarily on an undiscounted basis using statistical analyses of historical claims experience adjusted for current trends and changed conditions. The estimates are evaluated by the Company and, as new claim experience emerges, the estimates are adjusted as necessary. As of December 31, 2020, the Company recorded a liability for unpaid policy claims of $5,187 million.

We identified the assessment of the estimate of unpaid policy claims as a critical audit matter. Specialized actuarial skills and knowledge and subjective auditor judgment were needed to evaluate the actuarial methodologies and assumptions used to estimate the unpaid policy claims liability and determine that the Company’s methodologies are consistent with generally accepted actuarial methodologies.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness, with the involvement of actuarial professionals when appropriate, certain internal controls over the Company’s process to estimate the unpaid policy claims liability. This included controls related to the evaluation of the actuarial methodologies and assumptions used in the calculation of the unpaid policy claims liability. We involved actuarial professionals with specialized skills and knowledge to assist in assessing the unpaid policy claims liability, which included:

–Assessing the actuarial methodologies and assumptions utilized by the Company by comparing them to generally accepted actuarial methodologies and historical results.

–Evaluating the Company’s estimate of the unpaid policy claims liability by comparing to historical results and our expectations of changes in the estimate.

–Developing an independent range for the estimate of unpaid policy claims for certain products to evaluate the Company’s recorded liability and assessing any movement of the recorded liability within our range.

–Evaluating the Company’s historical ability to estimate unpaid policy claims by comparing the unpaid policy claims liability for certain products recorded by the Company at various historical periods to an independent range developed using claims paid through December 31, 2020.

/s/ KPMG LLP

We have served as the Company’s auditor since 1963.

Atlanta, Georgia

February 23, 2021

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings

Years Ended December 31,

(In millions, except for share and per-share amounts)			2020												2019												2018
Revenues:
Net premiums, principally supplemental health insurance						$	18,622											$	18,780											$	18,677
Net investment income						3,638												3,578												3,442
Net investment gains (losses)						(270)												(135)												(430)
Other income (loss)						157												84												69
Total revenues						22,147												22,307												21,758
Benefits and expenses:
Benefits and claims, net						11,796												11,942												12,000
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs						1,214												1,282												1,245
Insurance commissions						1,316												1,321												1,320
Insurance and other expenses (1)						3,420												3,089												2,988
Interest expense						242												228												222
Total acquisition and operating expenses						6,192												5,920												5,775
Total benefits and expenses						17,988												17,862												17,775
Earnings before income taxes						4,159												4,445												3,983
Income tax expense:
Current						794												806												1,379
Deferred						(1,413)												335												(316)
Income taxes						(619)												1,141												1,063
Net earnings						$	4,778											$	3,304											$	2,920
Net earnings per share:
Basic						$	6.69											$	4.45											$	3.79
Diluted						6.67												4.43												3.77
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic						713,702												742,414												769,588
Diluted						716,192												746,430												774,650

(1) Includes expense of $15 in 2020 for the early extinguishment of debt

See the accompanying Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Years Ended December 31,

(In millions)			2020												2019												2018
Net earnings						$	4,778											$	3,304											$	2,920
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period						510												252												232
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period						1,061												5,870												(3,155)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings						159												(18)												46
Unrealized gains (losses) on derivatives during period						(1)												(12)												2
Pension liability adjustment during period						(7)												(85)												(25)
Total other comprehensive income (loss) before income taxes						1,722												6,007												(2,900)
Income tax expense (benefit) related to items of other comprehensive income (loss)						251												1,543												(797)
Other comprehensive income (loss), net of income taxes						1,471												4,464												(2,103)
Total comprehensive income (loss)						$	6,249											$	7,768											$	817

See the accompanying Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets

December 31,

(In millions, except for share and per-share amounts)			2020						2019
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (allowance for credit losses of $38 in 2020, amortized cost $88,143 in 2020 and $76,063 in 2019)			$	101,286					$	86,950
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $3,487 in 2020 and $3,308 in 2019)			4,596						4,312
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $10 in 2020 (fair value $30,399 in 2020 and $37,594 in 2019)			24,464						30,085
Equity securities, at fair value			1,283						802
Commercial mortgage and other loans, net of allowance for credit losses of $180 in 2020 (includes $8,964 in 2020 and $7,956 in 2019 of consolidated variable interest entities)			10,554						9,569
Other investments (includes $826 in 2020 and $494 in 2019 of consolidated variable interest entities)			2,429						1,477
Cash and cash equivalents			5,141						4,896
Total investments and cash			149,753						138,091
Receivables			796						828
Accrued investment income			780						772
Deferred policy acquisition costs			10,441						10,128
Property and equipment, at cost less accumulated depreciation			601						581
Other			2,715						2,368
Total assets			$	165,086					$	152,768
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits			$	97,783					$	90,335
Unpaid policy claims			5,187						4,659
Unearned premiums			3,597						4,243
Other policyholders’ funds			7,824						7,317
Total policy liabilities			114,391						106,554
Income taxes			4,661						5,370
Payables for return of cash collateral on loaned securities			964						1,876
Notes payable and lease obligations			7,899						6,569
Other			3,612						3,440
Total liabilities			131,527						123,809
Commitments and contingent liabilities (Note 15)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2020 and 2019; issued 1,351,018 shares in 2020 and 1,349,309 shares in 2019			135						135
Additional paid-in capital			2,410						2,313
Retained earnings			37,984						34,291
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)			(1,109)						(1,623)
Unrealized gains (losses) on fixed maturity securities			10,361						8,548
Unrealized gains (losses) on derivatives			(34)						(33)
Pension liability adjustment			(284)						(277)
Treasury stock, at average cost			(15,904)						(14,395)
Total shareholders’ equity			33,559						28,959
Total liabilities and shareholders’ equity			$	165,086					$	152,768

See the accompanying Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(In millions, except for per share amounts)			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
Balance at December 31, 2017			$	135		$	2,052		$	29,895		$	4,028		$	(11,512)		$	24,598
Cumulative effect of change in accounting principle - Accounting Standards Update (ASU) 2016-01, net of income tax (1)			0			0			148			(148)			0			0
Cumulative effect of change in accounting principle - ASU 2018-02, net of income tax (1)			0			0			(374)			374			0			0
Balance at January 1, 2018			135			2,052			29,669			4,254			(11,512)			24,598
Net earnings			0			0			2,920			0			0			2,920
Unrealized foreign currency translation gains (losses) during period, net of income tax			0			0			0			228			0			228
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments			0			0			0			(2,316)			0			(2,316)
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			(17)			0			(17)
Dividends to shareholders ($1.04 per share)			0			0			(801)			0			0			(801)
Exercise of stock options			0			34			0			0			0			34
Share-based compensation			0			54			0			0			0			54
Purchases of treasury stock			0			0			0			0			(1,317)			(1,317)
Treasury stock reissued			0			37			0			0			40			77
Balance at December 31, 2018			135			2,177			31,788			2,151			(12,789)			23,462
Net earnings			0			0			3,304			0			0			3,304
Unrealized foreign currency translation gains (losses) during period, net of income tax			0			0			0			224			0			224
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments			0			0			0			4,314			0			4,314
Unrealized gains (losses) on derivatives during period, net of income taxes			0			0			0			(9)			0			(9)
Pension liability adjustment during period, net of income taxes			0			0			0			(65)			0			(65)
Dividends to shareholders ($1.08 per share)			0			0			(801)			0			0			(801)
Exercise of stock options			0			29			0			0			0			29
Share-based compensation			0			54			0			0			0			54
Purchases of treasury stock			0			0			0			0			(1,656)			(1,656)
Treasury stock reissued			0			53			0			0			50			103
Balance at December 31, 2019			$	135		$	2,313		$	34,291		$	6,615		$	(14,395)		$	28,959

(1) See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018.

See the accompanying Notes to the Consolidated Financial Statements.

(continued)

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)

(In millions, except for per share amounts)			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 - ASU 2016-13, net of income tax (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			4,778			0			0			4,778
Unrealized foreign currency translation gains (losses) during period, net of income tax			0			0			0			514			0			514
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments			0			0			0			965			0			965
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			(7)			0			(7)
Dividends to shareholders ($1.45 per share)			0			0			(1,029)			0			0			(1,029)
Exercise of stock options			0			12			0			0			0			12
Share-based compensation			0			53			0			0			0			53
Purchases of treasury stock			0			0			0			0			(1,565)			(1,565)
Treasury stock reissued			0			32			0			0			56			88
Balance at December 31, 2020			$	135		$	2,410		$	37,984		$	8,934		$	(15,904)		$	33,559

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

See the accompanying Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31,

(In millions)			2020												2019												2018
Cash flows from operating activities:
Net earnings						$	4,778											$	3,304											$	2,920
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums						52												(32)												(55)
Capitalization of deferred policy acquisition costs						(1,142)												(1,452)												(1,504)
Amortization of deferred policy acquisition costs						1,214												1,282												1,245
Increase in policy liabilities						2,023												2,104												2,343
Change in income tax liabilities						(1,419)												(244)												64
Net investment (gains) losses						270												135												430
Other, net						182												358												571
Net cash provided (used) by operating activities						5,958												5,455												6,014
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities						3,725												5,284												7,888
Equity securities						234												650												429
Held-to-maturity fixed maturity securities						4												622												1,670
Commercial mortgage and other loans						2,085												1,814												936
Costs of investments acquired:
Available-for-sale fixed maturity securities						(4,772)												(6,934)												(9,086)
Equity securities						(498)												(347)												(440)
Commercial mortgage and other loans						(3,263)												(4,401)												(4,848)
Other investments, net						(860)												(653)												(414)
Settlement of derivatives, net						18												(9)												(241)
Cash received (pledged or returned) as collateral, net						(1,027)												926												348
Other, net						(265)												(123)												176
Net cash provided (used) by investing activities						(4,619)												(3,171)												(3,582)
Cash flows from financing activities:
Purchases of treasury stock						(1,537)												(1,627)												(1,301)
Proceeds from borrowings						1,545												615												1,020
Principal payments under debt obligations						(350)												0												(550)
Dividends paid to shareholders						(769)												(771)												(793)
Change in investment-type contracts, net						(11)												(1)												(31)
Treasury stock reissued						34												49												58
Other, net						(27)												22												(19)
Net cash provided (used) by financing activities						(1,115)												(1,713)												(1,616)
Effect of exchange rate changes on cash and cash equivalents						21												(12)												30
Net change in cash and cash equivalents						245												559												846
Cash and cash equivalents, beginning of period						4,896												4,337												3,491
Cash and cash equivalents, end of period						$	5,141											$	4,896											$	4,337
Supplemental disclosures of cash flow information:
Income taxes paid						$	800											$	1,384											$	998
Interest paid						210												190												181
Noncash interest						32												37												41
Noncash financing activities:
Lease obligations						56												132												11
Treasury stock issued for:
Associate stock bonus						19												15												7
Shareholder dividend reinvestment						29												30												8
Share-based compensation grants						6												5												2

See the accompanying Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Aflac Incorporated and Subsidiaries

Notes to the Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business 

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States (U.S.) and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the U.S. and, effective April 1, 2018, through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan. Prior to April 1, 2018, the Company's insurance business was marketed in Japan as a branch of Aflac. The Company’s operations consist of two reportable business segments: Aflac U.S., which includes Aflac, and Aflac Japan, which includes ALIJ. American Family Life Assurance Company of New York (Aflac New York) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. Additionally, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. The Company's insurance operations in the U.S. and Japan service the two markets for the Company's insurance business. Aflac Japan's revenues, including realized gains and losses on its investment portfolio, accounted for 68% of the Company's total revenues in 2020, compared with 69% in 2019 and 70% in 2018. The percentage of the Company's total assets attributable to Aflac Japan was 83% at both December 31, 2020 and 2019.

In November 2019, the Company acquired Argus Holdings, LLC and its subsidiary Argus Dental & Vision, Inc. (Argus), a benefits management organization and national network dental and vision company, which provides a platform for Aflac Dental and Vision. The Company paid $75 million at closing and made an additional commitment of up to $21 million in contingent consideration payable over three years based on the achievement by Argus of certain performance targets. The contingent consideration was completed in 2020 with a payment of approximately $14 million. Argus is an addition to the Aflac U.S. segment.

In November 2020, the Company, through its insurance subsidiaries Aflac and Aflac New York, acquired Zurich North America’s U.S. Corporate Life and Pensions business (Zurich), which consists of group life, disability and absence management products for total consideration of $140 million. Aflac and Aflac New York will reinsure on an indemnity basis Zurich's in-force group life and disability policies. Aflac also acquired assets needed to support the group life and disability business, along with an absence management platform.

Basis of Presentation

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

The 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.

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

Item 8. Financial Statements and Supplementary Data

Liquidity and Capital Resources

The Company entered the crisis having maintained capital ratios in Japan and the U.S. at a level designed to absorb a degree of market volatility. To further support liquidity and capital resources, the Parent Company, in March 2020, issued four series of senior notes totaling ¥57.0 billion and, in April 2020, issued $1.0 billion in senior notes through public debt offerings under its U.S. shelf registration statement. The Company has available liquidity in its unsecured revolving credit facilities of $1.0 billion and ¥100.0 billion and currently has no borrowings under either of these facilities. In April 2020, Aflac increased its internal limit for Federal Home Loan Bank of Atlanta (FHLB) borrowings to $800 million, $300 million of which the Company has designated to be used for short-term liquidity needs of the U.S. insurance subsidiaries 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.

Loan Modifications

In March 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. In April 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 relief provided by the CARES Act applies to loan modifications made between March 1, 2020 and December 31, 2020, whereas the Interagency statement does not specify a time horizon. In December 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. The CAA extends certain provisions of the CARES Act, provides additional funding for others and contains new relief provisions. The CAA modifies a number of existing loan programs. The relief from TDR accounting will apply to modifications executed between March 1, 2020 and the earlier of (1) 60 days after the end of the COVID-19 national emergency as determined by the Executive Branch and (2) January 1, 2022. The Company applies relief granted 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. See Note 3 of Notes to the Consolidated Financial Statements for additional details.

Significant Accounting Policies

Foreign Currency Translation: The functional currency of Aflac Japan is the Japanese yen. The Company translates its yen-denominated financial statement accounts into U.S. dollars as follows. Assets and liabilities are translated at end-of-period exchange rates. Realized gains and losses on security transactions are translated at the exchange rate on the trade date of each transaction. Other revenues, expenses, and cash flows are translated using average exchange rates for the period. The resulting currency translation adjustments are reported in accumulated other comprehensive income. The Company includes in earnings the realized currency exchange gains and losses resulting from foreign currency transactions.

The Parent Company has designated a majority of its yen-denominated liabilities (notes payable and yen-denominated loans) as non-derivative hedges and from time-to-time may designate certain foreign currency forwards and options as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan. Outstanding principal and related accrued interest on these Parent Company liabilities and the fair value of these derivatives are translated into U.S. dollars at end-of-period exchange rates. Currency translation adjustments and changes in the fair value of these derivatives are recorded as unrealized foreign currency translation gains (losses) in other comprehensive income and are included in accumulated other comprehensive income.

Insurance Revenue and Expense Recognition: Substantially all of the supplemental health and life insurance policies the Company issues are classified as long-duration contracts. The contract provisions generally cannot be changed or canceled during the contract period; however, the Company may adjust premiums for supplemental health policies issued in the U.S. within prescribed guidelines and with the approval of state insurance regulatory authorities.

Item 8. Financial Statements and Supplementary Data

Insurance premiums for most of the Company's health and life policies, including cancer, accident, hospital, critical illness, dental, vision, term life, whole life, long-term care and disability, are recognized as revenue over the premium-paying periods of the contracts when due from policyholders. When revenues are reported, the related amounts of benefits and expenses are charged against such revenues, so that profits are recognized in proportion to premium revenues during the period the policies are expected to remain in force. This association is accomplished by means of annual additions to the liability for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Premiums from the Company's products with limited-pay features, including term life, whole life, WAYS, and child endowment, are collected over a significantly shorter period than the period over which benefits are provided. Premiums for these products are recognized as revenue over the premium-paying periods of the contracts when due from policyholders. Any gross premium in excess of the net premium is deferred and recorded in earnings, such that profits are recognized in a constant relationship with insurance in force. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized using the net premium method.

At the policyholder's option, customers can also pay discounted advanced premiums for certain of the Company's products. Advanced premiums are deferred and recognized when due from policyholders over the regularly scheduled premium payment period.

The calculation of DAC and the liability for future policy benefits requires the use of estimates based on sound actuarial valuation techniques. For new policy issues, the Company reviews its actuarial assumptions and deferrable acquisition costs each year and revises them when necessary to more closely reflect recent experience and studies of actual acquisition costs. For policies in force, the Company evaluates DAC by major product groupings to determine that they are recoverable from future revenues, and any amounts determined not to be recoverable are charged against net earnings. The Company has not had any material charges to earnings for DAC that was determined not to be recoverable in any of the years presented in this Form 10-K.

Advertising expense is reported as incurred in insurance expenses in the consolidated statements of earnings.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, money market instruments, and other debt instruments with a maturity of 90 days or less when purchased.

Investments: The Company's debt securities consist of fixed maturity securities, which are classified as either held to maturity or available for sale. Securities classified as held to maturity are securities that the Company has the ability and intent to hold to maturity or redemption and are carried at amortized cost. All other fixed maturity debt securities are classified as available for sale and are carried at fair value. If the fair value is higher than the amortized cost for debt securities, the excess is an unrealized gain, and if lower than cost, the difference is an unrealized loss. The net unrealized gains and losses on securities available for sale, less related deferred income taxes, are recorded through other comprehensive income and included in accumulated other comprehensive income.

Amortized cost of debt securities is based on the Company's purchase price adjusted for accrual of discount, or amortization of premium, and recognition of impairment charges, if any. The amortized cost of debt securities the Company purchases at a discount or premium will equal the face or par value at maturity or the call date, if applicable. Interest is reported as income when earned and is adjusted for amortization of any premium or discount.

The Company has investments in marketable equity securities which are carried at fair value. Changes in the fair value of equity securities are recorded in earnings as a component of realized investment gains and losses.

The Company has investments in variable interest entities (VIEs). Criteria for evaluating VIEs for consolidation focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The Company is the primary beneficiary of certain VIEs, and therefore consolidates these entities in its financial statements. While the consolidated VIEs generally operate within a defined set of contractual terms, there are certain powers that are retained by the Company that are considered significant in the conclusion that the Company is the primary beneficiary. These powers vary by structure but generally include the initial selection of the underlying collateral; the ability to obtain the underlying collateral in the event of default; and, the ability to appoint or dismiss key parties in the structure. In particular, the Company's powers surrounding the underlying collateral were considered to be the most significant powers because those most significantly impact the economics of the VIE. The Company has no obligation to provide any continuing financial support to any of the entities in which it is the primary beneficiary. The Company's maximum loss is limited to its original investment. Neither the Company nor any of its creditors have the ability to obtain the underlying collateral, nor does the Company have control over the instruments held in the VIEs, unless there is an

Item 8. Financial Statements and Supplementary Data

event of default. For those entities where the Company is the primary beneficiary, the consolidated entity's assets are segregated on the balance sheet by the caption "consolidated variable interest entities," and consist of fixed maturity securities, equity securities, loan receivables, limited partnerships and derivative instruments.

For the mortgage- and asset-backed securities held in the Company's fixed maturity portfolio, the Company recognizes income using a constant effective yield, which is based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in mortgage- and asset-backed securities is adjusted to the amount that would have existed had the new effective yield been applied at the time of acquisition. This adjustment is reflected in net investment income.

The Company uses the specific identification method to determine the gain or loss from securities transactions and report the realized gain or loss in the consolidated statements of earnings. Securities transactions are accounted for based on values as of the trade date of the transaction.

The Company lends fixed maturity and public equity securities to financial institutions in short-term security-lending transactions. These securities 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. The Company receives cash or other securities as collateral for such loans. 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 reported as an asset.

Commercial mortgage and other loans include transitional real estate loans (TREs), commercial mortgage loans (CMLs) and middle market loans (MMLs). The Company's investments in TREs, CMLs, and MMLs are accounted for as loan receivables and are recorded at amortized cost on the acquisition date. The Company has the intent and ability to hold these loan receivables for the foreseeable future or until they mature and therefore, they are considered held for investment and are carried at amortized cost in the commercial mortgage and other loans line in its consolidated balance sheets. The amortized cost of the loan receivables reflects allowances for expected lifetime losses estimated as of each reporting date.

Other investments include policy loans, limited partnerships, and short-term investments with maturities at the time of purchase of one year or less, but greater than 90 days. Limited partnerships are accounted for using the equity method of accounting. Under the equity method of accounting, the Company reports its portion of partnership earnings as a component of net investment income in its consolidated statements of earnings. The underlying investments held by the Company’s limited partnerships primarily consist of private equity and real estate. Short-term investments are stated at amortized cost, which approximates fair value.

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 measured at amortized cost including short-term receivables including premiums receivable, 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, whereas credit losses on premium receivables are recorded in net premiums. The Company’s off-balance sheet credit exposure is primarily attributable to loan commitments that are not unconditionally cancellable. 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 corresponding reduction to the credit allowance.

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 by reducing interest income, which is a component of net investment income, in the consolidated statement of earnings.

Item 8. Financial Statements and Supplementary Data

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.

Prior to January 1, 2020, the Company presented losses in accordance with the then effective guidance, where the Company primarily evaluated the financial instrument’s and issuer’s creditworthiness to determine whether an impairment in value of the Company's fixed maturity securities was other-than-temporary.

For fixed maturity securities, if, after monitoring and analyses, management believed that fair value would not recover to amortized cost, the Company recognized an other-than-temporary impairment. Once a security was considered to be other-than-temporarily impaired, the impairment loss was separated into two components: the portion of the impairment related to credit and the portion of the impairment related to factors other than credit. The Company recognized a charge to earnings for the credit-related portion of other-than-temporary impairments. Impairments related to factors other than credit were recorded in earnings in the event the Company intended to sell the security prior to the recovery of its amortized cost or if it was more likely than not that the Company would be required to dispose of the security prior to recovery of its amortized cost; otherwise, non-credit-related other-than-temporary impairments were recorded in other comprehensive income.

For loans receivable, the amortized cost of the loan receivables reflected allowances for incurred losses estimated based on past events and current economic conditions as of each reporting date.

Derivatives and Hedging: Freestanding derivative instruments are reported in the consolidated balance sheet at fair value and are reported in other assets and other liabilities, with changes in value reported in earnings and/or other comprehensive income. These freestanding derivatives are foreign currency forwards, foreign currency options, foreign currency swaps, interest rate swaps and interest rate swaptions. The Company does not use derivatives for trading purposes, nor does the Company engage in leveraged derivative transactions.

From time to time, the Company purchases certain investments that contain an embedded derivative. The Company assesses whether this embedded derivative is clearly and closely related to the asset that serves as its host contract. If the Company deems that the embedded derivative's terms are not clearly and closely related to the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the derivative is separated from that contract, held at fair value, and reported with the host instrument in the consolidated balance sheet, with changes in fair value reported in earnings. If the Company has elected the fair value option, the embedded derivative is not bifurcated, and the entire investment is held at fair value with changes in fair value reported in earnings.

See Note 5 for a discussion on how the Company determines the fair value of its derivatives. Accruals on derivatives are typically recorded in other assets or within other liabilities in the consolidated balance sheets.

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk attributable to the hedged item. At the inception of hedging relationships the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking the respective hedging relationship, and the methodology that will be used to assess the effectiveness of the hedge relationship at and subsequent to hedge inception. The Company documents the designation of each hedge as either (i) a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or the hedge of a forecasted transaction ("cash flow hedge"); (ii) a hedge of the estimated fair value of a recognized asset or liability ("fair value hedge"); or (iii) a hedge of a net investment in a foreign operation. The documentation process includes linking derivatives and non-derivative financial instruments that are designated as hedges to specific assets or groups of assets or liabilities in the statement of financial position or to specific forecasted transactions and defining the effectiveness testing methods to be used. At the hedge inception and on an ongoing quarterly basis, the Company also formally assesses whether the derivatives and non-derivative financial instruments used in hedging activities have been, and are expected to continue to be, highly effective in offsetting their designated risk. Hedge effectiveness is assessed using qualitative and quantitative methods. The assessment of hedge effectiveness determines the accounting treatment of changes in fair value.

For assessing hedge effectiveness, qualitative methods may include the comparison of critical terms of the derivative to the hedged item, and quantitative methods may include regression, dollar offset, or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship.

Item 8. Financial Statements and Supplementary Data

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. In cash flow hedges, all components of each derivative's gain or loss are included in the assessment of hedge effectiveness.

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the hedged item and the portion of the hedging instrument included in the assessment of effectiveness are recorded in the line item of the consolidated statements of earnings in which gain or loss on the hedged item is recorded. When assessing the effectiveness of the Company's fair value hedges, the Company excludes the changes in fair value related to the difference between the spot and the forward rate on its foreign currency forwards, the fair value not resulting from fluctuations in spot currency rates on the final notional exchange on cross currency swaps, and the time value of money of foreign exchange options and interest rate swaptions. For interest rate swaptions and cross-currency interest rate swaps designated under fair value hedges of interest rate risk, the change in the time value of money is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term.

As discussed in Note 4, from time to time the Company designates net investment hedges of its net investment in Aflac Japan. The Company makes its net investment hedge designation at the beginning of each quarter. For derivative hedging instruments designated as net investment hedges, Aflac follows the spot-rate method. According to that method, the change in fair value of the hedging instrument due to fluctuations in the spot exchange rate is recorded in the unrealized foreign currency component of other comprehensive income and reclassified to earnings only when the hedged net investment is sold, or when a liquidation of the respective net investment in the foreign entity is substantially completed. If and when a sale or liquidation occurs, the changes in fair value of the derivative deferred in the unrealized foreign currency component of other comprehensive income will be released in the same income statement line item where the gain (loss) on the hedged net investment would be recorded upon sale. All other changes in fair value of the hedging instrument are considered the “excluded component” and are accounted for in net investment gains (losses). Should these designated net investment hedge positions exceed the Company's net investment in Aflac Japan, the foreign exchange effect on the portion that exceeds its investment in Aflac Japan would be recognized in current earnings within net investment gains (losses).

The Company discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated cash flows or fair value of a hedged item; (2) the derivative is de-designated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised.

When hedge accounting is discontinued on a cash flow hedge or fair value hedge, the derivative is carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized in current period earnings. For discontinued cash flow hedges, including those where the derivative is sold, terminated or exercised, amounts previously deferred in other comprehensive income (loss) are reclassified into earnings when earnings are impacted by the cash flow of the hedged item.

If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported within other gains (losses), which is a component of net investment gains (losses). The fluctuations in estimated fair value of derivatives that have not been designated for hedge accounting can result in volatility in net earnings.

The Company receives and pledges cash or other securities as collateral on open derivative positions. Cash received as collateral is reported as an asset with a corresponding liability for the return of the collateral. Cash pledged as collateral is recorded as a reduction to cash, and a corresponding receivable is recognized for the return of the cash collateral. The Company generally can repledge or resell collateral obtained from counterparties, although the Company does not typically exercise such rights. Securities received as collateral are not recognized unless the Company was to exercise its right to sell that collateral or exercise remedies on that collateral upon a counterparty default. Securities that the Company has pledged as collateral continue to be carried as investment assets on its balance sheet.

Deferred Policy Acquisition Costs: Certain direct and incremental costs of acquiring insurance contracts are deferred and amortized with interest over the premium payment periods in proportion to the ratio of annual premium income to total anticipated premium income. Anticipated premium income is estimated by using the same mortality, persistency and interest assumptions used in computing liabilities for future policy benefits. In this manner, the related acquisition expenses are matched with revenues. Deferred costs include the excess of current-year commissions over ultimate renewal-year commissions and certain incremental direct policy issue, underwriting and sales expenses. All of these incremental costs are directly related to successful policy acquisition.

Item 8. Financial Statements and Supplementary Data

For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. The Company performs a two-stage analysis of the internal replacements to determine if the modification is substantive to the base policy. The stages of evaluation are as follows: 1) determine if the modification is integrated with the base policy, and 2) if it is integrated, determine if the resulting contract is substantially changed.

For internal replacement transactions where the resulting contract is substantially unchanged, the policy is accounted for as a continuation of the replaced contract. Unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life of the new policy, and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred. Examples include conversions of same age bands, certain family coverage changes, pricing era changes (decrease), and ordinary life becomes reduced paid-up and certain reinstatements.

An internal replacement transaction that results in a policy that is substantially changed is accounted for as an extinguishment of the original policy and the issuance of a new policy. Unamortized deferred acquisition costs on the original policy are immediately expensed, and the costs of acquiring the new policy are capitalized and amortized in accordance with the Company's accounting policies for deferred acquisition costs. Further, the policy reserves are evaluated based on the new policy features, and any change (up or down) necessary is recognized at the date of contract change/modification. Examples include conversions to higher age bands, certain family coverage changes, pricing era changes (increase), lapse & re-issue, certain reinstatements and certain other contract conversions.

Riders can be considered internal replacements that are either integrated or non-integrated resulting in either substantially changed or substantially unchanged treatment. Riders are evaluated based on the specific facts and circumstances of the rider and are considered an expansion of the existing benefits with additional premium required. Non-integrated riders to existing contracts do not change the Company's profit expectations for the related products and are treated as a new policy establishment for incremental coverage.

The Company measures the recoverability of DAC and the adequacy of its policy reserves annually by performing gross premium valuations on its business. (See the following discussion for further information regarding policy reserves.)

Goodwill: Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The amount of goodwill recognized is also impacted by measurement differences resulting from certain assets and liabilities not recorded at fair value (e.g. income taxes, employee benefits). Goodwill is not amortized, but is tested for impairment at a level of a reporting unit at least annually, in the same reporting period each year. Goodwill is included in the line item “Other” assets in the consolidated balance sheets and was $269 million as of December 31, 2020, compared with $140 million at December 31, 2019. A significant majority of the goodwill balance is attributable to the following business combinations within the Aflac U.S. segment, which represents the reporting unit for goodwill impairment testing: (i) CAIC acquisition in 2009, (ii) Empowered Benefits acquisition in 2015, (iii) Argus acquisition in 2019, and (iv) acquisition of Zurich's business in the fourth quarter of 2020.

Policy Liabilities: Future policy benefits represent insurance claims that are expected to occur in the future and are computed following a net level premium method using estimated future investment yields, persistency and recognized morbidity and mortality tables modified to reflect the Company's experience, including a provision for adverse deviation. These assumptions are generally established and considered locked at policy inception. These assumptions may only be unlocked in certain circumstances based on the results of periodic DAC recoverability and premium deficiency testing.

Unpaid policy claims are estimates computed primarily on an undiscounted basis using statistical analyses of historical claims experience adjusted for current trends and changed conditions. The ultimate liability may vary significantly from such estimates. The Company regularly adjusts these estimates as new claims experience emerges and reflects the changes in operating results in the year such adjustments are made.

Unearned premiums consist primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period.

Other policyholders’ funds liability consists primarily of the fixed annuity line of business in Aflac Japan which has fixed benefits and premiums.

Item 8. Financial Statements and Supplementary Data

For internal replacements that are determined to not be substantially unchanged, policy liabilities related to the original policy that was replaced are immediately released, and policy liabilities are established for the new insurance contract; however, for internal replacements that are considered substantially unchanged, no changes to the reserves are recognized.

Reinsurance: The Company enters into reinsurance agreements with other companies in the normal course of business. For each reinsurance agreement, the Company determines if 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, benefits and DAC are reported net of insurance ceded.

Income Taxes: Income tax provisions are generally based on pretax earnings reported for financial statement purposes, which differ from those amounts used in preparing the Company's income tax returns. Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the Company expects the temporary differences to reverse. The Company records deferred tax assets for tax positions taken based on its assessment of whether the tax position is more likely than not to be sustained upon examination by taxing authorities. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized.

Policyholder Protection Corporation and State Guaranty Association Assessments: In Japan, the government has required the insurance industry to contribute to a policyholder protection corporation. The Company recognizes a charge for its estimated share of the industry's obligation once it is determinable. The Company reviews the estimated liability for policyholder protection corporation contributions on an annual basis and reports any adjustments in Aflac Japan's expenses.

In the U.S., each state has a guaranty association that supports insolvent insurers operating in those states. The Company's policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile's statutory definition of insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written. See Note 15 of the Notes to the Consolidated Financial Statements for further discussion of the guaranty fund assessments charged to the Company.

Treasury Stock: Treasury stock is reflected as a reduction of shareholders' equity at cost. The Company uses the weighted-average purchase cost to determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additional paid-in capital when treasury stock is reissued.

Share-Based Compensation: The Company measures compensation cost related to its share-based payment transactions at fair value on the grant date, and the Company recognizes those costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. The Company has formalized its entity-wide accounting policy election to estimate the number of awards that are expected to vest and the corresponding forfeitures.

Earnings Per Share: The Company computes basic earnings per share (EPS) by dividing net earnings by the weighted-average number of unrestricted shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the weighted-average number of shares outstanding for the period plus the shares representing the dilutive effect of share-based awards.

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.

Item 8. Financial Statements and Supplementary Data

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting as clarified and amended by: ASU 2021-01 Reference Rate Reform (Topic 848): Relief Extended to Derivatives Impacted by Discounting Transition			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. In January 2021, the FASB issued a standard to permit entities to apply optional expedients in ASC 848 to derivative instruments modified because of discounting transition. Discounting transition refers to the changing of interest rates used for margining, discounting, or contract price alignment of derivative instruments to transition to alternative rates.The amendment is effective immediately.			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.

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
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 beginning 2020 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).
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 2018-16 Derivatives and Hedging Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes			In October 2018, the FASB issued amendments to permit use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the Treasury obligations of the U.S. government (UST), the London Interbank Offered Rate (LIBOR) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate.			Early adopted as of October 1, 2018			The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations or disclosures.

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
ASU 2018-15 Intangibles - Goodwill and Other - Internal-Use Software, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract			In August 2018, the FASB issued amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.			Early adopted as of January 1, 2019			The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations or disclosures.
ASU 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans			In August 2018, the FASB issued amendments to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Accordingly, six disclosures requirements were removed, two added and two clarified.			Early adopted as of December 31, 2019			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 2018-03 Technical Corrections and Improvements to Financial Instruments - Overall Recognition and Measurement of Financial Assets and Financial Liabilities			In February 2018, the FASB issued amendments to clarify certain aspects of the guidance issued in the original Financial Instruments - Overall - Recognition and Measurement pronouncement summarized below. Specifically, for entities who have chosen the measurement alternative approach for equity securities without readily determinable fair values, the amendments clarify that entities may change from a measurement alternative approach to a fair value method through an irrevocable election that would apply to a specific equity security and all identical or similar investments of the same issuer; entities should use an observable price at the date of the transaction rather than reporting date for the measurement alternative calculation; and insurance companies should use a prospective transition method when applying the measurement alternative.			Early adopted as of January 1, 2018			The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations, or disclosures.
ASU 2018-02 Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income			In February 2018, the FASB issued amendments which allow a reclassification from accumulated other comprehensive income (AOCI) to retained earnings of the effects of the change in the U.S. federal income tax rate resulting from the Tax Cuts and Jobs Act (Tax Act) on the gross deferred tax amounts and the corresponding valuation allowances related to items remaining in AOCI. The amendments eliminate the stranded tax effects resulting from the Tax Act and also require certain disclosures about the reclassified tax effects.			Early adopted as of January 1, 2018			The amounts reclassified from AOCI to retained earnings include the income tax effects of the change in the federal corporate tax rate enacted by the Tax Act. The Company’s policy is to follow the portfolio approach for releasing income tax effects from AOCI. The adoption of this guidance resulted in an increase to beginning 2018 AOCI of $374 million with a corresponding decrease to beginning 2018 retained earnings as of January 1, 2018.

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
ASU 2017-12Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities			In August 2017, the FASB issued guidance which improves and simplifies the accounting rules around hedge accounting and creates more transparency around how economic results are presented in financial statements. Issues addressed in this new guidance include: 1) risk component hedging, 2) accounting for the hedged item in fair value hedges of interest rate risk, 3) recognition and presentation of the effects of hedging instruments, and 4) amounts excluded from the assessment of hedge effectiveness.			Early adopted as of October 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-09 Compensation - Stock Compensation: Scope of Modification Accounting			In May 2017, the FASB issued amendments to provide guidance clarifying when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. An entity should apply modification accounting if the fair value, vesting conditions or classification of the award (as an equity instrument or liability instrument) changes as a result of the change in terms or conditions of the award.			January 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2017-08 Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities			In March 2017, the FASB issued amendments to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount.			Early adopted as of July 1, 2018			The adoption of this guidance did not have a significant impact on the Company’s financial position, results of operations, or disclosures.
ASU 2017-07 Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost			In March 2017, the FASB issued amendments requiring that an employer report the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.			January 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
ASU 2017-05 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets			In February 2017, the FASB issued amendments that clarify the scope and accounting guidance for the derecognition of a nonfinancial asset or a financial asset that meets the definition of an "in substance nonfinancial asset." The amendments define an "in substance nonfinancial asset" and provide additional accounting guidance for partial sales of nonfinancial assets.			January 1, 2018			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 2017-01 Business Combinations: Clarifying the Definition of a Business			In January 2017, the FASB issued amendments clarifying when a set of assets and activities is a business. The amendments provide a screen to exclude transactions where substantially all the fair value of the transferred set is concentrated in a single asset, or group of similar assets, from being evaluated as a business.			January 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-18 Statement of Cash Flows: Restricted Cash			In November 2016, the FASB issued amendments requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.			January 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, statements of cash flows, or disclosures.
ASU 2016-16 Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory			In October 2016, the FASB issued amendments that require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.			January 1, 2018			The adoption of this guidance did not have a significant impact on the Company's financial position, results of operations, or disclosures.
ASU 2016-15 Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments			In August 2016, the FASB issued amendments that provide guidance on eight specific statement of cash flow classification issues, including distributions received from equity method investees.			January 1, 2018			The Company elected nature of distribution for distributions received from equity method investees. The adoption of this guidance did not have a significant impact on the Company's financial position, statement of cash flows, results of operations, or disclosures.

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
ASU 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments as clarified and amended by: ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, 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

Item 8. Financial Statements and Supplementary Data

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

Item 8. Financial Statements and Supplementary Data

Standard			Description			Date of Adoption			Effect on Financial Statements or Other Significant Matters
ASU 2016-01 Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities			In January 2016, the FASB issued guidance to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions of this guidance require certain equity investments to be measured at fair value with changes in fair value recognized in net earnings; separate presentation in other comprehensive income for changes in fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk; and changes in disclosures associated with the fair value of financial instruments. The guidance also clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset (DTA) related to available-for-sale (AFS) securities in combination with the entity's other DTAs.			January 1, 2018			The Company recorded a cumulative effect adjustment with an increase to beginning 2018 retained earnings and a decrease to beginning 2018 AOCI of $148 million, net of taxes.

Item 8. Financial Statements and Supplementary Data

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

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

2. BUSINESS SEGMENT AND FOREIGN INFORMATION

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

The Company does not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, the Company evaluates and manages its business segments using a financial performance measure called pretax adjusted earnings. Adjusted earnings are adjusted revenues less benefits and

Item 8. Financial Statements and Supplementary Data

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 for the years ended December 31 follows:

(In millions)			2020												2019												2018
Revenues:
Aflac Japan:
Net earned premiums:
Cancer						$	6,119											$	6,031											$	5,849
Medical and other health						3,596												3,582												3,516
Life insurance						2,955												3,159												3,397
Adjusted net investment income (1),(2)						2,659												2,496												2,403
Other income						42												45												41
Total adjusted revenue Aflac Japan						15,371												15,313												15,206
Aflac U.S.:
Net earned premiums:
Accident/disability						2,614												2,665												2,611
Cancer						1,275												1,309												1,311
Other health						1,571												1,548												1,508
Life insurance						298												286												278
Adjusted net investment income (3)						705												720												727
Other income						102												22												8
Total adjusted revenue Aflac U.S.						6,565												6,550												6,443
Corporate and other (4)						384												393												339
Total adjusted revenues						22,320												22,256												21,988
Net investment gains (losses) (1),(2),(3),(4)						(173)												51												(230)
Total revenues						$	22,147											$	22,307											$	21,758

(1) Amortized hedge costs of $206, $257 and $236 in 2020, 2019 and 2018, 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 $9 and $(17) in 2020 and 2019, respectively, and an immaterial amount in 2018, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

(3) Net interest cash flows from derivatives associated with certain investment strategies of $3 in 2020 have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

(4) Amortized hedge income of $97, $89 and $36 in 2020, 2019 and 2018, 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.

Item 8. Financial Statements and Supplementary Data

(In millions)			2020												2019												2018
Pretax earnings:
Aflac Japan (1),(2)						$	3,263											$	3,261											$	3,208
Aflac U.S. (3)						1,268												1,272												1,285
Corporate and other (4),(5)						(115)												(72)												(139)
Pretax adjusted earnings (6)						4,416												4,461												4,354
Net investment gains (losses) (1),(2),(3),(4),(5)						(229)												(15)												(297)
Other income (loss)						(28)												(1)												(74)
Total earnings before income taxes						$	4,159											$	4,445											$	3,983
Income taxes applicable to pretax adjusted earnings						$	864											$	1,147											$	1,129
Effect of foreign currency translation on after-tax adjusted earnings						31												15												28

(1) Amortized hedge costs of $206, $257 and $236 in 2020, 2019 and 2018, 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 $9 and $(17) in 2020 and 2019, respectively, and an immaterial amount in 2018, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

(3) Net interest cash flows from derivatives associated with certain investment strategies of $3 in 2020 have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

(4) Amortized hedge income of $97, $89 and $36 in 2020, 2019 and 2018, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) A gain of $56, $66 and $67 in 2020, 2019 and 2018, 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 when analyzing operations.

(6) Includes $167, $135 and $122 of interest expense on debt in 2020, 2019 and 2018, respectively.

Assets as of December 31 were as follows:

(In millions)			2020												2019
Assets:
Aflac Japan						$	137,271											$	127,523
Aflac U.S.						22,864												20,945
Corporate and other						4,951												4,300
Total assets						$	165,086											$	152,768

Yen-Translation Effects: The following table shows the yen/dollar exchange rates used for or during the periods ended December 31. Exchange effects were calculated using the same yen/dollar exchange rate for the current year as for each respective prior year.

			2020												2019												2018
Statements of Earnings:
Weighted-average yen/dollar exchange rate (1)						106.86												109.07												110.39
Yen percent strengthening (weakening)						2.1		%										1.2		%										1.6		%
Exchange effect on pretax adjusted earnings (in millions)						$	38											$	20											$	38

			2020												2019
Balance Sheets:
Yen/dollar exchange rate at December 31*(1)*						103.50												109.56
Yen percent strengthening (weakening)						5.9		%										1.3		%
Exchange effect on total assets (in millions)						$	7,970											$	1,225
Exchange effect on total liabilities (in millions)						7,870												1,533

(1) Rates are based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM)

Item 8. Financial Statements and Supplementary Data

Transfers of funds from Aflac Japan: Aflac Japan makes payments to the Parent Company for management fees, allocated expenses and remittances of earnings. Prior to the Aflac Japan branch conversion on April 1, 2018, Aflac Japan paid allocated expenses and profit remittances to Aflac U.S. Information on transfers for each of the years ended December 31 is shown below. See Note 13 for information concerning restrictions on transfers from Aflac Japan.

(In millions)			2020												2019												2018
Management fees						$	71											$	75											$	136
Allocated expenses						0												4												24
Profit remittances						1,215												2,070												808
Total transfers from Aflac Japan						$	1,286											$	2,149											$	968

Property and Equipment: The costs of buildings, furniture and equipment are depreciated principally on a straight-line basis over their estimated useful lives (maximum of 50 years for buildings and 20 years for furniture and equipment). Expenditures for maintenance and repairs are expensed as incurred; expenditures for betterments are capitalized and depreciated. Classes of property and equipment as of December 31 were as follows:

(In millions)			2020												2019
Property and equipment:
Land						$	168											$	168
Buildings						523												473
Equipment and furniture						566												549
Total property and equipment						1,257												1,190
Less accumulated depreciation						656												609
Net property and equipment						$	601											$	581

Receivables: Receivables consist primarily of monthly insurance premiums due from individual policyholders or their employers for payroll deduction of premiums, net of an allowance for doubtful accounts. At December 31, 2020, $201 million, or 25.2% of total receivables, were related to Aflac Japan's operations, compared with $258 million, or 31.2%, at December 31, 2019.

3. INVESTMENTS

Net Investment Income

The components of net investment income for the years ended December 31 were as follows:

(In millions)			2020												2019												2018
Fixed maturity securities						$	3,113											$	3,141											$	3,142
Equity securities						29												37												38
Commercial mortgage and other loans						545												468												333
Other investments						145												53												36
Short-term investments and cash equivalents						18												56												41
Gross investment income						3,850												3,755												3,590
Less investment expenses						212												177												148
Net investment income						$	3,638											$	3,578											$	3,442

Item 8. Financial Statements and Supplementary Data

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 at December 31 are shown in the following tables.

			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

Item 8. Financial Statements and Supplementary Data

			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

			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

Item 8. Financial Statements and Supplementary Data

			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

			2020												2019
(In millions)			Fair Value												Fair Value
Equity securities, carried at fair value through net earnings:
Equity securities:
Yen-denominated						$	680											$	658
U.S. dollar-denominated						603												144
Total equity securities						$	1,283											$	802

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

During 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 2019 and 2018, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Item 8. Financial Statements and Supplementary Data

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at December 31, 2020, were as follows:

(In millions)			Amortized Cost (1)												Fair Value
Available for sale:
Due in one year or less						$	1,130											$	1,125
Due after one year through five years						8,750												9,020
Due after five years through 10 years						13,752												15,945
Due after 10 years						66,951												78,754
Mortgage- and asset-backed securities						1,009												1,038
Total fixed maturity securities available for sale						$	91,592											$	105,882
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						2,212												2,594
Due after 10 years						22,252												27,805
Mortgage- and asset-backed securities						0												0
Total fixed maturity securities held to maturity						$	24,464											$	30,399

(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 as of December 31 were as follows:

			2020																		2019
(In millions)			Credit Rating						Amortized Cost						Fair Value						Credit Rating						Amortized Cost						Fair Value
Japan National Government*(1)*			A+						$55,153						$64,657						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 for the years ended December 31 follows:

Item 8. Financial Statements and Supplementary Data

(In millions)			2020						2019						2018
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales			$	31					$	115					$	101
Gross losses from sales			(47)						(68)						(156)
Foreign currency gains (losses) on sales and redemptions			(69)						(16)						73
Total sales and redemptions			(85)						31						18
Equity securities			184						101						(131)
Loan loss reserves (1)			0						(18)						(19)
Credit losses:
Fixed maturity securities available for sale (2)			(75)						(13)						(64)
Fixed maturity securities held to maturity			1						0						0
Commercial mortgage and other loans			(103)						0						0
Loan commitments			(21)						0						0
Reinsurance recoverables and other			(2)						0						0
Total credit losses			(200)						(13)						(64)
Derivatives and other:
Derivative gains (losses)			399						(174)						(224)
Foreign currency gains (losses)			(568)						(62)						(10)
Total derivatives and other			(169)						(236)						(234)
Total net investment gains (losses)			$	(270)					$	(135)					$	(430)

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

(2) Includes other-than-temporary impairment losses for prior year

The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the year ended December 31, 2020, that relates to equity securities still held at the December 31, 2020, reporting date was $210 million.

Unrealized Investment Gains and Losses

Information regarding changes in unrealized gains and losses from investments recorded in AOCI for the years ended December 31 follows:

(In millions)			2020												2019												2018
Changes in unrealized gains (losses):
Fixed maturity securities, available for sale						$	2,399											$	5,852											$	(3,142)
Total change in unrealized gains (losses)						$	2,399											$	5,852											$	(3,142)

Effect on Shareholders' Equity

The net effect on shareholders' equity of unrealized gains and losses from fixed maturity securities at December 31 was as follows:

(In millions)			2020												2019
Unrealized gains (losses) on securities available for sale						$	14,290											$	11,891
Deferred income taxes						(3,929)												(3,343)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities						$	10,361											$	8,548

Item 8. Financial Statements and Supplementary Data

Gross Unrealized Loss Aging

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

			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

Item 8. Financial Statements and Supplementary Data

			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

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 December 31, 2020, the Company held an allowance of $38 million. Refer to the Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

The Company classifies its TREs, CMLs and 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 table below reflects the composition of the carrying value for commercial mortgage and other loans by property type as of December 31.

Item 8. Financial Statements and Supplementary Data

(In millions)			2020												2019
			Amortized Cost						% of Total						Amortized Cost						% of Total
Commercial Mortgage and other loans
Transitional real estate loans:
Office			$	2,115					19.7		%				$	1,800					18.7		%
Retail			125						1.2						131						1.4
Apartments/Multi-Family			1,782						16.6						2,085						21.7
Industrial			85						.8						256						2.7
Hospitality			1,106						10.3						1,036						10.8
Other			81						.7						164						1.7
Total transitional real estate loans			5,294						49.3						5,472						57.0
Commercial mortgage loans:
Office			401						3.7						410						4.3
Retail			340						3.2						348						3.5
Apartments/Multi-Family			588						5.5						569						5.9
Industrial			391						3.6						383						4.0
Total commercial mortgage loans			1,720						16.0						1,710						17.7
Middle market loans			3,720						34.7						2,432						25.3
Total commercial mortgage and other loans			$	10,734					100.0		%				$	9,614					100.0		%
Allowance for credit losses			(180)												(45)			(1)
Total net commercial mortgage and other loans			$	10,554											$	9,569

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

Commercial mortgage and transitional real estate loans were secured by properties entirely within the U.S. (with the largest concentrations in California (21%), Texas (14%) and Florida (11%)). Middle market loans are issued only to companies domiciled within the U.S. and Canada.

Transitional Real Estate Loans

Transitional real estate loans are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile and do not typically require any principal repayment prior to the maturity date. This loan portfolio is generally considered to be investment grade. As of December 31, 2020, the Company had $601 million in outstanding commitments to fund transitional real estate loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

Commercial mortgage loans are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans. As of December 31, 2020, the Company had $32 million of outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

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

Item 8. Financial Statements and Supplementary Data

As of December 31, 2020, the Company had commitments of approximately $2.2 billion of which $2.0 billion was a result of a new agreement with an external manager during the first quarter of 2020 to fund future middle market loans. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

Credit Quality Indicators

For TREs, the Company’s key credit quality indicator is loan-to-value (LTV). Given that TRE loans involve properties undergoing renovation or construction, loan-to-value 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 December 31, 2020 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.

Transitional Real Estate Loans
(In millions)			2020			2019			2018			2017			2016			Prior			Total
Loan-to-Value Ratio:
0%-59.99%			$	79		$	670		$	397		$	159		$	20		$	29		$	1,354
60%-69.99%			214			857			722			372			0			0			2,165
70%-79.99%			84			754			673			224			14			0			1,749
80% or greater			26			0			0			0			0			0			26
Total			$	403		$	2,281		$	1,792		$	755		$	34		$	29		$	5,294

Commercial Mortgage Loans
(In millions)			2020			2019			2018			2017			2016			Total			Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%			$	31		$	400		$	100		$	69		$	554		$	1,154		2.59
60%-69.99%			31			223			70			0			161			485			1.94
70%-79.99%			0			33			0			0			22			55			1.76
80% or greater			0			0			0			0			26			26			1.66
Total			$	62		$	656		$	170		$	69		$	763		$	1,720		2.37
Weighted Average DSCR			2.00			2.52			2.21			2.58			2.27

Item 8. Financial Statements and Supplementary Data

Middle Market Loans
(In millions)			2020			2019			2018			2017			2016			Prior			Revolving Loans			Total
Credit Ratings:
BBB			$	36		$	71		$	51		$	33		$	4		$	0		$	20		$	215
BB			269			247			211			93			37			15			90			962
B			483			615			325			219			127			23			170			1,962
CCC			95			89			97			89			31			27			84			512
CC			0			0			0			39			3			0			1			43
C and lower			8			0			18			0			0			0			0			26
Total			$	891		$	1,022		$	702		$	473		$	202		$	65		$	365		$	3,720

Allowance for Credit Losses

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

The credit allowance for held-to-maturity fixed maturity securities and loan receivables is estimated using a PD / LGD method, discounted for the time value of money. For held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities and loan receivables, the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses. The Company’s methodology for estimating credit losses utilizes the contractual maturity date of the financial asset, adjusted when necessary to reflect the expected timing of repayment (such as prepayment options, renewal options, call options, or extension options). The Company applies reasonable and supportable forecasts of macroeconomic variables that impact the determination of PD/LGD over a two-year period for held-to-maturity fixed maturity securities and MMLs. The Company reverts to historical loss information over one year, following the two-year forecast period. For the CML and TRE portfolio, the Company applies reasonable and supportable forecasts of macroeconomic variables as well as national and local real-estate market factors to estimate future credit losses where the market factors revert back to historical levels over time with the period being dependent on current market conditions, projected market conditions and difference in the current and historical market levels for each factor. The Company continuously monitors the estimation methodology, due to changes in portfolio composition, changes in underwriting practices and significant events or conditions and makes adjustments as necessary.

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $23.3 billion amortized cost as of December 31, 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.

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

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

The Company’s methodology for estimating credit losses for available-for-sale fixed maturity securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as

Item 8. Financial Statements and Supplementary Data

industry analysis and credit ratings of the fixed maturity securities. In addition, the Company evaluates the specific issuer’s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and/or security of other debt holders in the issuer when developing management’s best estimate of expected cash flows.

The Company granted certain loan modifications in its MML and TRE portfolios due to COVID-19 during the year ended December 31, 2020. As of December 31, 2020 loan modifications did not have a material impact on the Company’s results of operations. The nature of the modifications varied in scope and significance, but generally a small proportion of modifications qualified as TDR, which is a situation where a Company grants a concession to a borrower that a Company would not otherwise have considered due to the borrower’s financial difficulties. Additionally, in accordance with the FASB’s published response to a COVID-19 Pandemic technical inquiry, the Company continues to accrue interest income on such loans that have deferred payment. The Company continues to evaluate loan modifications in its MML and TRE portfolios. As of December 31, 2020, the amortized cost of modified loans where Section 4013 of the CARES Act, as extended by the CAA, or the Interagency statement is applicable was immaterial.

The Company had an immaterial amount of TDRs during the year ended December 31, 2020. The Company had no TDRs during 2019. For certain TDRs, modifications resulted in write-offs for certain loans where the modified loan resulted in a forgiveness of existing principal and are included in the rollforward of the allowance for credit losses below.

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

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

The following table presents the roll forward of the allowance for credit losses by portfolio segment for the year ended December 31, 2020.

(In millions)			Transitional Real Estate Loans			Commercial Mortgage Loans			Middle Market Loans			Held to Maturity Securities			Available for Sale Securities			Reinsurance Recoverables
Balance at December 31, 2019 (1)			$	(22)		$	(3)		$	(20)		$	0		$	0		$	0
Transition impact to retained earnings			(2)			(8)			(33)			(10)			0			(11)
(Addition to) release of allowance for credit losses			(39)			(21)			(41)			0			(75)			(1)
Write-offs, net of recoveries			0			0			9			0			37			0
Balance at December 31, 2020			$	(63)		$	(32)		$	(85)		$	(10)		$	(38)		$	(12)

(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 December 31, 2020 was $35 million.

Item 8. Financial Statements and Supplementary Data

Other Investments

The table below reflects the composition of the carrying value for other investments as of December 31.

(In millions)			2020												2019
Other investments:
Policy loans						$	260											$	250
Short-term investments (1)						1,139												628
Limited partnerships						1,004												569
Other						26												30
Total other investments						$	2,429											$	1,477

(1) Includes securities lending collateral

As of December 31, 2020, the Company had $1.6 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

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

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

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

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

VIEs - Consolidated

The following table presents the cost or amortized cost, fair value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported as of December 31.

Item 8. Financial Statements and Supplementary Data

Investments in Consolidated Variable Interest Entities

			2020																								2019
(In millions)			Amortized Cost (1)												Fair Value												Amortized Cost												Fair Value
Assets:
Fixed maturity securities, available for sale						$	3,487											$	4,596											$	3,308											$	4,312
Commercial mortgage and other loans						8,964												9,040												7,956												8,015
Other investments (2)						826												826												494												494
Other assets (3)						133												133												169												169
Total assets of consolidated VIEs						$	13,410											$	14,595											$	11,927											$	12,990
Liabilities:
Other liabilities (3)						$	231											$	231											$	126											$	126
Total liabilities of consolidated VIEs						$	231											$	231											$	126											$	126

(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 as of December 31.

Investments in Variable Interest Entities Not Consolidated

			2020																								2019
(In millions)			Amortized Cost												Fair Value												Amortized Cost												Fair Value
Assets:
Fixed maturity securities, available for sale						$	5,477											$	6,767											$	4,129											$	4,884
Fixed maturity securities, held to maturity						0												0												1,848												2,236
Other investments (1)						178												178												75												74
Total investments in VIEs not consolidated						$	5,655											$	6,945											$	6,052											$	7,194

(1) Consists entirely of alternative investments in limited partnerships

The Company holds alternative investments in limited partnerships that have been determined to be VIEs. These partnerships invest in private equity and structured investments. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment. The Company is not the primary beneficiary of these VIEs and is

Item 8. Financial Statements and Supplementary Data

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 as of December 31 were as follows:

Securities Lending Transactions Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
			2020									2019
(In millions)			Overnight and Continuous**(1)**						Up to 30 days						Total			Overnight and Continuous*(1)*			Up to 30 days			Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies			$	0					$	0					$	0		$	0		$	1,013		$	1,013
Public utilities			57						0						57			35			0			35
Sovereign and supranational			3						0						3			2			0			2
Banks/financial institutions			63						0						63			48			0			48
Other corporate			841						0						841			778			0			778
Total borrowings			$	964					$	0					$	964		$	863		$	1,013		$	1,876
Gross amount of recognized liabilities for securities lending transactions															$	964								$	1,876

(1) The related loaned security, under the Company's Aflac 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 $6,654 million and $4,759 million at December 31, 2020 and 2019, respectively, which may not be sold or re-pledged, unless the counterparty is in default. Such securities collateral is not reflected on the consolidated financial statements.

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

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

Item 8. Financial Statements and Supplementary Data

At December 31, 2020, debt securities with a fair value of $18 million were on deposit with regulatory authorities in the U.S. (including U.S. territories). The Company retains ownership of all securities on deposit and receives the related investment income.

For general information regarding the Company's investment accounting policies, see Note 1.

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). In the first quarter of 2020, the Company reduced the size of the collar program by approximately $3 billion. In December 2020, the Company reduced the total size of the forward and collar programs by approximately $5 billion and purchased foreign currency options to hedge approximately $5 billion of U.S. dollar-denominated assets.

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

Item 8. Financial Statements and Supplementary Data

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, at December 31. 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.

Item 8. Financial Statements and Supplementary Data

			2020																																	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						$	18											$	0											$	1								$	75											$	0											$	8
Total cash flow hedges						18												0												1									75												0												8
Fair value hedges:
Foreign currency forwards						64												2												0									964												0												38
Foreign currency options						8,865												0												0									11,573												0												5
Interest rate swaptions						0												0												0									243												0												0
Total fair value hedges						8,929												2												0									12,780												0												43
Net investment hedge:
Foreign currency forwards						5,010												14												84									4,952												72												2
Foreign currency options						2,027												1												0									2,000												0												0
Total net investment hedge						7,037												15												84									6,952												72												2
Non-qualifying strategies:
Foreign currency swaps						2,250												47												81									2,800												72												78
Foreign currency swaps - VIE						2,857												133												230									2,587												169												118
Foreign currency forwards						26,528												386												301									19,821												166												337
Foreign currency options						11,037												0												0									9,553												0												0
Interest rate swaps						0												0												0									7,120												3												0
Interest rate swaptions						0												0												0									7												0												0
Total non-qualifying strategies						42,672												566												612									41,888												410												533
Total derivatives						$	58,656											$	583											$	697								$	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 six years. The derivatives in the Company's consolidated VIEs that are not designated as accounting hedges are discussed in the "non-qualifying strategies" section of this note.

Fair Value Hedges

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

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

Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment

Item 8. Financial Statements and Supplementary Data

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 for the years ended December 31.

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
2020:
Foreign currency forwards			Fixed maturity securities						$	(14)					$	(8)					$	(6)					$	7					$	1
Foreign currency options			Fixed maturity securities						(9)						(8)						(1)						1						0
Total gains (losses)									$	(23)					$	(16)					$	(7)					$	8					$	1
2019:
Foreign currency forwards			Fixed maturity securities						$	(50)					$	(64)					$	14					$	(12)					$	2
Foreign currency options			Fixed maturity securities						(7)						(7)						0						0						0
Interest rate swaptions			Fixed maturity securities						(9)						(9)						0						0						0
Total gains (losses)									$	(66)					$	(80)					$	14					$	(12)					$	2
2018:
Foreign currency forwards			Fixed maturity and equity securities						$	126					$	(104)					$	230					$	(242)					$	(12)
Foreign currency options			Fixed maturity securities						4						4						0						0						0
Interest rate swaptions			Fixed maturity securities						(1)						(1)						0						0						0
Total gains (losses)									$	129					$	(101)					$	230					$	(242)					$	(12)

(1) Gains (losses) excluded from effectiveness testing includes the forward point on foreign currency forwards and time value change on foreign currency options which are reported in the consolidated statement of earnings as realized 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 years ended December 31, 2020 and 2019, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

Item 8. Financial Statements and Supplementary Data

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 as of December 31.

(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)
						2020						2019						2020						2019
Fixed maturity securities						$	4,331					$	4,633					$	237					$	256

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

The total notional amount of the Company's interest rate swaptions was $0 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 9) 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 years ended December 31, 2020, 2019 and 2018.

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 December 31, 2020, 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.

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.

Item 8. Financial Statements and Supplementary Data

Impact of Derivatives and Hedging Instruments

The following table summarizes the impact to earnings and other comprehensive income (loss) from all derivatives and hedging instruments for the years ended December 31.

			2020																														2019																														2018
(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)												Net Investment Income (1)									Net Investment Gains (Losses)									Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE						$	(1)								$	0								$	(2)											$	(2)								$	(1)								$	(4)											$	0								$	0								$	3
Total cash flow hedges						(1)									0			(3)						(2)												(2)									(1)			(3)						(4)												0									0			(3)						3
Fair value hedges:
Foreign currency forwards (3)															(7)																														(62)																														(116)
Foreign currency options (3)															(8)																														(7)																														4
Interest rate swaptions (3)						(1)									0									1												(1)									0									(8)												0									0									(1)
Total fair value hedges						(1)									(15)									1												(1)									(69)									(8)												0									(112)									(1)
Net investment hedge:
Non-derivative hedging instruments															0									(135)																					0									(24)																					0									(32)
Foreign currency forwards															149									(282)																					10									83																					0									0
Foreign currency options															(5)									0																					(4)									0																					0									(8)
Total net investment hedge															144									(417)																					6									59																					0									(40)
Non-qualifying strategies:
Foreign currency swaps															29																														90																														(40)
Foreign currency swaps - VIE															(122)																														(68)																														60
Foreign currency forwards															311																														(148)																														(135)
Foreign currency options															(3)																														0																														0
Interest rate swaps															49																														17																														3
Forward bond purchase commitment - VIE															6																														0																														0
Total non-qualifying strategies															270																														(110)																														(112)
Total						$	(2)								$	399								$	(418)											$	(3)								$	(174)								$	47											$	0								$	(224)								$	(38)

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

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

(3) Impact of cash flow hedges reported as net investment gains (losses) includes an immaterial amount of gains or losses reclassified from accumulated other comprehensive income (loss) into earnings. It also includes an immaterial amount excluded from effectiveness testing during the years ended December 31, 2020, 2019 and 2018, respectively. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)

Item 8. Financial Statements and Supplementary Data

As of December 31, 2020, $5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.

Credit Risk Assumed through Derivatives

For the foreign currency 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 December 31, 2020, 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 $268 million and $301 million as of December 31, 2020 and 2019, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2020, the Company estimates that it would be required to post a maximum of $156 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. For additional information on the Company's accounting policy for securities lending, see Note 1.

The tables below summarize the Company's derivatives and securities lending transactions as of December 31, 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.

Item 8. Financial Statements and Supplementary Data

Offsetting of Financial Assets and Derivative Assets

2020
																																							Gross Amounts Not Offset in Balance Sheet
(In millions)			Gross Amount of Recognized Assets												Gross Amount Offset in Balance Sheet												Net Amount of Assets Presented in Balance Sheet												Financial Instruments												Securities Collateral						Cash Collateral Received												Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral						$	450											$	0											$	450											$	(295)								$	(73)								$	(76)											$	6
Total derivative assets subject to a master netting agreement or offsetting arrangement						450												0												450												(295)									(73)									(76)												6
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral						133																								133																																										133
Total derivative assets not subject to a master netting agreement or offsetting arrangement						133																								133																																										133
Total derivative assets						583												0												583												(295)									(73)									(76)												139
Securities lending and similar arrangements						940												0												940												0									0									(940)												0
Total						$	1,523											$	0											$	1,523											$	(295)								$	(73)								$	(1,016)											$	139

Item 8. Financial Statements and Supplementary Data

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

Item 8. Financial Statements and Supplementary Data

Offsetting of Financial Liabilities and Derivative Liabilities

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

Item 8. Financial Statements and Supplementary Data

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

For additional information on the Company's financial instruments, see the accompanying Notes 1, 3 and 5.

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 as of December 31.

Item 8. Financial Statements and Supplementary Data

			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

Item 8. Financial Statements and Supplementary Data

			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
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies						$	34,878											$	1,522											$	0											$	36,400
Municipalities						0												1,847												0												1,847
Mortgage- and asset-backed securities						0												232												178												410
Public utilities						0												6,556												224												6,780
Sovereign and supranational						0												1,042												0												1,042
Banks/financial institutions						0												10,264												23												10,287
Other corporate						0												34,234												262												34,496
Total fixed maturity securities						34,878												55,697												687												91,262
Equity securities						642												80												80												802
Other investments						628												0												0												628
Cash and cash equivalents						4,896												0												0												4,896
Other assets:
Foreign currency swaps						0												72												169												241
Foreign currency forwards						0												238												0												238
Interest rate swaps						0												3												0												3
Total other assets						0												313												169												482
Total assets						$	41,044											$	56,090											$	936											$	98,070
Liabilities:
Other liabilities:
Foreign currency swaps						$	0											$	78											$	126											$	204
Foreign currency forwards						0												377												0												377
Foreign currency options						0												5												0												5
Total liabilities						$	0											$	460											$	126											$	586

Item 8. Financial Statements and Supplementary Data

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 as of December 31.

			2020
(In millions)			Carrying Value									Quoted Prices in Active Markets for Identical Assets (Level 1)												Significant Observable Inputs (Level 2)												Significant Unobservable Inputs (Level 3)									Total Fair Value
Assets:
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies						$	23,445								$	28,810											$	260											$	0											$	29,070
Municipalities						377									0												499												0												499
Public utilities						47									0												61												0												61
Sovereign and supranational						571									0												736												0												736
Other corporate						24									0												33												0												33
Commercial mortgage and other loans						10,554									0												0												10,655												10,655
Other investments (1)						26									0												26												0												26
Total assets						$	35,044								$	28,810											$	1,615											$	10,655											$	41,080
Liabilities:
Other policyholders’ funds						$	7,824								$	0											$	0											$	7,709											$	7,709
Notes payable (excluding leases)						7,745									0												8,396												288												8,684
Total liabilities						$	15,569								$	0											$	8,396											$	7,997											$	16,393

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

Item 8. Financial Statements and Supplementary Data

												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

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

Fair Value of Financial Instruments

Fixed maturity and equity securities

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

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the credit default swaps (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

Item 8. Financial Statements and Supplementary Data

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 as of 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

Item 8. Financial Statements and Supplementary Data

						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

Item 8. Financial Statements and Supplementary Data

						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

Item 8. Financial Statements and Supplementary Data

						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

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

Derivatives

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

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

Item 8. Financial Statements and Supplementary Data

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

(1) Option-based only

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

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

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

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

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

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

Commercial mortgage and other loans

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

Item 8. Financial Statements and Supplementary Data

Other investments

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

Other policyholders' funds

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

Notes payable

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

Transfers between Hierarchy Levels and Level 3 Rollforward

The following tables present the changes in fair value of the Company's investments and derivatives carried at fair value classified as Level 3 as of December 31.

2020
			Fixed Maturity Securities																														Equity Securities						Derivatives**(1)**
(In millions)			Mortgage- and Asset- Backed Securities						Public Utilities						Sovereign and Supranational						Banks/ Financial Institutions						Other Corporate												Foreign Currency Swaps												Total
Balance, beginning of period			$	178					$	224					$	0					$	23					$	262					$	80					$	43											$	810
Net investment gains (losses) included in earnings			0						(1)						0						0						0						16						(139)												(124)
Unrealized gains (losses) included in other comprehensive income (loss)			9						19						0						0						12						0						(2)												38
Purchases, issuances, sales and settlements:
Purchases			30						174						48						1						39						14						0												306
Issuances			0						0						0						0						0						0						0												0
Sales			0						0						0						0						0						(6)						0												(6)
Settlements			(2)						(9)						0						0						(1)						0						0												(12)
Transfers into Level 3			9			(2)			15			(3)			0						0						2						0						0												26
Transfers out of Level 3			0						0						0						0						(15)			(3)			(2)						0												(17)
Balance, end of period			$	224					$	422					$	48					$	24					$	299					$	102					$	(98)											$	1,021
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					$	(139)											$	(139)

(1) Derivative assets and liabilities are presented net

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

(3) Transfer due to sector classification change

Item 8. Financial Statements and Supplementary Data

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						(1)						0						(33)												(34)
Unrealized gains (losses) included in other comprehensive income (loss)			1						6						1						8						0						(4)												12
Purchases, issuances, sales and settlements:
Purchases			0						48						0						165						34						0												247
Issuances			0						0						0						0						0						0												0
Sales			0						(24)						0						(17)						0						0												(41)
Settlements			0						(6)						0						0						0						0												(6)
Transfers into Level 3			0						116			(2)			0						26			(2)			0						0												142
Transfers out of Level 3			0						(25)			(2)			(1)						(132)			(2),(3)			0						0												(158)
Balance, end of period			$	178					$	224					$	23					$	262					$	80					$	43											$	810
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					$	(33)											$	(33)

(1) Derivative assets and liabilities are presented net

(2) Transfer due to sector classification change

(3) Transfer due to availability of observable market inputs

Item 8. Financial Statements and Supplementary Data

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 as of December 31. Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments.

2020
(In millions)						Fair Value												Valuation Technique(s)						Unobservable Input						Range (Weighted Average)
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Mortgage- and asset-backed securities									$	224								Consensus pricing						Offered quotes						N/A									(a)
Public utilities									422									Discounted cash flow						Credit spreads						N/A									(a)
Sovereign and supranational									48									Discounted cash flow						Historical volatility						N/A									(a)
Banks/financial institutions									24									Consensus pricing						Offered quotes						N/A									(a)
Other corporate									299									Discounted cash flow						Credit spreads						N/A									(a)
Equity securities									102									Net asset value						Offered quotes						N/A									(a)
Other assets:
Foreign currency swaps									69									Discounted cash flow						Interest rates (USD)						.93%			-			1.40%			(b)
																								Interest rates (JPY)						.05%			-			.43%			(c)
																								CDS spreads						22 bps			-			128 bps
									64									Discounted cash flow						Interest rates (USD)						.93%			-			1.40%			(b)
																								Interest rates (JPY)						.05%			-			.43%			(c)
Total assets									$	1,252
Liabilities:
Other liabilities:
Foreign currency swaps									$	160								Discounted cash flow						Interest rates (USD)						.93%			-			1.12%			(b)
																								Interest rates (JPY)						.05%			-			.35%			(c)
																								CDS spreads						41 bps			-			140 bps
									71									Discounted cash flow						Interest rates (USD)						.93%			-			1.12%			(b)
																								Interest rates (JPY)						.05%			-			.35%			(c)
Total liabilities									$	231

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

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

(c) Inputs derived from Japan long-term rates to accommodate long maturity nature of the Company's swaps

Item 8. Financial Statements and Supplementary Data

2019
(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)
Public utilities									224									Discounted cash flow						Credit spreads						N/A									(a)
Banks/financial institutions									23									Consensus pricing						Offered quotes						N/A									(a)
Other corporate									262									Discounted cash flow						Credit spreads						N/A									(a)
Equity securities									80									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)
																								Interest rates (JPY)						.12%			-			.43%			(c)
																								CDS spreads						10 bps			-			100 bps
									63									Discounted cash flow						Interest rates (USD)						1.89%			-			2.09%			(b)
																								Interest rates (JPY)						.12%			-			.43%			(c)
Total assets									$	936
Liabilities:
Other liabilities:
Foreign currency swaps									$	118								Discounted cash flow						Interest rates (USD)						1.89%			-			2.09%			(b)
																								Interest rates (JPY)						.12%			-			.43%			(c)
																								CDS spreads						13 bps			-			159 bps
									8									Discounted cash flow						Interest rates (USD)						1.89%			-			2.09%			(b)
																								Interest rates (JPY)						.12%			-			.43%			(c)
Total liabilities									$	126

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

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

(c) Inputs derived from Japan long-term rates to accommodate long maturity nature of the Company's swaps

Item 8. Financial Statements and Supplementary Data

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.

6. DEFERRED POLICY ACQUISITION COSTS AND INSURANCE EXPENSES

Consolidated policy acquisition costs deferred were $1.2 billion in 2020, compared with $1.5 billion in both 2019 and 2018. The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31.

			2020																								2019
(In millions)			Japan												U.S.												Japan												U.S.
Deferred policy acquisition costs:
Balance, beginning of year						$	6,584											$	3,544											$	6,384											$	3,491
Capitalization						665												486												825												626
Amortization						(644)												(570)												(709)												(573)
Foreign currency translation and other						386												(10)												84												0
Balance, end of year						$	6,991											$	3,450											$	6,584											$	3,544

Item 8. Financial Statements and Supplementary Data

Commissions deferred as a percentage of total acquisition costs deferred were 77% in 2020, compared with 74% in 2019 and 72% in 2018.

Personnel, compensation and benefit expenses as a percentage of insurance expenses were 59% in 2020, compared with 57% in 2019 and 54% in 2018. Advertising expense, which is included in insurance expenses in the consolidated statements of earnings, was as follows for the years ended December 31:

(In millions)			2020												2019												2018
Advertising expense:
Aflac Japan						$	72											$	101											$	108
Aflac U.S.						112												118												110
Total advertising expense						$	184											$	219											$	218

Depreciation and other amortization expenses, which are included in insurance expenses in the consolidated statements of earnings, were as follows for the years ended December 31:

(In millions)			2020												2019												2018
Depreciation expense						$	36											$	40											$	48
Other amortization expense						5												1												1
Total depreciation and other amortization expense						$	41											$	41											$	49

7. POLICY LIABILITIES

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 85%, 5%, 3% and 7% of total policy liabilities at December 31, 2020, respectively. The Company regularly reviews the adequacy of its policy liabilities in total and by component.

The liability for future policy benefits as of December 31 consisted of the following:

						Liability Amounts															Interest Rate Assumptions
(In millions)						2020						2019
Health insurance
Japan						$	54,659					$	50,941								0.6 - 6.75			%
U.S.						8,834						8,646									3.0 - 8.0
Intercompany eliminations (1)						(545)						(532)									2.0
Life insurance
Japan						33,993						30,520									0.6 - 4.5
U.S.						842						760									2.5 - 6.0
Total						$	97,783					$	90,335

(1) 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 8 of the Notes to the Consolidated Financial Statements

The weighted-average interest rates reflected in the consolidated statements of earnings for future policy benefits for Japanese policies were 3.1% in 2020, compared with 3.2% in 2019 and 3.3% in 2018; and for U.S. policies, 5.2% in 2020, compared with 5.3% in 2019 and 2018.

Item 8. Financial Statements and Supplementary Data

Changes in the liability for unpaid policy claims were as follows for the years ended December 31:

(In millions)			2020												2019												2018
Unpaid supplemental health claims, beginning of period						$	3,968											$	3,952											$	3,884
Less reinsurance recoverables						30												27												30
Net balance, beginning of period						3,938												3,925												3,854
Add claims incurred during the period related to:
Current year						7,179												7,216												7,101
Prior years						(540)												(552)												(563)
Total incurred						6,639												6,664												6,538
Less claims paid during the period on claims incurred during:
Current year						4,488												4,715												4,612
Prior years						1,966												1,965												1,898
Total paid						6,454												6,680												6,510
Effect of foreign exchange rate changes on unpaid claims						128												29												43
Zurich acquisition						99												0												0
Net balance, end of period						4,350												3,938												3,925
Add reinsurance recoverables						39												30												27
Unpaid supplemental health claims, end of period						4,389												3,968												3,952
Unpaid life claims, end of period						798												691												632
Total liability for unpaid policy claims						$	5,187											$	4,659											$	4,584

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $540 million for 2020 comprises approximately $334 million from Japan and $206 million from the U.S., representing approximately 62% and 38% of the total, respectively. Excluding the impact of foreign exchange of a gain of approximately $7 million from December 31, 2019 to December 31, 2020, the favorable claims development in Japan would have been approximately $327 million, representing approximately 61% of the total.

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

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

The decrease in current year incurred claims in 2020 primarily reflects a decrease in Aflac U.S. claims as a result of reduced accidents, wellness medical visits and routine procedures due to shelter-in-place orders and heightened social distancing due to COVID-19, offset somewhat by COVID-19 claims.

As of December 31, 2020 and 2019, unearned premiums consisted primarily of discounted advance premiums on deposit. Discounted advance premiums are premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period. These advanced premiums represented 60% of the December 31, 2020 and 64% of the December 31, 2019 unearned premiums balances.

As of December 31, 2020 and 2019, the largest component of the other policyholders' funds liability was the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. These annuities represented 97% of other policyholders' funds liability at December 31, 2020 and 2019.

Item 8. Financial Statements and Supplementary Data

8. REINSURANCE

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

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $1.0 billion, as of December 31, 2020, 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 $1.0 billion and $970 million as of December 31, 2020 and 2019, respectively. The increase in the reinsurance recoverable balance was driven by two aggregating factors: yen strengthening and the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate strengthened by approximately 5.9% and ceded reserves increased approximately 8.9% from December 31, 2019 to December 31, 2020.

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 for the years ended December 31.

(In millions)			2020									2019									2018
Direct premium income						$	18,955								$	19,122								$	19,018
Ceded to other companies:
Ceded Aflac Japan closed blocks						(466)									(478)									(497)
Other						(87)									(69)									(58)
Assumed from other companies:
Retrocession activities						195									200									208
Other						25									5									6
Net premium income						$	18,622								$	18,780								$	18,677
Direct benefits and claims						$	12,080								$	12,237								$	12,293
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks						(419)									(433)									(450)
Eliminations						39									41									43
Other						(63)									(57)									(44)
Assumed from other companies:
Retrocession activities						180									194									209
Eliminations						(39)									(41)									(53)
Other						18									1									2
Benefits and claims, net						$	11,796								$	11,942								$	12,000

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

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥120 billion as of December 31, 2020. This reinsurance facility agreement was renewed in 2020 and is effective until December 31, 2021. There are also additional commitment periods of a one-year duration each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac‘s Standard and Poor's (S&P) rating drops below BBB-. As of December 31, 2020, the Company had not executed a reinsurance treaty under this committed reinsurance facility.

Item 8. Financial Statements and Supplementary Data

9. NOTES PAYABLE AND LEASE OBLIGATIONS

A summary of notes payable and lease obligations as of December 31 follows:

(In millions)			2020												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)						119												0
.932% senior notes due January 2027 (principal amount ¥60.0 billion)						578												545
.500% senior notes due December 2029 (principal amount ¥12.6 billion)						121												114
.550% senior notes due March 2030 (principal amount ¥13.3 billion)						127												0
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)						282												266
.843% senior notes due December 2031 (principal amount ¥9.3 billion)						90												84
.750% senior notes due March 2032 (principal amount ¥20.7 billion)						198												0
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)						146												138
.934% senior notes due December 2034 (principal amount ¥9.8 billion)						94												88
.830% senior notes due March 2035 (principal amount ¥10.6 billion)						101												0
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)						85												81
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)						61												57
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)						575												543
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)						289												272
Yen-denominated loans:
Variable interest rate loan due September 2026 (.43% in 2020 and .42% in 2019, principal amount ¥5.0 billion)						48												45
Variable interest rate loan due September 2029 (.58% in 2020 and .57% in 2019, principal amount ¥25.0 billion)						240												227
Finance lease obligations payable through 2027						11												12
Operating lease obligations payable through 2049						143												149
Total notes payable and lease obligations						$	7,899											$	6,569

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, the Parent Company issued $1.0 billion of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.60% per annum, payable semi-annually, and will mature in April 2030. 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 45 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

Item 8. Financial Statements and Supplementary Data

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 December 2019, the Parent Company issued four series of senior notes totaling ¥38.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥12.6 billion, bears interest at a fixed rate of .500% per annum, payable semi-annually, and will mature in December 2029. The second series, which totaled ¥9.3 billion, bears interest at a fixed rate of .843% per annum, payable semi-annually, and will mature in December 2031. The third series, which totaled ¥9.8 billion, bears interest at a fixed rate of .934% per annum, payable semi-annually, and will mature in December 2034. The fourth series, which totaled ¥6.3 billion, bears interest at a fixed rate of 1.122% per annum, payable semi-annually, and will mature in December 2039. 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 September 2019, the Parent Company renewed a ¥30.0 billion senior term loan facility. The first tranche of the facility, which totaled ¥5.0 billion, bears interest at a rate per annum equal to the Tokyo interbank market rate (TIBOR), or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in September 2026. The applicable margin ranges between .30% and .70%, depending on the Parent Company's debt ratings as of the date of determination. The second tranche, which totaled ¥25.0 billion, bears interest at a rate per annum equal to the TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in September 2029. The applicable margin ranges between .45% and 1.00%, depending on the Parent Company's debt ratings as of the date of determination.

In April 2019, ALIJ issued ¥30.0 billion (par value) of perpetual subordinated bonds. These bonds bear interest at a fixed rate of .963% per annum and then at six-month Euro Yen LIBOR plus an applicable spread on and after the day immediately following April 18, 2024. The bonds will be callable on each interest payment date on and after April 18, 2024. In November 2019, ALIJ amended the bonds to change their duration from perpetual to a stated maturity date of April 16, 2049 and to remove provisions that permitted ALIJ to defer payments of interest under certain circumstances.

In October 2018, the Parent Company issued $550 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 4.750% per annum, payable semi-annually, and will mature in January 2049. 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 25 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 October 2018, the Parent Company issued three series of senior notes totaling ¥53.4 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥29.3 billion, bears interest at a fixed rate of 1.159% per annum, payable semi-annually, and will mature in October 2030. The second series, which totaled ¥15.2 billion, bears interest at a fixed rate of 1.488% per annum, payable semi-annually, and will mature in October 2033. The third series, which totaled ¥8.9 billion, bears interest at a fixed rate of 1.750% per annum, payable semi-annually, and will mature in October 2038. 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 October 2017, the Parent Company issued ¥60.0 billion of subordinated debentures through a U.S. public debt offering. The debentures bear interest at an initial rate of 2.108% per annum through October 22, 2027, or earlier redemption. Thereafter, the rate of the interest of the debentures will be reset every five years at a rate of interest equal to the then-current JPY 5-year Swap Offered Rate plus 205 basis points. The debentures are payable semi-annually in arrears and will mature in October 2047. The debentures are redeemable (i) at any time, in whole but not in part, upon the occurrence of certain tax events or certain rating agency events, as specified in the indenture governing the terms of the debentures or (ii) on or after October 23, 2027, in whole or in part, at a redemption price equal to their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption.

Item 8. Financial Statements and Supplementary Data

In January 2017, the Parent Company issued ¥60.0 billion of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of .932% per annum, payable semi-annually, and will mature in January 2027. 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 September 2016, the Parent Company issued two series of senior notes totaling $700 million through a U.S. public debt offering. The first series, which totaled $300 million, bears interest at a fixed rate of 2.875% per annum, payable semi-annually and will mature in October 2026. The second series, which totaled $400 million, bears interest at a fixed rate of 4.00% per annum, payable semi-annually, and will mature in October 2046.

In March 2015, the Parent Company issued $450 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.25% per annum, payable semi-annually, and will mature in March 2025. The Parent Company entered into cross-currency swaps that convert the U.S. dollar-denominated principal and interest on the senior notes into yen-denominated obligations which results in lower nominal net interest rates on the debt. By entering into these cross-currency swaps, the Parent Company economically converted its $450 million liability into a ¥55.0 billion yen liability and reduced the interest rate on this debt from 3.25% in dollars to .82% in yen.

In November 2014, the Parent Company issued $750 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.625% per annum, payable semi-annually, and will mature in November 2024. 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 treasury rate plus 20 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. The Parent Company entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes it issued into yen-denominated obligations. By entering into the swaps, the Parent Company economically converted its $750 million liability into an ¥85.3 billion liability and reduced the interest rate on this debt from 3.625% in dollars to 1.00% in yen.

In June 2013, the Parent Company issued $700 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.625% per annum, payable semi-annually, and will mature in June 2023. 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 treasury rate plus 20 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. The Parent Company had entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes it issued into yen-denominated obligations. By entering into these swaps, the Parent Company economically converted its $700 million liability into a ¥69.8 billion liability and reduced the interest rate on this debt from 3.625% in dollars to 1.50% in yen.

In February 2012, the Parent Company issued $350 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 4.00% per annum, payable semiannually, and will mature in February 2022. 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 principal amount of the notes or (ii) the present value of the remaining scheduled payments of principal and interest to be redeemed, discounted to the redemption date, plus accrued and unpaid interest. The Parent Company entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes it issued into yen-denominated obligations. By entering into these swaps, the Parent Company economically converted its $350 million liability into a ¥27.0 billion liability and reduced the interest rate on this debt from 4.00% in dollars to 2.07% in yen. 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.

In 2010 and 2009, the Parent Company issued senior notes through U.S. public debt offerings; the details of these notes are as follows. In August 2010, the Parent Company issued $450 million of senior notes that will mature in August 2040. In December 2009, the Parent Company issued $400 million of senior notes that will mature in December 2039. These senior notes pay interest semiannually and 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 principal amount of the notes or (ii) the present value

Item 8. Financial Statements and Supplementary Data

of the remaining scheduled payments of principal and interest to be redeemed, discounted to the redemption date, plus accrued and unpaid interest. In December 2016, the Parent Company completed a tender offer in which it extinguished $176 million principal of its 6.90% senior notes due December 2039 and $193 million principal of its 6.45% senior notes due August 2040. The pretax loss due to the early redemption of these notes was $137 million.

For the Company's yen-denominated notes and loans, the principal amount as stated in dollar terms will fluctuate from period to period due to changes in the yen/dollar exchange rate. The Company has designated the majority of its yen-denominated notes payable as a nonderivative hedge of the foreign currency exposure of the Company's investment in Aflac Japan.

The aggregate contractual maturities of notes payable during each of the years after December 31, 2020, are as follows:

(In millions)															Total Notes Payable
2021																														$	0
2022																														0
2023																														700
2024																														750
2025																														570
Thereafter																														5,784
Total																														$	7,804

The following table presents the contractual maturities and present value of lease liabilities as of December 31, 2020.

(In millions)			Operating Leases						Finance Leases						Total
2021			$	52					$	4					$	56
2022			40						3						43
2023			11						2						13
2024			11						1						12
2025			10						1						11
Thereafter			28						0						28
Total lease payments			$	152					$	11					$	163
Less: Interest			9						0						9
Present value of lease liabilities			$	143					$	11					$	154

The following table presents the weighted average remaining lease term and weighted average discount rate for lease liabilities as of December 31.

			2020						2019
Weighted average remaining lease term (years):
Operating leases			6.7						6.8
Finance leases			3.5						3.7
Weighted average discount rate:
Operating leases			2.0%						2.1%
Finance leases			1.5%						1.5%

Operating lease costs, included in insurance expenses in the consolidated statements of earnings, were $56 million, $54 million and $73 million for the years ended December 31, 2020, 2019 and 2018, respectively. Operating cash outflows for operating leases were $54 million and $52 million for the years ended December 31, 2020 and 2019, respectively.

Item 8. Financial Statements and Supplementary Data

A summary of the Company's lines of credit as of December 31, 2020 follows:

Borrower			Type			Original Term			Expiration Date			Capacity			Amount Outstanding			Interest Rate on Borrowed Amount			Maturity Period			Commitment Fee			Business Purpose
Aflac Incorporated and Aflac			uncommitted bilateral			364 days			December 17, 2021			$100 million			$0 million			The rate quoted by the bank and agreed upon at the time of borrowing			Up to 3 months			None			General corporate purposes
Aflac Incorporated			unsecured revolving			5 years			March 29, 2024, or the date commitments are terminated pursuant to an event of default			¥100.0 billion			¥0.0 billion			A rate per annum equal to (a) Tokyo interbank market rate (TIBOR) plus, the alternative applicable TIBOR margin during the availability period from the closing date to the commitment termination date or (b) the TIBOR rate offered by the agent to major banks in yen for the applicable period plus, the applicable alternative TIBOR margin during the term out period			No later than March 29, 2024			.30% to .50%, depending on the Parent Company's debt ratings as of the date of determination			General corporate purposes, including a capital contingency plan for the operations of the Parent Company
Aflac Incorporated and Aflac			unsecured revolving			5 years			November 18, 2024, or the date commitments are terminated pursuant to an event of default			$1.0 billion			$0.0 billion			A rate per annum equal to, at the Company's option, either, (a) LIBOR adjusted for certain costs or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin			No later than November 18, 2024			.085% to .225%, depending on the Parent Company's debt ratings as of the date of determination			General corporate purposes, including a capital contingency plan for the operations of the Parent Company
Aflac Incorporated and Aflac			uncommitted bilateral			None specified			None specified			$50 million			$0 million			A rate per annum equal to, at the Parent Company's option, either (a) a eurocurrency rate determined by reference to the agent's LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the greater of (i) the prime rate as determined by the agent, and (ii) the sum of 0.50% and the federal funds rate for such day			Up to 3 months			None			General corporate purposes
Aflac*(1)*			uncommitted revolving			364 days			November 30, 2021			$250 million			$0 million			USD three-month LIBOR plus 75 basis points per annum			3 months			None			General corporate purposes
Aflac Incorporated*(1)*			uncommitted revolving			364 days			April 2, 2021			¥50.0 billion			¥0.0 billion			Three-month TIBOR plus 70 basis points per annum			3 months			None			General corporate purposes
Aflac Incorporated*(1)*			uncommitted revolving			364 days			November 25, 2021			¥50.0 billion			¥0.0 billion			Three-month TIBOR plus 70 basis points per annum			3 months			None			General corporate purposes
Aflac New York*(1)*			uncommitted revolving			364 days			April 7, 2021			$25 million			$0 million			USD three-month LIBOR plus 75 basis points per annum			3 months			None			General corporate purposes
CAIC*(1)*			uncommitted revolving			364 days			March 20, 2021			$15 million			$0 million			USD three-month LIBOR plus 75 basis points per annum			3 months			None			General corporate purposes
Tier One Insurance Company*(1)*			uncommitted revolving			364 days			March 20, 2021			$0.3 million			$0 million			USD three-month LIBOR plus 75 basis points per annum			3 months			None			General corporate purposes
AGV Management Services Japan K.K.(1)			uncommitted revolving			364 days			May 1, 2021			¥500 million			¥350 million			A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period			No later than May 1, 2021			None			General corporate purposes

(1) Intercompany credit agreement

Item 8. Financial Statements and Supplementary Data

The Parent Company was in compliance with all of the covenants of its notes payable and lines of credit at December 31, 2020. No events of default or defaults occurred during 2020 and 2019.

10. INCOME TAXES

The components of income tax expense (benefit) applicable to pretax earnings for the years ended December 31 were as follows:

(In millions)			Foreign												U.S.												Total
2020:
Current						$	822											$	(28)											$	794
Deferred						(28)												(1,385)												(1,413)
Total income tax expense						$	794											$	(1,413)											$	(619)
2019:
Current						$	737											$	69											$	806
Deferred						183												152												335
Total income tax expense						$	920											$	221											$	1,141
2018:
Current						$	771											$	608											$	1,379
Deferred						93												(409)												(316)
Total income tax expense						$	864											$	199											$	1,063

The Japan income tax rate for the fiscal years 2018, 2019 and 2020 was 28.0%.

For the U.S., the Tax Cuts and Jobs Act (Tax Act) was signed into law on December 22, 2017. Effective January 1, 2018, the Tax Act imposed a broad number of changes in tax law, including permanently reducing the U.S. federal statutory corporate income tax rate from 35% to 21%, eliminating or reducing certain deductions and credits and limiting the deductibility of interest expense and executive compensation.

In March 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 year ended December 31, 2020, the CARES Act did not have a material impact on the Company’s consolidated financial statements.

In September 2020, the U.S. Treasury and Internal Revenue Service issued Final and Proposed Regulations which address, among other items, the allocation of insurance expenses in the calculation of the foreign tax credit limitation. These regulations clarify how insurance related expenses are allocated and apportioned for this purpose. The Company had previously established valuation allowances on deferred foreign tax credits due to the uncertainty that previously existed. Under the guidance of these regulations, the Company recognized a one-time income tax benefit of $1.4 billion due to the release of these valuation allowances which were predominantly established on the Company’s deferred foreign tax credit benefits. The Company has determined that this will also reduce its effective tax rate in future periods, subject to any future changes in U.S. tax policy.

Income tax expense in the accompanying statements of earnings varies from the amount computed by applying the expected U.S. tax rate of 21% in 2020, 2019 and 2018 to pretax earnings. The principal reasons for the differences and the related tax effects for the years ended December 31 were as follows:

(In millions)			2020												2019												2018
Income taxes based on U.S. statutory rates						$	873											$	933											$	836
Foreign rate differential						0												229												220
Valuation allowance release						(1,411)												0												0
Other, net						(81)												(21)												7
Income tax expense						$	(619)											$	1,141											$	1,063

Item 8. Financial Statements and Supplementary Data

Total income tax expense for the years ended December 31 was allocated as follows:

(In millions)			2020												2019												2018
Statements of earnings						$	(619)											$	1,141											$	1,063
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) during period						(3)												27												10
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period						223												1,532												(787)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings						33												5												(12)
Unrealized gains (losses) on derivatives during period						0												(3)												0
Pension liability adjustment during period						(2)												(18)												(8)
Total income tax expense (benefit) related to items of other comprehensive income (loss)						251												1,543												(797)
Total income taxes						$	(368)											$	2,684											$	266

The income tax effects of the temporary differences that gave rise to deferred income tax assets and liabilities as of December 31 were as follows:

(In millions)			2020												2019
Deferred income tax liabilities:
Deferred policy acquisition costs						$	3,663											$	3,492
Unrealized gains and other basis differences on investments						5,227												4,485
Foreign currency gain on Aflac Japan						70												0
Premiums receivable						112												152
Policy benefit reserves						3,834												3,442
Total deferred income tax liabilities						12,906												11,571
Deferred income tax assets:
Unfunded retirement benefits						9												8
Other accrued expenses						37												36
Policy and contract claims						868												781
Foreign currency loss on Aflac Japan						0												16
Deferred compensation						137												162
Capital loss carryforwards						12												34
Depreciation						202												164
Anticipatory foreign tax credit						5,972												5,487
Deferred foreign tax credit						647												605
Other						326												204
Total deferred income tax assets before valuation allowance						8,210												7,497
Valuation allowance						0												(1,340)
Total deferred income tax assets after valuation allowance						8,210												6,157
Net deferred income tax liability						4,696												5,414
Current income tax (asset) liability						(35)												(44)
Total income tax liability						$	4,661											$	5,370

The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. The Company has determined no valuation allowance against its anticipatory foreign tax credits is necessary. The anticipatory foreign tax credit represents the foreign tax credit the Company will generate from the reversal of Japan deferred tax liabilities in the future. The release of the valuation allowance on the anticipatory foreign tax credit is due to the regulations addressing the allocation of insurance expenses in the calculation of the foreign tax credit released September 29, 2020. The Company has also determined no valuation allowance against its deferred foreign tax credits is

Item 8. Financial Statements and Supplementary Data

necessary. Deferred foreign tax credits are foreign tax credits generated in the current tax year by the Japanese life company, but are unable to be utilized until 2021 due to Japan's current tax year not closing until March 31, 2021. The release of the valuation allowance on the deferred foreign tax credit is also due to the foreign tax credit regulations released September 29, 2020. Based upon a review of the Company's anticipated future taxable income, and including all other available evidence, both positive and negative, the Company's management has concluded that, notwithstanding the items noted above, it is more likely than not that all other deferred tax assets will be realized.

Under U.S. income tax rules, only 35% of non-life operating losses can be offset against life insurance taxable income each year. For current U.S. income tax purposes, as of December 31, 2020, there were non-life operating loss carryforwards of $298 million available to offset against future taxable income, all of which do not expire. The Company has capital loss carryforwards of $55 million available to offset capital gains, all of which expire in 2025. The Company has foreign tax credit carryforwards of $22 million available to offset against future excess foreign taxes paid, all of which expire in 2031.

The Company files federal income tax returns in the U.S. and Japan as well as state or prefecture income tax returns in various jurisdictions in the two countries. The Company is currently under audit by the IRS for the 2013-2018 amended federal income tax returns. There are currently no other open Federal, State, or local U.S. income tax audits. U.S. federal income tax returns for years before 2016 are no longer subject to examination. Japan corporate income tax returns for years before 2016 are no longer subject to examination. Management believes it has established adequate tax liabilities and final resolution of all open audits is not expected to have a material impact on the Company's consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31:

(In millions)						2020									2019
Balance, beginning of year						$	17								$	15
Additions for tax positions of prior years						2									2
Balance, end of year						$	19								$	17

Included in the balance of the liability for unrecognized tax benefits at December 31, 2020, are $15 million of tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility, compared with $15 million at December 31, 2019. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period. The Company has accrued approximately $4 million as of December 31, 2020, for permanent uncertainties, which if reversed would not have a material effect on the annual effective rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognized approximately $1 million in interest and penalties in 2020, compared with $1 million in 2019 and $1 million in 2018. The Company has accrued approximately $3 million for the payment of interest and penalties as of December 31, 2020, compared with $2 million at December 31, 2019.

As of December 31, 2020, there were no material uncertain tax positions for which the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

11. SHAREHOLDERS' EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the years ended December 31.

Item 8. Financial Statements and Supplementary Data

(In thousands of shares)			2020						2019						2018
Common stock - issued:
Balance, beginning of period			1,349,309						1,347,540						1,345,762
Exercise of stock options and issuance of restricted shares			1,709						1,769						1,778
Balance, end of period			1,351,018						1,349,309						1,347,540
Treasury stock:
Balance, beginning of period			622,516						592,254						564,852
Purchases of treasury stock:
Share repurchase program			37,899						31,994						28,949
Other			542						592						392
Dispositions of treasury stock:
Shares issued to AFL Stock Plan			(2,021)						(1,610)						(1,306)
Exercise of stock options			(121)						(418)						(519)
Other			(251)						(296)						(114)
Balance, end of period			658,564						622,516						592,254
Shares outstanding, end of period			692,454						726,793						755,286

Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic EPS. The following table presents the approximate number of share-based awards to purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted EPS at December 31:

(In thousands)			2020												2019												2018
Anti-dilutive share-based awards						687												6												44

The weighted-average shares used in calculating EPS for the years ended December 31 were as follows:

(In thousands of shares)			2020						2019						2018
Weighted-average outstanding shares used for calculating basic EPS			713,702						742,414						769,588
Dilutive effect of share-based awards			2,490						4,016						5,062
Weighted-average outstanding shares used for calculating diluted EPS			716,192						746,430						774,650

Share Repurchase Program: During 2020, the Company repurchased 37.9 million shares of its common stock in the open market for $1.5 billion. The Company repurchased 32.0 million shares for $1.6 billion in 2019 and 28.9 million shares for $1.3 billion in 2018. In August 2020, the Company's board of directors authorized the purchase of an additional 100 million shares of its common stock. As of December 31, 2020, a remaining balance of 99.2 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Voting Rights: In accordance with the Parent Company's articles of incorporation, shares of common stock are generally entitled to one vote per share until they have been held by the same beneficial owner for a continuous period of 48 months, at which time they become entitled to 10 votes per share.

Reclassifications from Accumulated Other Comprehensive Income

The tables below are reconciliations of accumulated other comprehensive income by component for the years ended December 31.

Item 8. Financial Statements and Supplementary Data

Changes in Accumulated Other Comprehensive Income

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						514												839												(1)												(30)												1,322
Amounts reclassified from accumulated other comprehensive income (loss)						0												126												0												23												149
Net current-period other comprehensive income (loss)						514												965												(1)												(7)												1,471
Balance at December 31, 2020						$	(1,109)											$	10,361											$	(34)											$	(284)											$	8,934

All amounts in the table above are net of tax.

2019
(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, 2018						$	(1,847)											$	4,234											$	(24)											$	(212)											$	2,151
Other comprehensive income (loss) before reclassification						224												4,327												(9)												(76)												4,466
Amounts reclassified from accumulated other comprehensive income (loss)						0												(13)												0												11												(2)
Net current-period other comprehensive income (loss)						224												4,314												(9)												(65)												4,464
Balance at December 31, 2019						$	(1,623)											$	8,548											$	(33)											$	(277)											$	6,615

All amounts in the table above are net of tax.

Item 8. Financial Statements and Supplementary Data

2018
(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, 2017						$	(1,750)											$	5,964											$	(23)											$	(163)											$	4,028
Cumulative effect of change in accounting principle - ASU 2016-01						0												(148)												0												0												(148)
Cumulative effect of change in accounting principle - ASU 2018-02						(325)												734												(3)												(32)												374
Balance at January 1, 2018						$	(2,075)											$	6,550											$	(26)											$	(195)											$	4,254
Other comprehensive income (loss) before reclassification						228												(2,350)												2												(30)												(2,150)
Amounts reclassified from accumulated other comprehensive income (loss)						0												34												0												13												47
Net current-period other comprehensive income (loss)						228												(2,316)												2												(17)												(2,103)
Balance at December 31, 2018						$	(1,847)											$	4,234											$	(24)											$	(212)											$	2,151

All amounts in the table above are net of tax.

For the year ended December 31, 2018, see Note 1 for discussion of the amounts reclassified between AOCI and retained earnings upon the adoption of new accounting pronouncements.

The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income based on source for the years ended December 31.

Reclassifications Out of Accumulated Other Comprehensive Income

(In millions)			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						$	(159)					Net investment gains (losses)
						33						Tax (expense) or benefit*(1)*
						$	(126)					Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)						$	(32)					Acquisition and operating expenses*(2)*
Prior service (cost) credit						3						Acquisition and operating expenses*(2)*
						6						Tax (expense) or benefit*(1)*
						$	(23)					Net of tax
Total reclassifications for the period						$	(149)					Net of tax

(1) Based on 21% tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).

Item 8. Financial Statements and Supplementary Data

(In millions)			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						$	18					Net investment gains (losses)
						(5)						Tax (expense) or benefit*(1)*
						$	13					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						$	2					Net of tax

(1) Based on 26% blended tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).

(In millions)			2018
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						$	(46)					Net investment gains (losses)
						12						Tax (expense) or benefit*(1)*
						$	(34)					Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)						$	(18)					Acquisition and operating expenses*(2)*
Prior service (cost) credit						0						Acquisition and operating expenses*(2)*
						5						Tax (expense) or benefit*(1)*
						$	(13)					Net of tax
Total reclassifications for the period						$	(47)					Net of tax

(1) Based on 27% blended tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).

12. SHARE-BASED COMPENSATION

In June 2020, the Company transitioned from E*Trade Financial Corporate Services, Inc. to Fidelity Management Trust Company as the trustee and recordkeeper of the Company's long-term share-based compensation plans.

As of December 31, 2020, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan). Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors.

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

The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. As of December 31, 2020, approximately 38.0 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

Item 8. Financial Statements and Supplementary Data

occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of December 31, 2020, 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-year 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.

Summary of Share-Based Compensation Expense

Share-based compensation expense consists primarily of expenses for stock options, restricted stock awards (including performance based restricted stock awards), and restricted stock units granted to employees.

The following table presents the impact of the expense recognized in connection with share-based awards for the periods ended December 31.

(In millions, except for per-share amounts)			2020												2019												2018
Impact on earnings from continuing operations						$	61											$	59											$	57
Impact on earnings before income taxes						61												59												57
Impact on net earnings						48												46												45
Impact on net earnings per share:
Basic						$	.07											$	.06											$	.06
Diluted						.07												.06												.06

Stock Options

The following table summarizes stock option activity under the employee stock option plan.

(In thousands of shares)			Stock Option Shares												Weighted-Average Exercise Price Per Share
Outstanding at December 31, 2017						7,304												$	28.03
Granted in 2018						67												44.59
Canceled in 2018						(167)												32.11
Exercised in 2018						(1,874)												26.78
Outstanding at December 31, 2018						5,330												28.54
Granted in 2019						0												0.00
Canceled in 2019						(40)												27.28
Exercised in 2019						(1,584)												25.97
Outstanding at December 31, 2019						3,706												29.65
Granted in 2020						59												35.75
Canceled in 2020						(82)												26.31
Exercised in 2020						(638)												27.82
Outstanding at December 31, 2020						3,045												$	30.25

(In thousands of shares)			2020												2019												2018
Shares exercisable, end of year						2,986												3,553												3,917

Item 8. Financial Statements and Supplementary Data

The Company estimates the fair value of each stock option granted using the Black-Scholes-Merton multiple option approach. Expected volatility is based on historical periods generally commensurate with the estimated terms of the options. The Company uses historical data to estimate option exercise and termination patterns within the model. Separate groups of employees that have similar historical exercise patterns are stratified and considered separately for valuation purposes. The expected term of options granted is derived from the output of the Company's option model and represents the weighted-average period of time that options granted are expected to be outstanding. The Company bases the risk-free interest rate on the Treasury note rate with a term comparable to that of the estimated term of the options. The weighted-average fair value of options at their grant date was $6.33 in 2020 and $8.81 in 2018. There were no options granted in 2019. The following table presents the assumptions used in valuing options granted during the years ended December 31.

			2020												2019												2018
Expected term (years)						6.0												7.0												7.0
Expected volatility						24.4			%									18.0			%									22.0			%
Annual forfeiture rate						3.9												3.9												3.6
Risk-free interest rate						2.0												2.9												2.5
Dividend yield						3.3												2.2												2.4

The following table summarizes information about stock options outstanding and exercisable at December 31, 2020.

(In thousands of shares)																		Options Outstanding																																				Options Exercisable
			Range of Exercise Prices Per Share															Stock Option Shares Outstanding												Wgtd.-Avg. Remaining Contractual Life (Yrs.)												Wgtd.-Avg. Exercise Price Per Share												Stock Option Shares Exercisable												Wgtd.-Avg. Exercise Price Per Share
			$	0.00		-			$	24.75											633												1.6												$	23.73											633												$	23.73
			24.75			-			28.97												640												3.6												28.84												640												28.84
			28.97			-			31.21												902												3.7												30.77												902												30.77
			31.21			-			36.21												721												5.7												34.42												662												34.30
			36.21			-			44.59												149												6.8												40.57												149												40.57
			$	0.00		-			$	44.59											3,045												3.9												$	30.25											2,986												$	30.14

The aggregate intrinsic value in the following table represents the total pretax intrinsic value, and is based on the difference between the exercise price of the stock options and the quoted closing common stock price of $44.47 as of December 31, 2020, for those awards that have an exercise price currently below the closing price. As of December 31, 2020, the aggregate intrinsic value of stock options outstanding was $43 million, with a weighted-average remaining term of 3.9 years. The total number of in-the-money stock options exercisable as of December 31, 2020, was 3.0 million shares. The aggregate intrinsic value of stock options exercisable at that same date was $43 million, with a weighted-average remaining term of 3.8 years.

The following table summarizes stock option activity during the years ended December 31.

(In millions)			2020												2019												2018
Total intrinsic value of options exercised						$	11											$	38											$	34
Cash received from options exercised						18												40												48
Tax benefit realized as a result of options exercised and restricted stock releases						18												34												25

Performance-Based Restricted Stock Awards and Units

Under the Plan, the Company grants selected executive officers performance-based restricted stock awards (PBRS) each February whose vesting is contingent upon meeting various performance goals. PBRS are generally granted at-the-money and contingently cliff vest over a period of three years, generally subject to continued employment. In February 2020, the Company granted 409 thousand performance-based stock awards, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company

Item 8. Financial Statements and Supplementary Data

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 a 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. Actual performance, including modification for relative total shareholder return, may result in the ultimate award of 0% to 200% percent of the initial number of PBRS issued, with the potential for no award if company performance goals are not achieved during the three-year period. PBRS subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.

The Company also granted selected executive officers performance-based restricted stock units (PSUs) throughout the year whose vesting is contingent upon meeting various performance goals. PSUs are generally granted at-the-money and contingently cliff vest over a period of three years, generally subject to continued employment. In November 2020, the Company granted 9 thousand performance-based stock units, which are contingent on the achievement of certain Company determined metrics. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage pay-out estimate will be updated each quarter. Actual performance may result in the ultimate award of 0% to 200% percent of the initial number of PSUs issued, with the potential for no award if the Company determined metrics are not achieved during the three-year period. PSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.

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.

Key assumptions used to value PBRS granted during 2020 follows:

(In millions)			2020
Expected volatility (based on Aflac Inc. and peer group historical daily stock price)						16.13		%
Expected life from grant date (years)						2.9
Risk-free interest rate (based on U.S. Treasury yields at the date of grant)						1.42		%

Restricted Stock Awards and Units

The value of restricted stock awards and restricted stock units is based on the fair market value of the Company's common stock at the date of grant. The following table summarizes restricted stock activity during the years ended December 31.

(In thousands of shares)			Shares												Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2017						3,634												$	32.40
Granted in 2018						1,121												44.27
Canceled in 2018						(105)												34.39
Vested in 2018						(1,243)												31.64
Restricted stock at December 31, 2018						3,407												36.52
Granted in 2019 (1)						1,070												49.68
Canceled in 2019 (1)						(39)												41.60
Vested in 2019 (1)						(1,723)												32.50
Restricted stock at December 31, 2019 (1)						2,715												43.74
Granted in 2020						1,544												45.88
Canceled in 2020						(119)												49.27
Vested in 2020						(1,560)												35.23
Restricted stock at December 31, 2020						2,580												$	48.57

(1) This balance has been adjusted to include dividends

Item 8. Financial Statements and Supplementary Data

As of December 31, 2020, total compensation cost not yet recognized in the Company's financial statements related to restricted stock awards and restricted stock units was $36 million, of which $15 million (1.1 million shares) was related to restricted stock awards with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.6 years. There are no other contractual terms covering restricted stock awards once vested.

13. STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS

The Company's insurance subsidiaries are required to report their results of operations and financial position to insurance regulatory authorities on the basis of statutory accounting practices prescribed or permitted by such authorities.

Aflac Japan must report its results of operations and financial position to the Japanese Financial Services Agency (FSA) on a Japanese regulatory accounting basis as prescribed by the FSA. Japanese regulatory accounting practices differ in many respects from U.S. GAAP. Under Japanese regulatory accounting practices, policy acquisition costs are expensed immediately; policy benefit and claim reserving methods and assumptions are different; premium income is recognized on a cash basis; different consolidation criteria apply to VIEs; reinsurance is recognized on a different basis; and investments can have a separate accounting classification and treatment referred to as policy reserve matching bonds (PRM). Capital and surplus of Aflac Japan, based on Japanese regulatory accounting practices, was $9.0 billion at December 31, 2020, compared with $7.8 billion at December 31, 2019.

Aflac, CAIC and TOIC report statutory financial statements that are prepared on the basis of accounting practices prescribed or permitted by the Nebraska Department of Insurance (NDOI). The NDOI recognizes statutory accounting principles and practices prescribed or permitted by the state of Nebraska for determining and reporting the financial condition and results of operations of an insurance company, and for determining a company's solvency under Nebraska insurance law.

Aflac New York reports statutory financial statements that are prepared on the basis of accounting practices prescribed or permitted by the New York State Department of Financial Services (NYDFS). The NYDFS recognizes statutory accounting principles and practices prescribed or permitted by the state of New York for determining and reporting the financial condition and results of operations of an insurance company, and for determining a company's solvency under New York insurance law.

Statutory Accounting Principles (SAP) as detailed by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual has been adopted by both the state of Nebraska and the state of New York as a component of those prescribed or permitted practices. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Additionally, the Director of the NDOI and the Superintendent of the NYDFS each have the right to permit other specific practices which deviate from prescribed practices. Aflac, CAIC, TOIC and Aflac New York had no permitted practices as of December 31, 2020 and 2019.

The table below represents statutory capital and surplus based on statutory accounting practices for the Company’s U.S. life insurance subsidiaries as of December 31.

(In millions)			2020						2019
Aflac			$	2,088					$	2,122
CAIC			271						128
TOIC			61						12
Aflac New York			352						320

As of December 31, 2020, the capital and surplus for each of the Company's U.S. life insurance subsidiaries exceeded the required company action level capital and surplus.

Item 8. Financial Statements and Supplementary Data

The table below represents net income (loss) based on statutory accounting practices for the Company’s U.S. life insurance subsidiaries as of December 31.

(In millions)			2020						2019						2018
Aflac			$	872					$	864					$	1,331
CAIC			1						(16)						6
TOIC			(24)						(2)						0
Aflac New York			75						75						67

The Parent Company depends on its subsidiaries for cash flow, primarily in the form of dividends and management fees. Consolidated retained earnings in the accompanying financial statements largely represent the undistributed earnings of the Company's insurance subsidiary. Amounts available for dividends, management fees and other payments to the Parent Company by its insurance subsidiaries may fluctuate due to different accounting methods required by regulatory authorities. These payments are also subject to various regulatory restrictions and approvals related to safeguarding the interests of insurance policyholders. The company's U.S. life insurance entities must maintain adequate RBC for U.S. regulatory authorities, and Aflac Japan must maintain adequate solvency margins for Japanese regulatory authorities.

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. In 2020, Aflac declared dividends of $853 million. Dividends declared by Aflac during 2021 in excess of $872 million would require such approval. CAIC and TOIC did not declare dividends during 2020.

From time to time, Aflac New York pays dividends to Aflac, the parent company of Aflac New York. Aflac New York may not pay dividends to Aflac without the prior approval of the NYDFS. Aflac New York declared dividends of $30 million in 2020, which were authorized by the NYDFS.

After the Japan branch conversion as of April 1, 2018, Aflac Japan is required to meet certain financial criteria as governed by Japanese corporate law in order to provide dividends to the Parent Company. Under these criteria, dividend capacity at Aflac Japan is basically defined as retained earnings excluding capital reserves, which represent equity generated by capital profits that are statutorily required in Japan, less net after-tax unrealized losses on available-for-sale securities based on the previous fiscal year-end. Prior to April 1, 2018, a portion of Aflac Japan earnings, as determined on a Japanese regulatory accounting basis, could be remitted each year to Aflac U.S. after complying with solvency margin provisions and satisfying various conditions imposed by Japanese regulatory authorities for protecting policyholders. Profit remittances to the U.S. could fluctuate due to changes in the amounts of Japanese regulatory earnings. Among other items, factors affecting regulatory earnings include Japanese regulatory accounting practices and fluctuations in currency translation of Aflac Japan's U.S. dollar-denominated investments and related investment income into yen. Profits remitted by Aflac Japan to the Parent Company, after April 1, 2018, and to Aflac U.S., prior to April 1, 2018, were as follows for the years ended December 31:

			In Dollars																																				In Yen
(In millions of dollars and billions of yen)			2020												2019												2018												2020												2019												2018
Profit remittances						$	1,215											$	2,070											$	808											¥	129.8											¥	225.2											¥	89.7

Item 8. Financial Statements and Supplementary Data

14. BENEFIT PLANS

Pension and Other Postretirement Plans

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

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

Information with respect to the Company's benefit plans' assets and obligations as of December 31 was as follows:

						Pension Benefits																																										Other
						Japan																					U.S.																					Postretirement Benefits
(In millions)						2020									2019												2020									2019												2020									2019
Projected benefit obligation:
Benefit obligation, beginning of year									$	436								$	396											$	1,058								$	875											$	39								$	37
Service cost									24									22												29									23												0									0
Interest cost									5									7												34									20												1									1
Actuarial (gain) loss									(6)									17												106									163												6									4
Benefits and expenses paid									(12)									(11)												(23)									(23)												(4)									(3)
Effect of foreign exchange rate changes									26									5												0									0												0									0
Benefit obligation, end of year									473									436												1,204									1,058												42									39
Plan assets:
Fair value of plan assets, beginning of year									344									289												644									465												0									0
Actual return on plan assets									21									24												96									98												0									0
Employer contributions									41									38												107									104												4									3
Benefits and expenses paid									(12)									(11)												(23)									(23)												(4)									(3)
Effect of foreign exchange rate changes									22									4												0									0												0									0
Fair value of plan assets, end of year									416									344												824									644												0									0
Funded status of the plans**(1)**									$	(57)								$	(92)											$	(380)								$	(414)											$	(42)								$	(39)
Amounts recognized in accumulated other comprehensive income:
Net actuarial (gain) loss									$	74								$	92											$	278								$	259											$	15								$	12
Prior service (credit) cost									(1)									(2)												(2)									(4)												0									0
Total included in accumulated other comprehensive income									$	73								$	90											$	276								$	255											$	15								$	12
Accumulated benefit obligation									$	425								$	390											$	1,017								$	886											N/A			(2)						N/A			(2)

(1) Recognized in other liabilities in the consolidated balance sheets

(2) Not applicable

Item 8. Financial Statements and Supplementary Data

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets

						Pension Benefits
						Japan																											U.S.
(In millions)						2020												2019															2020												2019
Accumulated benefit obligation									$	425											$	390														$	1,017											$	886
Fair value of plan assets									416												344															824												644

Information for Pension Plans with a Projected Benefit Obligation in Excess of Plan Assets

						Pension Benefits
						Japan (1)																											U.S.(2)
(In millions)						2020												2019															2020												2019
Projected benefit obligation									$	473											$	436														$	1,204											$	1,058
Fair value of plan assets									416												344															824												644

(1) The net amount of projected benefit obligation and plan assets for the underfunded (including unfunded) Japan pension plan was $57 and $92 at December 31, 2020 and 2019, respectively, and was classified as liabilities on the statement of financial position.

(2) The net amount of projected benefit obligation and plan assets for the underfunded (including unfunded) U.S. pension plan was $380 and $414 at December 31, 2020 and 2019, respectively, and was classified as liabilities on the statement of financial position.

Information for other postretirement benefit plans with an accumulated postretirement benefit obligation in excess of plan assets has been disclosed in the note on “Obligations and Funded Status” because all the other postretirement benefit plans are unfunded or underfunded.

			Pension Benefits																																										Other
			Japan																					U.S.																					Postretirement Benefits
			2020						2019						2018									2020						2019						2018									2020						2019						2018
Weighted-average actuarial assumptions:
Discount rate - net periodic benefit cost			.75%						1.25%						1.25%									3.25%						4.25%						3.75%									3.25%						4.25%						3.75%
Discount rate - benefit obligations			.75						.75						1.25									2.68						3.25						4.25									2.68						3.25						4.25
Expected long-term return on plan assets			2.00						2.00						2.00									6.00						6.25						6.50									N/A			(1)			N/A			(1)			N/A			(1)
Rate of compensation increase			N/A			(1)			N/A			(1)			N/A			(1)						4.00						4.00						4.00									N/A			(1)			N/A			(1)			N/A			(1)
Health care cost trend rates			N/A			(1)			N/A			(1)			N/A			(1)						N/A			(1)			N/A			(1)			N/A			(1)						6.30			(2)			7.50			(2)			7.40			(2)

(1) Not applicable

*(2)*For the years 2020, 2019 and 2018, the health care cost trend rates are expected to trend down to 3.7% in 53 years, 3.8% in 54 years, and 4.1% in 61 years, respectively.

The Company determines its discount rate assumption for its pension retirement obligations based on indices for AA corporate bonds with an average duration of approximately 20 years for the Japan pension plans and 17 years for the U.S. pension plans, and determination of the U.S. pension plans discount rate utilizes the 85-year extrapolated yield curve. In Japan, participant salary and future salary increases are not factors in determining pension benefit cost or the related pension benefit obligation.

The Company bases its assumption for the long-term rate of return on assets on historical trends (10-year or longer historical rates of return for the Japanese plan assets and 15-year historical rates of return for the U.S. plan assets), expected future market movement, as well as the portfolio mix of securities in the asset portfolio including, but not limited to, style, class and equity and fixed income allocations. In addition, the Company's consulting actuaries evaluate its assumptions for long-term rates of return under Actuarial Standards of Practice (ASOP). Under the ASOP, the actual portfolio type, mix and class is modeled to determine a best estimate of the long-term rate of return. The Company in turn use those results to further validate its own assumptions.

Item 8. Financial Statements and Supplementary Data

Components of Net Periodic Benefit Cost

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes $30 million, $8 million and $25 million of other components of net periodic pension cost and postretirement costs (other than services costs) for the years ended December 31, 2020, 2019 and 2018, respectively. Total net periodic benefit cost includes the following components:

						Pension Benefits																																																																								Other
									Japan																																	U.S.																																				Postretirement Benefits
(In millions)						2020												2019												2018												2020												2019												2018												2020												2019												2018
Service cost									$	24											$	22											$	19											$	29											$	23											$	27											$	0											$	0											$	0
Interest cost									5												7												7												34												20												31												1												1												1
Expected return on plan assets									(7)												(6)												(6)												(35)												(29)												(26)												0												0												0
Amortization of net actuarial loss									4												4												1												26												10												16												2												1												1
Amortization of prior service cost									(1)												0												0												(2)												0												0												0												0												0
Net periodic (benefit) cost									$	25											$	27											$	21											$	52											$	24											$	48											$	3											$	2											$	2

Changes in Accumulated Other Comprehensive Income

The following table summarizes the amounts recognized in other comprehensive loss (income) for the years ended December 31:

						Pension Benefits																																																																								Other
						Japan																																				U.S.																																				Postretirement Benefits
(In millions)						2020												2019												2018												2020												2019												2018												2020												2019												2018
Net actuarial loss (gain)									$	(14)											$	1											$	52											$	45											$	95											$	(13)											$	5											$	4											$	4
Amortization of net actuarial loss									(4)												(4)												(1)												(26)												(10)												(16)												(2)												(1)												(1)
Amortization of prior service cost									1												0												0												2												0												0												0												0												0
Total									$	(17)											$	(3)											$	51											$	21											$	85											$	(29)											$	3											$	3											$	3

No transition obligations arose during 2020.

Benefit Payments

The following table provides expected benefit payments, which reflect expected future service, as appropriate.

						Pension Benefits																					Other
(In millions)						Japan									U.S.												Postretirement Benefits
2021									$	13								$	30											$	6
2022									17									31												5
2023									15									32												5
2024									16									34												5
2025									18									35												4
2026-2030									87									223												13

Funding

The Company plans to make contributions of $37 million to the Japanese funded defined benefit plan in 2021. The Company does not plan to make any contributions to the U.S. funded defined benefit plan in 2021. The Company funded contributions of $100 million to the U.S. funded defined benefit plan in 2020. The funding policy for the Company's non-qualified supplemental defined benefit pension plans and other postretirement benefits plan is to contribute the amount of the benefit payments made during the year.

Item 8. Financial Statements and Supplementary Data

Plan Assets

The investment objective of the Company's Japanese and U.S. funded defined benefit plans is to preserve the purchasing power of the plan's assets and earn a reasonable inflation-adjusted rate of return over the long term. Furthermore, the Company seeks to accomplish these objectives in a manner that allows for the adequate funding of plan benefits and expenses. In order to achieve these objectives, the Company's goal is to maintain a conservative, well-diversified and balanced portfolio of high-quality equity, fixed-income and money market securities. As a part of its strategy, the Company has established strict policies covering quality, type and concentration of investment securities. For the Company's Japanese plan, these policies include limitations on investments in derivatives including futures, options and swaps, and low-liquidity investments such as real estate, venture capital investments, and privately issued securities. For the Company's U.S. plan, these policies prohibit investments in precious metals, limited partnerships, venture capital, and direct investments in real estate. The Company is also prohibited from trading on margin.

The plan fiduciaries for the Company's funded defined benefit plans have developed guidelines for asset allocations reflecting a percentage of total assets by asset class, which are reviewed on an annual basis. Asset allocation targets as of December 31, 2020 were as follows:

						Japan Pension												U.S. Pension
Domestic equities									5		%										40		%
International equities									21												20
Fixed income securities									65												40
Other									9												0
Total									100		%										100		%

The U.S. Pension Plan had $169 million in cash at December 31, 2020. The plan fiduciaries authorized investing contributions made to the Plan in 2019 and 2020 on a graduated basis over a period of time.

The following table presents the fair value of Aflac Japan's pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 2 in the fair value hierarchy.

(In millions)			2020												2019
Japan pension plan assets:
Equities:
Japanese equity securities						$	20											$	17
International equity securities						88												67
Fixed income securities:
Japanese bonds						23												20
International bonds						249												207
Insurance contracts						36												33
Total						$	416											$	344

The following table presents the fair value of Aflac U.S.'s pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 1 in the fair value hierarchy.

Item 8. Financial Statements and Supplementary Data

(In millions)			2020												2019
U.S. pension plan assets:
Mutual funds:
Large cap equity funds						$	234											$	179
Mid cap equity funds						24												22
Real estate equity funds						19												16
International equity funds						136												112
Fixed income bond funds						237												209
Aflac Incorporated common stock						5												6
Cash and cash equivalents						169												100
Total						$	824											$	644

The fair values of the Company's pension plan investments categorized as Level 1, consisting of mutual funds and common stock, are based on quoted market prices for identical securities traded in active markets that are readily and regularly available to the Company. The fair values of the Company's pension plan investments classified as Level 2 are based on quoted prices for similar assets in markets that are not active, other inputs that are observable, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates, or other market-corroborated inputs.

401(k) Plan

The Company sponsors a 401(k) plan in which it matches a portion of U.S. employees' contributions. The plan provides for salary reduction contributions by employees and provides for matching contributions which, starting January 1, 2018, the Company increased to 100% of each employee's contributions which were not in excess of 4% of the employee's annual cash compensation as a result of tax reform. The Company also provides a nonelective contribution to the 401(k) plan of 2% of annual cash compensation for employees who opted out of the future benefits of the U.S. defined benefit plan and for new U.S. employees. Effective January 1, 2021, the Company increased this nonelective contribution to 4% of annual compensation.

The 401(k) contributions by the Company, included in acquisition and operating expenses in the consolidated statements of earnings, were $20 million in 2020 and $18 million in both 2019 and 2018. The plan trustee held approximately 2.5 million shares of the Company's common stock for plan participants at December 31, 2020.

Stock Bonus Plan

Aflac U.S. maintains a stock bonus plan for eligible U.S. sales associates. Plan participants receive shares of Aflac Incorporated common stock based on their new annualized premium sales and their first-year persistency of substantially all new insurance policies. The cost of this plan, which was capitalized as deferred policy acquisition costs, amounted to $24 million in 2020 and $31 million in both 2019 and 2018.

Voluntary Separation Program

In September 2020, the Company announced a voluntary separation program for certain U.S. employees. The program provides eligible employees with a severance package, including twelve months of salary, the employee's targeted bonus payout for 2020 and one year of Consolidated Omnibus Budget Reconciliation Act (COBRA) or retiree medical, if eligible. Employees accepted into this program were notified in October 2020 and most transitions were completed by December 31, 2020, with a small number continuing into the first quarter of 2021. The Company recorded a one-time severance charge of $43 million in the fourth quarter of 2020 related to the program.

15. COMMITMENTS AND CONTINGENT LIABILITIES

The Company has two outsourcing agreements with a technology and consulting corporation. The first agreement provides mainframe computer operations, distributed mid-range server computer operations, and related support for Aflac Japan. It has a remaining term of two years and an aggregate remaining cost of ¥17.5 billion ($169 million using the December 31, 2020, exchange rate). The second agreement provides application maintenance and development services for Aflac Japan. It has a remaining term of three years and an aggregate remaining cost of ¥4.6 billion ($45 million using the December 31, 2020, exchange rate).

Item 8. Financial Statements and Supplementary Data

The Company has one outsourcing agreement with a management consulting and technology services company to provide application maintenance and development services for its Japanese operation. The agreement has a remaining term of one year with an aggregate remaining cost of ¥3.3 billion ($32 million using the December 31, 2020, exchange rate).

The Company has two outsourcing agreements with information technology and data services companies to provide application maintenance and development services for its Japanese operation. The first agreement has a remaining term of two years with an aggregate remaining cost of ¥3.0 billion ($29 million using the December 31, 2020, exchange rate). The second agreement has a remaining term of five years with an aggregate remaining cost of ¥13.7 billion ($133 million using the December 31, 2020, exchange rate).

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

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

Guaranty Fund Assessments

The 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 December 31, 2020. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits. Other guaranty fund assessments for the years ended December 31, 2020, 2019, and 2018 were immaterial.

16. UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA

In management's opinion, the following quarterly financial information fairly presents the results of operations for such periods and is prepared on a basis consistent with the Company's annual audited financial statements.

Item 8. Financial Statements and Supplementary Data

(In millions, except for per-share amounts)			March 31, 2020												June 30, 2020												September 30, 2020												December 31, 2020
Net premium income						$	4,681											$	4,664											$	4,623											$	4,653
Net investment income						904												870												896												968
Net investment gains (losses)						(463)												(170)												108												256
Other income (loss)						40												43												38												36
Total revenues						5,162												5,407												5,665												5,913
Total benefits and expenses						4,442												4,337												4,512												4,697
Earnings before income taxes						720												1,070												1,153												1,216
Total income tax						154												265												(1,303)												265
Net earnings						$	566											$	805											$	2,456											$	951
Net earnings per basic share						$	.78											$	1.12											$	3.45											$	1.36
Net earnings per diluted share						.78												1.12												3.44												1.35
Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.
(In millions, except for per-share amounts)			March 31, 2019												June 30, 2019												September 30, 2019												December 31, 2019
Net premium income						$	4,691											$	4,681											$	4,736											$	4,671
Net investment income						878												878												936												886
Net investment gains (losses)						71												(66)												(153)												12
Other income (loss)						17												18												17												34
Total revenues						5,657												5,511												5,536												5,603
Total benefits and expenses						4,415												4,402												4,500												4,545
Earnings before income taxes						1,242												1,109												1,036												1,058
Total income tax						314												292												259												276
Net earnings						$	928											$	817											$	777											$	782
Net earnings per basic share						$	1.23											$	1.10											$	1.05											$	1.07
Net earnings per diluted share						1.23												1.09												1.04												1.06

Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure