filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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, 2024.
KPMG LLP (PCAOB Firm ID 185), an independent registered public accounting firm, has issued an attestation report from the firm's location in Atlanta, Georgia on the effectiveness of internal control over the Company's financial reporting as of December 31, 2024, 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, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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, 2024 and 2023, 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, 2024, and the related notes and financial statement schedules II, III, and IV (collectively, the consolidated financial statements), and our report dated February 26, 2025 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 26, 2025
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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2024, 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, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2025 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.
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.
Fair value of certain privately issued securities
As discussed in Note 5 to the consolidated financial statements, the Company invests in certain privately issued securities that require judgment in the estimation of fair values. The fair values of privately issued securities are estimated using a discounted cash flow valuation model, developed by a third-party pricing vendor, and take into consideration unique characteristics of the securities and other market information to determine an issuer-specific credit curve to estimate expected cash flows. Judgment is required to determine the inputs and assumptions used in the valuation models, including the determination of the most appropriate comparable securities to develop an issuer-specific credit curve when it cannot be developed from the specific security features. As of December 31, 2024, the values of certain privately issued securities are included within the financial statement captions of fixed maturity securities available-for-sale, at fair value of $61,841 million; fixed maturity securities available-for-sale – consolidated variable interest entities, at fair value of $3,428 million; and, fixed maturity securities held-to-maturity, at amortized cost of $15,966 million.
Item 8. Financial Statements and Supplementary Data
We identified the assessment of the fair values of certain privately issued securities as a critical audit matter. Due to the complexity of the valuation models, subjective auditor judgment, and specialized valuation skills and knowledge were needed to evaluate the valuation models, the methodology used to estimate fair value and the Company's determination of the most appropriate comparable securities to develop an issuer-specific credit curve, when necessary.
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 assistance of valuation professionals, over the Company’s process to estimate the fair values of certain privately issued securities. This included controls over the Company’s determination of comparable securities, when appropriate, to develop an issuer-specific credit curve to be used in the valuation models to estimate fair values. We involved valuation professionals with specialized skills and knowledge to assist in assessing the estimated fair values of such securities, which included
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Evaluating the Company's valuation methodology for compliance with U.S. generally accepted accounting principles
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Assessing the Company's model developed by a third party to estimate the fair values of privately issued securities by determining that differences in fair values between that model and an internally developed model above pre-established tolerances, if any, were investigated by the Company
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Evaluating, for a selection of privately issued securities, the comparable securities used to develop an issuer-specific credit curve by assessing whether the determination of comparable securities was reasonable based on the Company’s methodology and our knowledge of the securities and the markets for such securities
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Developing an independent estimate of fair value for a selection of privately issued securities based on independently developed valuation models and assumptions, as applicable, using market data sources and comparing our independent estimate to the Company's fair value.
Valuation of the liability for future policy benefits
As discussed in Note 1 and Note 7 to the consolidated financial statements, the liability for future policy benefits (LFPB) is determined as the present value of expected future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company's insurance contracts. Future policy benefits are calculated using assumptions and estimates including mortality, morbidity, termination, and discount rates. Cash flow assumptions (mortality, morbidity, and termination) are established at policy inception and are evaluated each quarter to determine if an update is needed. Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves in benefits and claims, excluding reserve remeasurement in the consolidated statements of earnings. Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheets are updated each reporting period, and the difference between the liability balances calculated using the locked-in discount rates and the updated discount rates is recognized in accumulated other comprehensive income (loss) (AOCI). The Company’s LFPB was $70,381 million as of December 31, 2024.
We identified the evaluation of certain assumptions used in estimating the LFPB as a critical audit matter. A high level of auditor effort, including specialized skills and knowledge, and subjective auditor judgment was involved in the evaluation of actuarial methodologies, certain cash flow assumptions (mortality, morbidity, and termination), and the discount rate curve assumptions for Japan.
The following are the primary procedures we performed to address this critical audit matter. With the assistance of valuation and actuarial professionals, we evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s LFPB. This included controls related to actuarial methodologies and the development of certain cash flow assumptions (mortality, morbidity, and termination) and the discount rate curve. We involved valuation professionals with specialized skills and knowledge to assist in assessing the methodology and assumptions used by the Company to develop the discount rate curve for Japan by developing an independent discount rate curve and comparing it to that used by the Company. We also involved actuarial professionals with specialized skills and knowledge, who assisted in
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Assessing the actuarial methodologies used by the Company to estimate the LFPB for consistency with generally accepted actuarial methodologies
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Evaluating certain of the Company's cash flow assumptions (mortality, morbidity, and termination) by assessing them in comparison to the Company’s relevant historical experience data and anticipated trends
Item 8. Financial Statements and Supplementary Data
- Evaluating the Company’s LFPB estimate by recalculating the projected cash flows for a selection of policies and comparing the results to the Company’s estimates.
| /s/ KPMG LLP |
We have served as the Company’s auditor since 1963.
Atlanta, Georgia
February 26, 2025
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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Net earned premiums, principally supplemental health insurance (1) | $ | 13,440 | $ | 14,123 | $ | 14,901 | |||||||||||||||||||||||||||||
| Net investment income | 4,116 | 3,811 | 3,656 | ||||||||||||||||||||||||||||||||
| Net investment gains (losses) | 1,271 | 590 | 363 | ||||||||||||||||||||||||||||||||
| Other income (loss) | 100 | 177 | 220 | ||||||||||||||||||||||||||||||||
| Total revenues | 18,927 | 18,701 | 19,140 | ||||||||||||||||||||||||||||||||
| Benefits and expenses: | |||||||||||||||||||||||||||||||||||
| Benefits and claims, excluding reserve remeasurement | 8,008 | 8,594 | 9,102 | ||||||||||||||||||||||||||||||||
| Reserve remeasurement (gains) losses | (558) | (383) | (215) | ||||||||||||||||||||||||||||||||
| Total benefits and claims, net | 7,450 | 8,211 | 8,887 | ||||||||||||||||||||||||||||||||
| Acquisition and operating expenses: | |||||||||||||||||||||||||||||||||||
| Amortization of deferred policy acquisition costs | 851 | 816 | 792 | ||||||||||||||||||||||||||||||||
| Insurance commissions | 998 | 1,052 | 1,117 | ||||||||||||||||||||||||||||||||
| Insurance and other expenses | 3,014 | 3,165 | 3,249 | ||||||||||||||||||||||||||||||||
| Interest expense | 197 | 195 | 226 | ||||||||||||||||||||||||||||||||
| Total acquisition and operating expenses | 5,060 | 5,228 | 5,384 | ||||||||||||||||||||||||||||||||
| Total benefits and expenses | 12,510 | 13,439 | 14,271 | ||||||||||||||||||||||||||||||||
| Earnings before income taxes | 6,417 | 5,262 | 4,869 | ||||||||||||||||||||||||||||||||
| Income tax expense (benefit): | |||||||||||||||||||||||||||||||||||
| Current | 1,330 | 1,663 | 1,181 | ||||||||||||||||||||||||||||||||
| Deferred | (356) | (1,060) | (730) | ||||||||||||||||||||||||||||||||
| Income taxes | 974 | 603 | 451 | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 5,443 | $ | 4,659 | $ | 4,418 | |||||||||||||||||||||||||||||
| Net earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 9.68 | $ | 7.81 | $ | 6.96 | |||||||||||||||||||||||||||||
| Diluted | 9.63 | 7.78 | 6.93 | ||||||||||||||||||||||||||||||||
| Weighted-average outstanding common shares used in computing earnings per share (In thousands): | |||||||||||||||||||||||||||||||||||
| Basic | 562,492 | 596,173 | 634,816 | ||||||||||||||||||||||||||||||||
| Diluted | 565,015 | 598,745 | 637,655 | ||||||||||||||||||||||||||||||||
| Cash dividends per share | $ | 2.00 | $ | 1.68 | $ | 1.60 |
(1) Includes a gain (loss) of $(81), $20 and $(42) in 2024, 2023 and 2022, respectively, related to remeasurement of the deferred profit liability for limited-payment contracts.
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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 5,443 | $ | 4,659 | $ | 4,418 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) before income taxes: | |||||||||||||||||||||||||||||||||||
| Unrealized foreign currency translation gains (losses) during period | (769) | (366) | (1,034) | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Unrealized holding gains (losses) on fixed maturity securities during period | (1,224) | 2,493 | (12,603) | ||||||||||||||||||||||||||||||||
| Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings | (197) | (166) | (453) | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on derivatives during period | 3 | 6 | 4 | ||||||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions during period | 5,780 | (582) | 17,384 | ||||||||||||||||||||||||||||||||
| Pension liability adjustment during period | 23 | 35 | 165 | ||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss) before income taxes | 3,616 | 1,420 | 3,463 | ||||||||||||||||||||||||||||||||
| Income tax expense (benefit) related to items of other comprehensive income (loss) | 1,074 | 511 | 1,481 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes | 2,542 | 909 | 1,982 | ||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 7,985 | $ | 5,568 | $ | 6,400 |
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) | 2024 | 2023 | ||||||||||||
| Assets: | ||||||||||||||
| Investments and cash: | ||||||||||||||
| Fixed maturity securities available-for-sale, at fair value (no allowance for credit losses in 2024 and 2023, amortized cost $61,455 in 2024 and $67,807 in 2023) | $ | 61,841 | $ | 69,578 | ||||||||||
| Fixed maturity securities available-for-sale - consolidated variable interest entities, at fair value (amortized cost $2,634 in 2024 and $2,882 in 2023) | 3,428 | 3,712 | ||||||||||||
| Fixed maturity securities held-to-maturity, at amortized cost, net of allowance for credit losses of $5 in 2024 and $5 in 2023 (fair value $16,772 in 2024 and $19,657 in 2023) | 15,966 | 17,819 | ||||||||||||
| Equity securities, at fair value | 796 | 1,088 | ||||||||||||
| Commercial mortgage and other loans, net of allowance for credit losses of $355 in 2024 and $274 in 2023 (includes $8,693 in 2024 and $10,150 in 2023 of consolidated variable interest entities) | 10,869 | 12,527 | ||||||||||||
| Other investments (includes $2,176 in 2024 and $2,381 in 2023 of consolidated variable interest entities) | 5,958 | 4,530 | ||||||||||||
| Cash and cash equivalents | 6,229 | 4,306 | ||||||||||||
| Total investments and cash | 105,087 | 113,560 | ||||||||||||
| Receivables | 779 | 848 | ||||||||||||
| Accrued investment income | 710 | 731 | ||||||||||||
| Deferred policy acquisition costs | 8,758 | 9,132 | ||||||||||||
| Property and equipment, at cost less accumulated depreciation | 387 | 445 | ||||||||||||
| Other | 1,845 | 2,008 | ||||||||||||
| Total assets | $ | 117,566 | $ | 126,724 | ||||||||||
| Liabilities and shareholders’ equity: | ||||||||||||||
| Liabilities: | ||||||||||||||
| Policy liabilities: | ||||||||||||||
| Future policy benefits | $ | 70,381 | $ | 83,718 | ||||||||||
| Unpaid policy claims | 381 | 261 | ||||||||||||
| Unearned premiums | 1,286 | 1,451 | ||||||||||||
| Other policyholders’ funds | 5,460 | 6,169 | ||||||||||||
| Total policy liabilities | 77,508 | 91,599 | ||||||||||||
| Income taxes | 573 | 154 | ||||||||||||
| Payables for return of cash collateral on loaned securities | 2,037 | 1,503 | ||||||||||||
| Notes payable and lease obligations | 7,498 | 7,364 | ||||||||||||
| Other | 3,852 | 4,119 | ||||||||||||
| Total liabilities | 91,468 | 104,739 | ||||||||||||
| Commitments and contingent liabilities (Note 15) | ||||||||||||||
| Shareholders’ equity: | ||||||||||||||
| Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2024 and 2023; issued 1,356,763 shares in 2024 and 1,355,398 shares in 2023 | 136 | 136 | ||||||||||||
| Additional paid-in capital | 2,894 | 2,771 | ||||||||||||
| Retained earnings | 52,277 | 47,993 | ||||||||||||
| Accumulated other comprehensive income (loss): | ||||||||||||||
| Unrealized foreign currency translation gains (losses) | (4,998) | (4,069) | ||||||||||||
| Unrealized gains (losses) on fixed maturity securities | 24 | 1,139 | ||||||||||||
| Unrealized gains (losses) on derivatives | (20) | (22) | ||||||||||||
| Effect of changes in discount rate assumptions | 2,006 | (2,560) | ||||||||||||
| Pension liability adjustment | 10 | (8) | ||||||||||||
| Treasury stock, at average cost | (26,231) | (23,395) | ||||||||||||
| Total shareholders’ equity | 26,098 | 21,985 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 117,566 | $ | 126,724 |
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, 2021 | $ | 135 | $ | 2,529 | $ | 40,963 | $ | (8,411) | $ | (18,185) | $ | 17,031 | ||||||||
| Net earnings | 0 | 0 | 4,418 | 0 | 0 | 4,418 | ||||||||||||||
| Unrealized foreign currency translation gains (losses) during period, net of income taxes | 0 | 0 | 0 | (1,579) | 0 | (1,579) | ||||||||||||||
| Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments | 0 | 0 | 0 | (10,304) | 0 | (10,304) | ||||||||||||||
| Unrealized gains (losses) on derivatives during period, net of income taxes | 0 | 0 | 0 | 3 | 0 | 3 | ||||||||||||||
| Effect of changes in discount rate assumptions during period, net of income taxes | 0 | 0 | 0 | 13,732 | 0 | 13,732 | ||||||||||||||
| Pension liability adjustment during period, net of income taxes | 0 | 0 | 0 | 130 | 0 | 130 | ||||||||||||||
| Dividends to shareholders (1) ($1.62 per share) | 0 | 0 | (1,014) | 0 | 0 | (1,014) | ||||||||||||||
| Exercise of stock options | 0 | 12 | 0 | 0 | 0 | 12 | ||||||||||||||
| Share-based compensation | 0 | 62 | 0 | 0 | 0 | 62 | ||||||||||||||
| Purchases of treasury stock | 0 | 0 | 0 | 0 | (2,425) | (2,425) | ||||||||||||||
| Treasury stock reissued | 0 | 38 | 0 | 0 | 36 | 74 | ||||||||||||||
| Balance at December 31, 2022 | 135 | 2,641 | 44,367 | (6,429) | (20,574) | 20,140 | ||||||||||||||
| Net earnings | 0 | 0 | 4,659 | 0 | 0 | 4,659 | ||||||||||||||
| Unrealized foreign currency translation gains (losses) during period, net of income taxes | 0 | 0 | 0 | (505) | 0 | (505) | ||||||||||||||
| Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments | 0 | 0 | 0 | 1,841 | 0 | 1,841 | ||||||||||||||
| Unrealized gains (losses) on derivatives during period, net of income taxes | 0 | 0 | 0 | 5 | 0 | 5 | ||||||||||||||
| Effect of changes in discount rate assumptions during period, net of income taxes | 0 | 0 | 0 | (460) | 0 | (460) | ||||||||||||||
| Pension liability adjustment during period, net of income taxes | 0 | 0 | 0 | 28 | 0 | 28 | ||||||||||||||
| Dividends to shareholders (1) ($1.76 per share) | 0 | 0 | (1,033) | 0 | 0 | (1,033) | ||||||||||||||
| Exercise of stock options | 0 | 13 | 0 | 0 | 0 | 13 | ||||||||||||||
| Share-based compensation | 1 | 74 | 0 | 0 | 0 | 75 | ||||||||||||||
| Purchases of treasury stock | 0 | 0 | 0 | 0 | (2,854) | (2,854) | ||||||||||||||
| Treasury stock reissued | 0 | 43 | 0 | 0 | 33 | 76 | ||||||||||||||
| Balance at December 31, 2023 | $ | 136 | $ | 2,771 | $ | 47,993 | $ | (5,520) | $ | (23,395) | $ | 21,985 |
(1) Dividends to shareholders are recorded in the period in which they are declared.
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, 2023 | $ | 136 | $ | 2,771 | $ | 47,993 | $ | (5,520) | $ | (23,395) | $ | 21,985 | ||||||||
| Net earnings | 0 | 0 | 5,443 | 0 | 0 | 5,443 | ||||||||||||||
| Unrealized foreign currency translation gains (losses) during period, net of income taxes | 0 | 0 | 0 | (929) | 0 | (929) | ||||||||||||||
| Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments | 0 | 0 | 0 | (1,115) | 0 | (1,115) | ||||||||||||||
| Unrealized gains (losses) on derivatives during period, net of income taxes | 0 | 0 | 0 | 2 | 0 | 2 | ||||||||||||||
| Effect of changes in discount rate assumptions during period, net of income taxes | 0 | 0 | 0 | 4,566 | 0 | 4,566 | ||||||||||||||
| Pension liability adjustment during period, net of income taxes | 0 | 0 | 0 | 18 | 0 | 18 | ||||||||||||||
| Dividends to shareholders (1) ($2.08 per share) | 0 | 0 | (1,159) | 0 | 0 | (1,159) | ||||||||||||||
| Exercise of stock options | 0 | 9 | 0 | 0 | 0 | 9 | ||||||||||||||
| Share-based compensation | 0 | 65 | 0 | 0 | 0 | 65 | ||||||||||||||
| Purchases of treasury stock | 0 | 0 | 0 | 0 | (2,868) | (2,868) | ||||||||||||||
| Treasury stock reissued | 0 | 49 | 0 | 0 | 32 | 81 | ||||||||||||||
| Balance at December 31, 2024 | $ | 136 | $ | 2,894 | $ | 52,277 | $ | (2,978) | $ | (26,231) | $ | 26,098 |
(1) Dividends to shareholders are recorded in the period in which they are declared.
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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||||||||||||||||||||
| Net earnings | $ | 5,443 | $ | 4,659 | $ | 4,418 | |||||||||||||||||||||||||||||
| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | |||||||||||||||||||||||||||||||||||
| Change in receivables and advance premiums | 51 | (133) | 5 | ||||||||||||||||||||||||||||||||
| Capitalization of deferred policy acquisition costs | (1,056) | (1,086) | (1,054) | ||||||||||||||||||||||||||||||||
| Amortization of deferred policy acquisition costs | 851 | 816 | 792 | ||||||||||||||||||||||||||||||||
| Increase in policy liabilities | (302) | (552) | 726 | ||||||||||||||||||||||||||||||||
| Change in income tax liabilities | (393) | (967) | (509) | ||||||||||||||||||||||||||||||||
| Net investment (gains) losses | (1,271) | (590) | (363) | ||||||||||||||||||||||||||||||||
| Other, net | (616) | 1,043 | (136) | ||||||||||||||||||||||||||||||||
| Net cash provided (used) by operating activities | 2,707 | 3,190 | 3,879 | ||||||||||||||||||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||||||||||||||||||||
| Proceeds from investments sold or matured: | |||||||||||||||||||||||||||||||||||
| Available-for-sale fixed maturity securities | 7,205 | 3,811 | 4,418 | ||||||||||||||||||||||||||||||||
| Equity securities | 782 | 404 | 570 | ||||||||||||||||||||||||||||||||
| Held-to-maturity fixed maturity securities | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||
| Commercial mortgage and other loans | 2,435 | 1,641 | 2,190 | ||||||||||||||||||||||||||||||||
| Costs of investments acquired: | |||||||||||||||||||||||||||||||||||
| Available-for-sale fixed maturity securities | (5,542) | (2,801) | (3,514) | ||||||||||||||||||||||||||||||||
| Equity securities | (411) | (357) | (461) | ||||||||||||||||||||||||||||||||
| Commercial mortgage and other loans | (1,376) | (996) | (3,897) | ||||||||||||||||||||||||||||||||
| Other investments, net | (972) | (417) | (227) | ||||||||||||||||||||||||||||||||
| Settlement of derivatives, net | (184) | 79 | (61) | ||||||||||||||||||||||||||||||||
| Cash received (pledged or returned) as collateral, net | 780 | (401) | (673) | ||||||||||||||||||||||||||||||||
| Other, net | 61 | (149) | 112 | ||||||||||||||||||||||||||||||||
| Net cash provided (used) by investing activities | 2,781 | 817 | (1,540) | ||||||||||||||||||||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | (2,800) | (2,801) | (2,401) | ||||||||||||||||||||||||||||||||
| Proceeds from borrowings | 823 | 204 | 1,277 | ||||||||||||||||||||||||||||||||
| Principal payments under debt obligations | (194) | 0 | (1,416) | ||||||||||||||||||||||||||||||||
| Dividends paid to shareholders | (1,087) | (966) | (979) | ||||||||||||||||||||||||||||||||
| Change in investment-type contracts, net | (214) | (160) | (83) | ||||||||||||||||||||||||||||||||
| Treasury stock reissued | 14 | 17 | 17 | ||||||||||||||||||||||||||||||||
| Other, net | (28) | (17) | 34 | ||||||||||||||||||||||||||||||||
| Net cash provided (used) by financing activities | (3,486) | (3,723) | (3,551) | ||||||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (79) | 79 | 104 | ||||||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | 1,923 | 363 | (1,108) | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 4,306 | 3,943 | 5,051 | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 6,229 | $ | 4,306 | $ | 3,943 | |||||||||||||||||||||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||||||||||||||||||||
| Income taxes paid | $ | 1,367 | $ | 1,569 | $ | 961 | |||||||||||||||||||||||||||||
| Interest paid | 180 | 185 | 211 | ||||||||||||||||||||||||||||||||
| Noncash interest | 17 | 10 | 14 | ||||||||||||||||||||||||||||||||
| Noncash real estate acquired in satisfaction of debt | 468 | 217 | 0 | ||||||||||||||||||||||||||||||||
| Noncash financing activities: | |||||||||||||||||||||||||||||||||||
| Lease obligations | 33 | 75 | 102 | ||||||||||||||||||||||||||||||||
| Treasury stock issued for: | |||||||||||||||||||||||||||||||||||
| Associate stock bonus | 20 | 17 | 14 | ||||||||||||||||||||||||||||||||
| Shareholder dividend reinvestment | 41 | 37 | 37 | ||||||||||||||||||||||||||||||||
| Share-based compensation grants | 6 | 5 | 6 |
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 Japan and the United States (U.S.). The Company's insurance business is marketed and administered through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan and through American Family Life Assurance Company of Columbus (Aflac), American Family Life Assurance Company of New York (Aflac New York), Continental American Insurance Company (CAIC), Tier One Insurance Company (TOIC) and Aflac Benefits Solutions, Inc. (ABS) in the U.S. The Company’s operations consist of two reportable business segments: Aflac Japan, which includes ALIJ, and Aflac U.S., which includes Aflac, Aflac New York, CAIC, TOIC and ABS. Aflac New York is a wholly owned subsidiary of Aflac. Most of the Aflac U.S. policies are individually underwritten and marketed through independent agents. With the exception of dental and vision products administered by ABS, and certain group life insurance products, Aflac U.S. markets and administers group products through CAIC, branded as Aflac Group Insurance. Additionally, Aflac U.S. markets its consumer markets products through TOIC. The Company's insurance operations in the U.S. and Japan service the two markets for the Company's insurance business. The Parent Company, other operating business units that are not individually reportable, reinsurance activities, including internal reinsurance activity with Aflac Re Bermuda Ltd. (Aflac Re), and other business activities not included in Aflac Japan or Aflac U.S., as well as intercompany eliminations, are included in Corporate and other.
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 income taxes. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, interest rates, 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 the consolidated financial statements. Although some variability is inherent in these estimates, the Company believes the amounts provided are reasonable and reflective of the best estimates of management.
The 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.
Significant Accounting Policies
Foreign Currency Translation and Remeasurement: 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 the foreign currency gains and losses resulting from the remeasurement of foreign currency and realized foreign currency exchange gains and losses in the net investment gains (losses) line item in the consolidated statements of earnings.
The Parent Company has designated a majority of its yen-denominated liabilities (yen-denominated notes payable and yen-denominated loans) as non-derivative hedges and foreign currency forwards and options as derivative hedges of the foreign currency exposure of the Parent Company's net investment in Aflac Japan. The gains or losses on hedging derivative instruments and the foreign currency transaction gains or losses on the non-derivative hedging instruments that are designated as, and are effective as, an economic hedge of the net investment in Aflac Japan are recorded as
Item 8. Financial Statements and Supplementary Data
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.
Insurance premiums for most of the Company's health and life policies, including cancer, accident, hospital, critical illness, supplemental dental and vision, term life, whole life, long-term care and disability, are recognized as earned premiums over the premium-paying periods of the contracts when due from policyholders. When earned premiums are reported, the related amounts of benefits and expenses are charged against such revenues. This association is accomplished by means of annual increases or decreases to the liability for future policy benefits (LFPB) and the deferral and subsequent amortization of policy acquisition costs.
Premiums from the Company's products with limited-pay features, including cancer, medical and nursing care, term life, whole life, WAYS, and child endowment, are collected over a significantly shorter period than the contract term (i.e., the period during which benefits are provided). Premiums for these products are recognized as earned premiums over the premium-paying periods when due from policyholders. Any gross premium in excess of the net premium is deferred and recorded as a deferred profit liability, which is subsequently amortized in net earned premiums such that profits are recognized in a constant relationship with insurance in force. Net premium is calculated as gross premium multiplied by the net premium ratio (NPR) and represents the portion of gross premium required to provide for benefits and expenses. Benefits are recorded as an expense when they are incurred. An LFPB is recorded when premiums are recognized using the net premium method.
Policyholders also have an option to pay discounted advanced premiums for certain of the Company's products. Advanced premiums are deferred and recognized when due from policyholders over the otherwise required contractual premium payment period.
Benefit expense is bifurcated between benefits and claims and reserve remeasurement (gains) losses. The NPR is used to measure benefit expense and is calculated as the ratio of the present value of actual and future expected benefits and expenses to the present value of actual and future expected gross premiums. A revised NPR is calculated as of the beginning of each reporting period using updated future cash flow expectations.
Reserve remeasurement (gains) losses represent the difference between two reserve measures both calculated as of the beginning of the current reporting period using the same locked-in discount rates. One reserve measure uses the NPR as of the end of the prior reporting period, and the second uses the revised NPR. Benefits and claims represent the difference in the liability balance calculated as of the beginning of the current reporting period and the end of the current reporting period both using the revised NPR and the locked-in discount rates. The locked-in interest accretion rate utilized for accretion of interest expense on insurance reserves is the original discount rate used at contract issue date.
Advertising expense is reported as incurred in insurance and other expenses in the consolidated statements of earnings. For the years ended December 31, 2024, 2023 and 2022, advertising expense was $181 million, $188 million and $204 million, respectively.
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 in 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
Item 8. Financial Statements and Supplementary Data
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 net investment gains (losses).
The Company has investments in variable interest entities (VIEs). Criteria for evaluating VIEs for consolidation focus on determining if the Company has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the VIE or (2) the right to receive benefits from the VIE. 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 these 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 and, in certain cases, to any unfunded commitment held in the VIE. 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 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, 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 as net investment gain or loss. 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), middle market loans (MMLs), and other loans. The Company's investments in TREs, CMLs, MMLs, and other loans 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 credit losses estimated as of each reporting date. Income on commercial mortgage and other loans is recognized using the interest method.
Other investments include policy loans, limited partnerships, real estate owned (REO), 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 proportionate share of the investee's earnings or losses 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. REO consists of property held-and-used for the production of income and property held-for-sale. REO is obtained through foreclosure or deed in lieu of foreclosure of certain of the Company's loan receivables. When held for the production of income, REO is recorded at fair value upon acquisition, which establishes the property’s initial cost basis. Thereafter, it is carried at cost less accumulated depreciation and written down to fair value for impairment losses.
Item 8. Financial Statements and Supplementary Data
Depreciation is recorded on a straight-line basis over the estimated useful life of the asset and is reported in net investment income. A review for impairment is performed whenever events or circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized in net investment gains (losses) when the carrying value of the property exceeds the expected undiscounted cash flows generated from the property, at which point the carrying value is written down to an estimated fair value. Real estate held-for-sale is initially recorded at fair value less costs to sell and is subsequently measured at the lower of its initial carrying amount or fair value less costs to sell. Properties held-for-sale are not depreciated. Net operating income earned on REO is reported as a component of net investment income. Short-term investments are stated at amortized cost, which approximates fair value.
The Company designates nonaccrual status for a nonperforming loan or debt security or a loan or debt security that is not generating its stated interest rate because of nonpayment of periodic interest or principal by the borrower. The Company applies the cash basis method to record any payments received on nonaccrual 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).
Credit Losses: The Company estimates expected lifetime credit losses on financial assets measured at amortized cost including short-term receivables, premiums receivable, held-to-maturity fixed maturity securities, loan receivables, loan commitments and reinsurance recoverables. For available-for-sale fixed maturity securities, the Company evaluates 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 (losses) for the Company’s held-to-maturity and available-for-sale securities, loan receivables, including collateral dependent assets, loan commitments and reinsurance recoverables, whereas credit losses on premium receivables are recorded in net earned premiums in the consolidated statement of earnings. 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.
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 earned premiums in the consolidated statement of earnings.
Derivatives and Hedging: Freestanding derivative instruments are reported in the consolidated balance sheet at fair value within other assets and other liabilities, with changes in value reported in earnings and/or other comprehensive income. These freestanding derivatives include 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.
The Company may purchase certain investments or enter into contracts that contain embedded derivatives. The Company assesses whether an embedded derivative is clearly and closely related to its host contract. If the Company determines that the embedded derivative is not clearly and closely related to the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from that contract, held at fair value, and reported with the host instrument in the consolidated balance sheets, 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 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
Item 8. Financial Statements and Supplementary Data
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 exposure to changes in the fair value of a recognized asset or liability, attributable to a particular risk ("fair value hedge"); or (iii) a hedge of foreign currency exposure of a net investment in a foreign operation ("net investment hedge"). The documentation process includes linking derivatives and non-derivative financial instruments that are designated in hedge relationships with 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. The assessment of hedge effectiveness determines the accounting treatment of changes in fair value.
Hedge effectiveness is assessed using qualitative and quantitative methods. 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.
For derivative instruments that are designated in cash flow hedge relationships, the gain or loss on the portion of the hedging instrument included in the assessment of effectiveness is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Amounts reclassified are recorded in the line item of the consolidated statements of earnings in which gain or loss on the hedged item is recorded. The Company includes all components of each derivative's gain or loss in the assessment of hedge effectiveness.
For derivative instruments that are designated in fair value hedge relationships, 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 forward rates on its foreign currency forwards, the change in fair value of cross-currency swaps not resulting from fluctuations in spot currency rates, and the time value component of foreign exchange options and interest rate swaptions. For interest rate swaptions and cross-currency interest rate swaps designated in fair value hedges of interest rate risk, the excluded component is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term.
For derivative and/or non-derivative hedging instruments designated in net investment hedge relationships with the Company’s investment in Aflac Japan, the Company makes its net investment hedge designation at the beginning of each quarter. When the hedging instrument is a foreign currency derivative, the Company assesses hedge effectiveness using 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.
Item 8. Financial Statements and Supplementary Data
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.
The Company does not offset amounts recognized for derivative instruments and amounts recognized for the right to reclaim or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement.
For additional information on the Company's derivative instruments, see Note 4.
Deferred Policy Acquisition Costs: Certain direct and incremental costs of acquiring insurance contracts are deferred and amortized on a grouped-contract basis over the expected term of the related contracts, using a constant-level basis. For life and health products issued in Japan, the constant-level basis used is units in force, which is a proxy for face amount, and insurance in force, respectively. For life and health products issued in the U.S., the constant-level basis used is face amount and number of policies in force, respectively. Amortization is computed using the same contract groupings (also referred to as cohorts) and mortality and termination assumptions that are used in computing the LFPB, and these assumptions are reviewed and updated at least annually. The effects of changes in assumptions are recognized prospectively over the remaining contract term as a revision of the future amortization pattern, while current period amortization is calculated based on the actual experience during the quarter. Deferred costs include the excess of current-year commissions over ultimate renewal-year commissions and certain incremental direct policy issue, underwriting and sales expenses directly related to successful policy acquisition.
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, unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life of the cohort, and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred.
For an internal replacement transaction that results in a policy that is substantially changed, the policy is treated as lapsed for amortization purposes, and the costs of acquiring the new policy are capitalized and amortized in accordance with the Company's accounting policies for deferred acquisition costs.
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.
Item 8. Financial Statements and Supplementary Data
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) | 2024 | 2023 | |||||||||||||||||||||
| Property and equipment: | |||||||||||||||||||||||
| Land | $ | 168 | $ | 168 | |||||||||||||||||||
| Buildings | 392 | 421 | |||||||||||||||||||||
| Equipment and furniture | 478 | 510 | |||||||||||||||||||||
| Total property and equipment | 1,038 | 1,099 | |||||||||||||||||||||
| Less accumulated depreciation | 651 | 654 | |||||||||||||||||||||
| Net property and equipment | $ | 387 | $ | 445 |
Depreciation and other amortization expenses, which are included in insurance and other expenses in the consolidated statements of earnings, were $40 million in 2024, compared with $39 million in 2023 and $45 million in 2022.
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 other assets line item in the consolidated balance sheets and was $263 million at December 31, 2024, compared with $265 million at December 31, 2023. A significant majority of the goodwill balance is attributable to business combinations within the Aflac U.S. segment, which represents the reporting unit for goodwill impairment testing.
Policy Liabilities: For long-duration insurance contracts, the Company calculates an integrated reserve that represents all payments under the contract including future expected claims and unpaid policy claims and related expenses. The LFPB is measured using the net level premium method.
Long-duration insurance contracts issued by the Company are grouped into annual calendar-year cohorts based on the contract issue date, reportable segment, legal entity and product type. Limited-pay contracts are grouped into separate cohorts from other traditional products in the same manner and are further separated based on their premium payment structures.
The LFPB is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company’s insurance contracts, where expected future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.
Future policy benefits are calculated using assumptions and estimates including mortality, morbidity, termination (also referred to as lapses), expense and discount rates. The assumptions and estimates that the Company uses depend on its judgment regarding the likelihood of future events and are inherently uncertain.
Cash flow assumptions (mortality, morbidity, and termination) are established at policy inception and are evaluated each quarter to determine if an update is needed. To facilitate a more detailed review of cash flow assumptions, experience studies are performed annually during the third quarter. Changes in cash flow assumptions are the result of applying the updated best estimate assumptions as of the beginning of the reporting period and are recognized in reserve remeasurement (gains) losses in the consolidated statements of earnings. Expense assumptions are established at policy inception and determined for each issue-year cohort as a percentage of paid claims. These expense assumptions are locked in and remain unchanged over the term of the insurance policy. Actual experience is reflected in the calculation of future policy benefits each quarter, and changes in the liability due to actual experience are recognized in reserve remeasurement (gains) losses in the consolidated statements of earnings.
Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves in benefits and claims, excluding reserve remeasurement in the consolidated statements of earnings. Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheets are updated each reporting period, and the difference between the liability balances calculated using the
Item 8. Financial Statements and Supplementary Data
locked-in discount rates and the updated discount rates is recognized in accumulated other comprehensive income (loss) (AOCI).
The Company has designed its discount rate methodology for the U.S. and Japan insurance business. The methodology incorporates constructing a current discount rate curve separately for discounting cash flows used to calculate the U.S. and Japan LFPBs, reflective of the characteristics of the insurance liabilities, such as currency and tenor. Discount rates comprising each curve are determined by reference to upper-medium grade (low credit risk) fixed-income instrument yields that reflect the duration characteristics of the corresponding insurance liabilities. The Company uses for these yields single-A rated fixed income instruments with credit ratings based on international rating standards. Where only local ratings are available, the Company selects the fixed-income instruments with local ratings that are equivalent to a single-A rating based on international rating standards. The methodology is designed to prioritize observable inputs based on market data available in the local debt markets where the respective policies were issued in the currency in which the policies are denominated. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company uses various estimation techniques consistent with the fair value guidance in ASC 820 - Fair Value Measurement, which include, but are not limited to: (i) for tenors where there is less observable market data and/or the observable market data is available for similar instruments, estimating tenor-specific single-A credit spreads and applying them to risk-free government rates; (ii) for tenors where there is very limited or no observable single-A or similar market data, interpolation and extrapolation techniques.
The locked-in discount rate used for the computation of interest accretion on LFPBs is determined separately for each issue-year cohort as a single discount rate, calculated as the weighted-average of monthly upper-medium grade (low credit risk) fixed-income instrument forward curves in the calendar year, determined using the methodology described above and weighted using issued annualized premiums for each issue month. The single discount rate for each issue-year cohort is determined by solving for a rate that produces an equivalent net premium ratio to the forward curve and will remain unchanged after the calendar year of issue.
Unearned premiums consist of unearned premiums and advance premiums. Unearned premiums represent the portion of premium related to the unexpired coverage as of a balance sheet date and are deferred and recognized in net earned premiums when earned. Advance premiums consist primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-payment insurance products. Advanced premiums are deferred upon collection and recognized as earned premiums over the contractual premium payment period.
The other policyholders’ funds liability consists primarily of the fixed annuity line of business in Aflac Japan which has fixed benefits and premiums.
For internal replacements that are determined to be substantially changed, policy liabilities related to the original policy that was replaced are immediately released, and policy liabilities are established for the new insurance contract. The policy reserves are evaluated based on the new policy features, and changes are recognized at the date of contract change/modification. For internal replacements that are substantially unchanged, no changes to the reserves are recognized. For modifications that are not integrated with the base policy, new coverage is recognized as a separately issued contract within the current cohort.
Reinsurance: The Company enters into reinsurance agreements 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 acquisition costs 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.
Item 8. Financial Statements and Supplementary Data
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 to 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 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 made an 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.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Accounting Standards Update (ASU) 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued amendments that add certain segment disclosures related to significant segment expenses and require that a public entity disclose the title and position of the Chief Operating Decision Maker (CODM) and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
The Company adopted this guidance for the annual period beginning January 1, 2024. The adoption of this guidance did not have an impact on the Company’s financial position or results of operations. See Note 2 for expanded disclosures required as a result of the amended guidance.
ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
In March 2023, the FASB issued amendments to permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit).
The Company early adopted this guidance on July 1, 2023. 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
ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued amendments that eliminated the accounting guidance for troubled debt restructurings (TDRs) for creditors, required enhanced disclosures for creditors about loan modifications when a borrower is experiencing financial difficulty, and required public business entities to include current-period gross write-offs in the vintage disclosure tables. As a result of eliminating the TDR guidance for creditors, all loan modifications will follow the existing loan refinancing or restructuring guidance.
The Company adopted this guidance on January 1, 2023 on a prospective basis. The adoption did not have an impact on the Company’s financial position or results of operations.
ASU 2018-12 Financial Services - Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts, as clarified and amended by:
ASU 2019-09 Financial Services - Insurance: Effective Date
ASU 2020-11 Financial Services - Insurance: Effective Date and Early Application
In August 2018, the FASB issued amendments that significantly changed how insurers account for long-duration contracts. The Company adopted the standard on January 1, 2023 using a modified retrospective transition method which resulted in applying the amended guidance as of the beginning of the earliest period presented on the January 1, 2021 transition date (Transition Date). The modified retrospective transition method generally results in applying the guidance to contracts on the basis of existing carrying values as of the Transition Date. On the Transition Date, the Company calculated the ratio of the present value of expected future policy benefits and expenses less existing carrying values to the present value of expected future gross premiums (Transition Date NPR) using updated assumptions and the discount rate immediately before the Transition Date. The Company capped the Transition Date NPR at 100% for any cohorts with a Transition Date NPR greater than 100%. The Company calculated the LFPB using the Transition Date NPR (capped at 100% if required) and two different discount rates: (i) the discount rate used immediately before the Transition Date, and (ii) the discount rate determined by reference to the Transition Date market level yields for upper-medium grade (low credit risk) fixed income instruments (as of December 31, 2020). For cohorts with their Transition Date NPR capped at 100%, the Company recorded as an adjustment (decrease) to opening retained earnings any difference between the LFPB calculated using the discount rate immediately before the Transition Date and the existing carrying value as of the Transition Date. For all cohorts on the Transition Date, the Company recorded in AOCI net of tax, the difference in the LFPB calculated using the two different discount rates (i.e., the discount rate used immediately before the Transition Date and the updated discount rate as of the Transition Date).
Upon adoption, the Company adjusted opening equity for the Transition Date impacts to AOCI and retained earnings and adjusted prior periods then presented (years 2021 and 2022) following the updated standard. Based upon the modified retrospective transition method, the Transition Date impact from adoption resulted in a decrease in AOCI of approximately $18.6 billion and a decrease in retained earnings (RE) of approximately $0.3 billion.
The adoption of ASU 2018-12 did not have an impact on the Company's balance for deferred policy acquisition costs upon adoption.
All relevant prior-year amounts have been adjusted for the adoption of ASU 2018-12.
In conjunction with the adoption of ASU 2018-12, the Company changed its practice of recording the change in the deferred profit liability on products with limited-payment features from the benefits and claims, net line item to the net earned premiums line item in the consolidated statements of earnings. This reclassification had no impact on net earnings. The change in presentation has been made for all comparative periods presented.
Accounting Pronouncements Pending Adoption
ASU 2023-09 Income Taxes (Topic 740) - Improvements to Income Tax Disclosures
In December 2023, the FASB issued amendments that require enhanced income tax disclosures including (1) disclosure of specific categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures.
Item 8. Financial Statements and Supplementary Data
The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance has no impact on the Company’s financial position or results of operations. The Company is evaluating the impact of adoption on its disclosures.
ASU 2024-03 Income Statement (Topic 220) - Disaggregation of Income Statement Expenses
In November 2024, the FASB issued amendments that require disaggregated disclosure, in the notes to the financial statements, of specified information about certain costs and expenses including (1) the amounts of employee compensation, depreciation, and intangible asset amortization; (2) certain expense, gain, or loss amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements; (3) qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and (4) the total amount of selling expenses and, in annual reporting periods, the Company’s definition of selling expenses.
The amendments are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The adoption of this guidance has no impact on the Company’s financial position or results of operations. The Company is evaluating the impact of adoption on its disclosures.
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 SELECTED FOREIGN CURRENCY TRANSLATION ITEMS
The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. In addition, the Parent Company, other operating business units that are not individually reportable, reinsurance activities, including internal reinsurance activity with Aflac Re, and other business activities not included in Aflac Japan or Aflac U.S., as well as intercompany eliminations, are included in Corporate and other. The Company does not allocate corporate overhead expenses to business segments.
The Company’s reportable segments are regularly reviewed by the Company's CODM, Senior Executive Vice President and Chief Financial Officer, in deciding how to allocate resources and in assessing performance. The Company's CODM reviews and approves the annual budget and operating forecast, which allocates resources to segments and serves as a key benchmark for tracking performance and accountability of each segment's operating results. The Company’s CODM evaluates the performance of the segments using, in comparison to the annual budget, operating forecast and historical results, a financial performance measure called pretax adjusted earnings and believes this financial performance measure to be vitally important for understanding the underlying profitability drivers and trends of the Company’s insurance business.
- Pretax adjusted earnings** are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that are outside management's control because they tend to be driven by general economic conditions and events or are related to infrequent activities not directly associated with insurance operations. The Company excludes income taxes related to operations to arrive at pretax adjusted earnings.
◦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, which are reclassified from net investment gains (losses) and included in adjusted earnings as a component of adjusted net investment income when analyzing operations.
◦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 non-recurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect the Company’s underlying business performance.
Aflac Japan's adjusted revenues accounted for 55% of the Company's total adjusted revenues in 2024, compared with 60% in 2023 and 64% in 2022. The percentage of the Company's total assets attributable to Aflac Japan was 77% at December 31, 2024, compared with 80% at December 31, 2023.
Item 8. Financial Statements and Supplementary Data
Information regarding operations by reportable segment and Corporate and other for the years ended December 31 is presented in the following tables.
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Aflac Japan: | |||||||||||||||||||||||||||||||||||
| Net earned premiums (1) | $ | 6,930 | $ | 8,047 | $ | 9,186 | |||||||||||||||||||||||||||||
| Adjusted net investment income | 2,701 | 2,582 | 2,669 | ||||||||||||||||||||||||||||||||
| Other income | 28 | 35 | 35 | ||||||||||||||||||||||||||||||||
| Total adjusted revenue Aflac Japan | 9,659 | 10,664 | 11,890 | ||||||||||||||||||||||||||||||||
| Aflac U.S.: | |||||||||||||||||||||||||||||||||||
| Net earned premiums | 5,829 | 5,675 | 5,570 | ||||||||||||||||||||||||||||||||
| Adjusted net investment income | 847 | 820 | 755 | ||||||||||||||||||||||||||||||||
| Other income | 63 | 128 | 161 | ||||||||||||||||||||||||||||||||
| Total adjusted revenue Aflac U.S. | 6,739 | 6,623 | 6,486 | ||||||||||||||||||||||||||||||||
| Corporate and other (2) | 1,007 | 460 | 267 | ||||||||||||||||||||||||||||||||
| Total adjusted revenues | 17,405 | 17,747 | 18,643 | ||||||||||||||||||||||||||||||||
| Net investment gains (losses) | 1,271 | 590 | 363 | ||||||||||||||||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||||||||||||||
| Amortized hedge costs | 26 | 157 | 112 | ||||||||||||||||||||||||||||||||
| Amortized hedge income | (113) | (121) | (68) | ||||||||||||||||||||||||||||||||
| Net interest (income) expense from derivatives associated with certain investment strategies | 338 | 328 | 90 | ||||||||||||||||||||||||||||||||
| Total revenues | $ | 18,927 | $ | 18,701 | $ | 19,140 |
(1) Includes a gain (loss) of $(81), $20 and $(42) in 2024, 2023 and 2022, respectively, related to remeasurement of the deferred profit liability for limited-payment contracts.
(2) The change in value of federal historic rehabilitation and solar investments in partnerships of $165, $343 and $91 in 2024, 2023 and 2022, respectively, is included as a reduction to net investment income. Tax credits on these investments of $164, $334 and $83 in 2024, 2023 and 2022, respectively, have been recorded as an income tax benefit in the consolidated statements of earnings. See Note 3 for additional information on these investments.
Item 8. Financial Statements and Supplementary Data
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Adjusted revenues: | |||||||||||||||||||||||||||||||||||
| Aflac Japan (1) | $ | 9,659 | $ | 10,664 | $ | 11,890 | |||||||||||||||||||||||||||||
| Aflac U.S. | 6,739 | 6,623 | 6,486 | ||||||||||||||||||||||||||||||||
| Corporate and other (2) | 1,007 | 460 | 267 | ||||||||||||||||||||||||||||||||
| Total adjusted revenues | 17,405 | 17,747 | 18,643 | ||||||||||||||||||||||||||||||||
| Benefits and adjusted expenses: | |||||||||||||||||||||||||||||||||||
| Aflac Japan: | |||||||||||||||||||||||||||||||||||
| Benefits and claims, excluding reserve remeasurement | 4,761 | 5,409 | 6,282 | ||||||||||||||||||||||||||||||||
| Reserve remeasurement (gains) losses | (444) | (96) | (91) | ||||||||||||||||||||||||||||||||
| Total benefits and claims, net | 4,317 | 5,313 | 6,191 | ||||||||||||||||||||||||||||||||
| Adjusted expenses: | |||||||||||||||||||||||||||||||||||
| Amortization of deferred policy acquisition costs | 321 | 326 | 338 | ||||||||||||||||||||||||||||||||
| Insurance commissions | 435 | 491 | 563 | ||||||||||||||||||||||||||||||||
| Insurance and other expenses | 1,092 | 1,300 | 1,517 | ||||||||||||||||||||||||||||||||
| Total benefits and adjusted expenses Aflac Japan | 6,165 | 7,430 | 8,609 | ||||||||||||||||||||||||||||||||
| Aflac U.S.: | |||||||||||||||||||||||||||||||||||
| Benefits and claims, excluding reserve remeasurement | 2,821 | 2,715 | 2,679 | ||||||||||||||||||||||||||||||||
| Reserve remeasurement (gains) losses | (95) | (284) | (124) | ||||||||||||||||||||||||||||||||
| Total benefits and claims, net | 2,726 | 2,431 | 2,555 | ||||||||||||||||||||||||||||||||
| Adjusted expenses: | |||||||||||||||||||||||||||||||||||
| Amortization of deferred policy acquisition costs | 530 | 490 | 455 | ||||||||||||||||||||||||||||||||
| Insurance commissions | 563 | 561 | 553 | ||||||||||||||||||||||||||||||||
| Insurance and other expenses | 1,501 | 1,640 | 1,564 | ||||||||||||||||||||||||||||||||
| Total benefits and adjusted expenses Aflac U.S. | 5,320 | 5,122 | 5,127 | ||||||||||||||||||||||||||||||||
| Corporate and other | 975 | 885 | 485 | ||||||||||||||||||||||||||||||||
| Total adjusted expenses | $ | 12,460 | $ | 13,437 | $ | 14,221 | |||||||||||||||||||||||||||||
| Pretax earnings: | |||||||||||||||||||||||||||||||||||
| Aflac Japan (1) | $ | 3,494 | $ | 3,234 | $ | 3,281 | |||||||||||||||||||||||||||||
| Aflac U.S. | 1,419 | 1,501 | 1,359 | ||||||||||||||||||||||||||||||||
| Corporate and other (2) | 32 | (425) | (218) | ||||||||||||||||||||||||||||||||
| Pretax adjusted earnings | 4,945 | 4,310 | 4,422 | ||||||||||||||||||||||||||||||||
| Other income (loss) | (23) | 39 | 0 | ||||||||||||||||||||||||||||||||
| Net investment gains (losses) | 1,271 | 590 | 363 | ||||||||||||||||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||||||||||||||
| Amortized hedge costs | 26 | 157 | 112 | ||||||||||||||||||||||||||||||||
| Amortized hedge income | (113) | (121) | (68) | ||||||||||||||||||||||||||||||||
| Net interest (income) expense from derivatives associated with certain investment strategies | 338 | 328 | 90 | ||||||||||||||||||||||||||||||||
| Impact of interest from derivatives associated with notes payable | (27) | (41) | (50) | ||||||||||||||||||||||||||||||||
| Total earnings before income taxes | $ | 6,417 | $ | 5,262 | $ | 4,869 | |||||||||||||||||||||||||||||
| Income taxes applicable to pretax adjusted earnings | $ | 873 | $ | 577 | $ | 808 | |||||||||||||||||||||||||||||
| Effect of foreign currency translation on after-tax adjusted earnings | (103) | (113) | (262) |
(1) Includes a gain (loss) of $(81), $20 and $(42) for 2024, 2023 and 2022, respectively, related to remeasurement of the deferred profit liability for limited-payment contracts.
(2) The change in value of federal historic rehabilitation and solar investments in partnerships of $165, $343 and $91 in 2024, 2023 and 2022, respectively, is included as a reduction to net investment income. Tax credits on these investments of $164, $334 and $83 in 2024, 2023 and 2022, respectively, have been recorded as an income tax benefit in the consolidated statements of earnings. See Note 3 for additional information on these investments.
Item 8. Financial Statements and Supplementary Data
Internal Reinsurance: Aflac Re is a Bermuda domiciled insurer that reinsures certain policies issued by Aflac Japan and is reported as a part of Corporate and other. Under these internal reinsurance transactions, Aflac Japan's net earned premiums are reduced by the amount of premiums ceded to Aflac Re. Aflac Re recorded net earned premiums of $568 million in 2024, $258 million in 2023 and $1 million in 2022 related to these reinsurance transactions with Aflac Japan. These internal reinsurance transactions have no financial statement impact on a consolidated basis, except for the effect of foreign currency accounting. For additional information on these internal reinsurance transactions, see Note 8.
Transfers of funds from Aflac Japan: Aflac Japan makes payments to the Parent Company for management fees and remittances of earnings. 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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Management fees | $ | 69 | $ | 67 | $ | 61 | |||||||||||||||||||||||||||||
| Profit remittances | 2,865 | 2,623 | 2,412 | ||||||||||||||||||||||||||||||||
| Total transfers from Aflac Japan | $ | 2,934 | $ | 2,690 | $ | 2,473 |
Total Assets: The Company's total assets as of December 31 were as follows:
| (In millions) | 2024 | 2023 | ||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Aflac Japan | $ | 90,210 | $ | 101,541 | ||||||||||||||||||||||
| Aflac U.S. | 21,930 | 21,861 | ||||||||||||||||||||||||
| Corporate and other | 5,426 | 3,322 | ||||||||||||||||||||||||
| Total assets | $ | 117,566 | $ | 126,724 |
Receivables: Receivables consist primarily of monthly insurance premiums due from individual policyholders or their employers for payroll deduction of premiums, net of allowance for credit losses. Total receivables were $779 million and $848 million as of December 31, 2024 and 2023, respectively. The allowance for credit losses related to premiums receivable was $108 million and $92 million as of December 31, 2024 and 2023, respectively. At December 31, 2024, $197 million, or 25.3% of total receivables, were related to Aflac Japan's operations, compared with $175 million, or 20.7%, at December 31, 2023.
Selected Foreign Currency Translation Items
Yen-Translation Effects: The following table shows the yen/dollar exchange rates used for or during the periods ended December 31. For comparison, exchange effects for the current year were calculated using the yen/dollar exchange rate that was used in the prior year.
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Statements of Earnings: | |||||||||||||||||||||||||||||||||||
| Weighted-average yen/dollar exchange rate (1) | 150.97 | 140.57 | 130.17 | ||||||||||||||||||||||||||||||||
| Yen percent strengthening (weakening) | (6.9) | % | (7.4) | % | (15.7) | % | |||||||||||||||||||||||||||||
| Exchange effect on pretax adjusted earnings (in millions) | $ | (125) | $ | (131) | $ | (318) |
| 2024 | 2023 | ||||||||||||||||||||||
| Balance Sheets: | |||||||||||||||||||||||
| Yen/dollar exchange rate at December 31*(1)* | 158.18 | 141.83 | |||||||||||||||||||||
| Yen percent strengthening (weakening) | (10.3) | % | (6.4) | % | |||||||||||||||||||
| Exchange effect on total assets (in millions) | $ | (6,127) | $ | (3,984) | |||||||||||||||||||
| Exchange effect on total liabilities (in millions) | (9,624) | (6,936) |
(1) Rates are based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).
Item 8. Financial Statements and Supplementary Data
3. INVESTMENTS
Net Investment Income
The components of net investment income for the years ended December 31 were as follows:
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Fixed maturity securities | $ | 2,894 | $ | 2,873 | $ | 2,926 | |||||||||||||||||||||||||||||
| Equity securities | 24 | 28 | 31 | ||||||||||||||||||||||||||||||||
| Commercial mortgage and other loans | 1,046 | 1,002 | 716 | ||||||||||||||||||||||||||||||||
| Other investments (1) | 130 | (70) | 131 | ||||||||||||||||||||||||||||||||
| Short-term investments and cash equivalents | 258 | 213 | 78 | ||||||||||||||||||||||||||||||||
| Gross investment income | 4,352 | 4,046 | 3,882 | ||||||||||||||||||||||||||||||||
| Less investment expenses | 236 | 235 | 226 | ||||||||||||||||||||||||||||||||
| Net investment income | $ | 4,116 | $ | 3,811 | $ | 3,656 |
(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $165, $343 and $91 in 2024, 2023, and 2022, respectively, is included as a reduction to net investment income. Tax credits on these investments of $164, $334, and $83 in 2024, 2023, and 2022, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings.
Item 8. Financial Statements and Supplementary Data
Investment Holdings
The amortized cost and allowance for credit losses for the Company's investments in fixed maturity securities and the fair values of these investments as well as the fair value of the Company's investments in equity securities are shown in the following tables.
| 2024 | |||||||||||||||||
| (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 | $ | 19,409 | $ | 0 | $ | 465 | $ | 2,234 | $ | 17,640 | |||||||
| Municipalities | 869 | 0 | 65 | 79 | 855 | ||||||||||||
| Mortgage- and asset-backed securities | 327 | 0 | 4 | 23 | 308 | ||||||||||||
| Public utilities | 2,746 | 0 | 202 | 108 | 2,840 | ||||||||||||
| Sovereign and supranational | 330 | 0 | 16 | 8 | 338 | ||||||||||||
| Banks/financial institutions | 5,376 | 0 | 267 | 342 | 5,301 | ||||||||||||
| Other corporate | 5,329 | 0 | 568 | 305 | 5,592 | ||||||||||||
| Total yen-denominated | 34,386 | 0 | 1,587 | 3,099 | 32,874 | ||||||||||||
| U.S. dollar-denominated: | |||||||||||||||||
| U.S. government and agencies | 208 | 0 | 1 | 3 | 206 | ||||||||||||
| Municipalities | 1,167 | 0 | 65 | 53 | 1,179 | ||||||||||||
| Mortgage- and asset-backed securities | 2,987 | 0 | 302 | 34 | 3,255 | ||||||||||||
| Public utilities | 3,938 | 0 | 418 | 151 | 4,205 | ||||||||||||
| Sovereign and supranational | 57 | 0 | 21 | 0 | 78 | ||||||||||||
| Banks/financial institutions | 3,271 | 0 | 420 | 36 | 3,655 | ||||||||||||
| Other corporate | 18,050 | 0 | 2,493 | 752 | 19,791 | ||||||||||||
| Total U.S. dollar-denominated | 29,678 | 0 | 3,720 | 1,029 | 32,369 | ||||||||||||
| Other currencies: | |||||||||||||||||
| Other corporate | 25 | 0 | 1 | 0 | 26 | ||||||||||||
| Total other currencies | 25 | 0 | 1 | 0 | 26 | ||||||||||||
| Total securities available-for-sale | $ | 64,089 | $ | 0 | $ | 5,308 | $ | 4,128 | $ | 65,269 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||
| (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 | $ | 23,067 | $ | 0 | $ | 1,040 | $ | 1,696 | $ | 22,411 | |||||||
| Municipalities | 968 | 0 | 115 | 58 | 1,025 | ||||||||||||
| Mortgage- and asset-backed securities | 215 | 0 | 6 | 11 | 210 | ||||||||||||
| Public utilities | 3,757 | 0 | 325 | 82 | 4,000 | ||||||||||||
| Sovereign and supranational | 373 | 0 | 24 | 7 | 390 | ||||||||||||
| Banks/financial institutions | 5,896 | 0 | 320 | 365 | 5,851 | ||||||||||||
| Other corporate | 5,898 | 0 | 699 | 294 | 6,303 | ||||||||||||
| Total yen-denominated | 40,174 | 0 | 2,529 | 2,513 | 40,190 | ||||||||||||
| U.S. dollar-denominated: | |||||||||||||||||
| U.S. government and agencies | 191 | 0 | 2 | 4 | 189 | ||||||||||||
| Municipalities | 1,246 | 0 | 65 | 38 | 1,273 | ||||||||||||
| Mortgage- and asset-backed securities | 2,748 | 0 | 184 | 56 | 2,876 | ||||||||||||
| Public utilities | 3,346 | 0 | 360 | 114 | 3,592 | ||||||||||||
| Sovereign and supranational | 122 | 0 | 33 | 8 | 147 | ||||||||||||
| Banks/financial institutions | 2,676 | 0 | 359 | 51 | 2,984 | ||||||||||||
| Other corporate | 20,186 | 0 | 2,518 | 665 | 22,039 | ||||||||||||
| Total U.S. dollar-denominated | 30,515 | 0 | 3,521 | 936 | 33,100 | ||||||||||||
| Total securities available-for-sale | $ | 70,689 | $ | 0 | $ | 6,050 | $ | 3,449 | $ | 73,290 |
| 2024 | ||||||||||||||||||||
| (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 | $ | 15,311 | $ | 2 | $ | 15,309 | $ | 759 | $ | 9 | $ | 16,059 | ||||||||
| Municipalities | 235 | 0 | 235 | 22 | 0 | 257 | ||||||||||||||
| Public utilities | 32 | 0 | 32 | 1 | 0 | 33 | ||||||||||||||
| Sovereign and supranational | 377 | 3 | 374 | 31 | 0 | 405 | ||||||||||||||
| Other corporate | 16 | 0 | 16 | 2 | 0 | 18 | ||||||||||||||
| Total yen-denominated | 15,971 | 5 | 15,966 | 815 | 9 | 16,772 | ||||||||||||||
| Total securities held-to-maturity | $ | 15,971 | $ | 5 | $ | 15,966 | $ | 815 | $ | 9 | $ | 16,772 |
Item 8. Financial Statements and Supplementary Data
| 2023 | ||||||||||||||||||||
| (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 | $ | 17,085 | $ | 2 | $ | 17,083 | $ | 1,746 | $ | 0 | $ | 18,829 | ||||||||
| Municipalities | 266 | 0 | 266 | 41 | 0 | 307 | ||||||||||||||
| Public utilities | 34 | 0 | 34 | 4 | 0 | 38 | ||||||||||||||
| Sovereign and supranational | 421 | 3 | 418 | 44 | 0 | 462 | ||||||||||||||
| Other corporate | 18 | 0 | 18 | 3 | 0 | 21 | ||||||||||||||
| Total yen-denominated | 17,824 | 5 | 17,819 | 1,838 | 0 | 19,657 | ||||||||||||||
| Total securities held-to-maturity | $ | 17,824 | $ | 5 | $ | 17,819 | $ | 1,838 | $ | 0 | $ | 19,657 |
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | Fair Value | Fair Value | |||||||||||||||||||||
| Equity securities, carried at fair value through net earnings: | |||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Yen-denominated | $ | 484 | $ | 751 | |||||||||||||||||||
| U.S. dollar-denominated | 312 | 252 | |||||||||||||||||||||
| Other currencies | 0 | 85 | |||||||||||||||||||||
| Total equity securities | $ | 796 | $ | 1,088 |
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 2024 and 2023, 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, 2024, were as follows:
| (In millions) | Amortized Cost (1) | Fair Value | ||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||
| Due in one year or less | $ | 1,369 | $ | 1,536 | ||||||||||||||||
| Due after one year through five years | 7,522 | 8,424 | ||||||||||||||||||
| Due after five years through 10 years | 17,302 | 18,495 | ||||||||||||||||||
| Due after 10 years | 34,582 | 33,251 | ||||||||||||||||||
| Mortgage- and asset-backed securities | 3,314 | 3,563 | ||||||||||||||||||
| Total fixed maturity securities available-for-sale | $ | 64,089 | $ | 65,269 | ||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||
| Due in one year or less | $ | 0 | $ | 0 | ||||||||||||||||
| Due after one year through five years | 34 | 34 | ||||||||||||||||||
| Due after five years through 10 years | 8,516 | 9,045 | ||||||||||||||||||
| Due after 10 years | 7,416 | 7,693 | ||||||||||||||||||
| Total fixed maturity securities held-to-maturity | $ | 15,966 | $ | 16,772 |
(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:
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| (In millions) | Credit Rating | Amortized Cost | Fair Value | Credit Rating | Amortized Cost | Fair Value | |||||||||||||||||||||||||||||
| Japan National Government*(1)* | A+ | $33,822 | $32,844 | A+ | $39,151 | $40,222 |
(1) Japan Government Bonds (JGBs) or JGB-backed securities
Item 8. Financial Statements and Supplementary Data
Net Investment Gains and Losses
Information regarding pretax net gains and losses from investments for the years ended December 31 follows:
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net investment gains (losses): | ||||||||||||||||||||
| Sales and redemptions: | ||||||||||||||||||||
| Fixed maturity securities available-for-sale: | ||||||||||||||||||||
| Gross gains from sales | $ | 80 | $ | 24 | $ | 93 | ||||||||||||||
| Gross losses from sales | (634) | (61) | (78) | |||||||||||||||||
| Foreign currency gains (losses) | 806 | 204 | 442 | |||||||||||||||||
| Other investments: | ||||||||||||||||||||
| Gross gains (losses) from sales and redemptions | 7 | 33 | 10 | |||||||||||||||||
| Total sales and redemptions | 259 | 200 | 467 | |||||||||||||||||
| Equity securities | 140 | 88 | (341) | |||||||||||||||||
| Credit losses: | ||||||||||||||||||||
| Fixed maturity securities held-to-maturity | 0 | 1 | 0 | |||||||||||||||||
| Commercial mortgage and other loans | (207) | (146) | (18) | |||||||||||||||||
| Impairment losses | (55) | 0 | (25) | |||||||||||||||||
| Loan commitments | 1 | 9 | 9 | |||||||||||||||||
| Reinsurance recoverables and other | 5 | (3) | (2) | |||||||||||||||||
| Total credit losses | (256) | (139) | (36) | |||||||||||||||||
| Derivatives and other: | ||||||||||||||||||||
| Derivative gains (losses) | (363) | (531) | (1,151) | |||||||||||||||||
| Foreign currency gains (losses) | 1,491 | 972 | 1,424 | |||||||||||||||||
| Total derivatives and other | 1,128 | 441 | 273 | |||||||||||||||||
| Total net investment gains (losses) | $ | 1,271 | $ | 590 | $ | 363 |
The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the year ended December 31, 2024, that relate to equity securities held at the December 31, 2024, reporting date were $118 million. The unrealized holding gains, net of losses, recorded as a component of net investment gains and losses for the year ended December 31, 2023, that relate to equity securities held at the December 31, 2023, reporting date were $63 million. The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the year ended December 31, 2022, that relate to equity securities held at the December 31, 2022, reporting date were $340 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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Changes in unrealized gains (losses): | |||||||||||||||||||||||||||||||||||
| Fixed maturity securities, available-for-sale | $ | (1,421) | $ | 2,327 | $ | (13,056) | |||||||||||||||||||||||||||||
| Total change in unrealized gains (losses) | $ | (1,421) | $ | 2,327 | $ | (13,056) |
Item 8. Financial Statements and Supplementary Data
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) | 2024 | 2023 | |||||||||||||||||||||
| Unrealized gains (losses) on securities available-for-sale | $ | 1,180 | $ | 2,601 | |||||||||||||||||||
| Deferred income taxes | (1,156) | (1,462) | |||||||||||||||||||||
| Shareholders’ equity, unrealized gains (losses) on fixed maturity securities | $ | 24 | $ | 1,139 |
Gross Unrealized Loss Aging
The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31.
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Less than 12 months | 12 months or longer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities available- for-sale: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | $ | 106 | $ | 3 | $ | 59 | $ | 1 | $ | 47 | $ | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan government and agencies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 8,136 | 2,234 | 2,070 | 57 | 6,066 | 2,177 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 666 | 53 | 67 | 3 | 599 | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 341 | 79 | 96 | 2 | 245 | 77 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset- backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 567 | 34 | 173 | 2 | 394 | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 196 | 23 | 12 | 0 | 184 | 23 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 1,570 | 151 | 699 | 19 | 871 | 132 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 1,020 | 108 | 368 | 11 | 652 | 97 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 47 | 8 | 0 | 0 | 47 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 625 | 36 | 376 | 7 | 249 | 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 3,197 | 342 | 471 | 22 | 2,726 | 320 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 6,097 | 752 | 2,036 | 59 | 4,061 | 693 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 1,733 | 305 | 289 | 14 | 1,444 | 291 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 24,301 | $ | 4,128 | $ | 6,716 | $ | 197 | $ | 17,585 | $ | 3,931 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | Less than 12 months | 12 months or longer | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed maturity securities available- for-sale: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | $ | 123 | $ | 4 | $ | 53 | $ | 1 | $ | 70 | $ | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan government and agencies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 8,393 | 1,696 | 1,657 | 303 | 6,736 | 1,393 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 703 | 38 | 31 | 1 | 672 | 37 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 301 | 58 | 34 | 0 | 267 | 58 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset- backed securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 925 | 56 | 340 | 6 | 585 | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 58 | 11 | 0 | 0 | 58 | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 1,120 | 114 | 228 | 4 | 892 | 110 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 1,028 | 82 | 444 | 13 | 584 | 69 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 35 | 8 | 0 | 0 | 35 | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 60 | 7 | 0 | 0 | 60 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 655 | 51 | 159 | 4 | 496 | 47 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 3,673 | 365 | 186 | 4 | 3,487 | 361 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. dollar-denominated | 6,380 | 665 | 799 | 19 | 5,581 | 646 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yen-denominated | 1,948 | 294 | 308 | 9 | 1,640 | 285 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 25,402 | $ | 3,449 | $ | 4,239 | $ | 364 | $ | 21,163 | $ | 3,085 |
Analysis of Securities in Unrealized Loss Positions
The unrealized losses on the Company's available-for-sale securities have been primarily related to general market factors such as 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 available-for-sale securities in an unrealized loss position, the Company performs detailed analyses to identify whether the drivers of the decline in fair value are due to general market factors, such as the recent rise in interest rates, or due to credit-related factors. Identifying the drivers of the declines in fair value helps to align and allocate the Company's resources to the review and monitoring of securities with real credit-related concerns that could impact ultimate collection of principal and interest. For any significant declines in fair value determined to be non-interest rate or market-related, the Company performs a more focused review of the related issuers' specific credit profile.
For corporate issuers, the Company evaluates their assets and 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.
Item 8. Financial Statements and Supplementary Data
Assuming no credit-related factors develop, unrealized gains and losses on available-for-sale securities are expected to diminish as investments near maturity. Based on its credit analysis, the Company believes that the issuers of its available-for-sale investments in the sectors shown in the table above have the ability to service their obligations to the Company. Further, 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, if the Company identifies certain available-for-sale securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit-related factors, an allowance for credit losses is recognized. Based on an evaluation of its securities currently in an unrealized loss position, the Company has determined that those securities should not have an allowance for credit losses as of December 31, 2024. Refer to the Allowance for Credit Losses section below for additional information.
As of December 31, 2024 and 2023, the Company had an immaterial amount of fixed maturity securities on nonaccrual status.
Commercial Mortgage and Other Loans
The Company classifies its TREs, CMLs, MMLs, and other loans as held-for-investment and includes them in the commercial mortgage and other loans line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for credit losses.
The following table reflects the composition of the carrying value for commercial mortgage and other loans by property type as of December 31.
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | Amortized Cost | % of Total | Amortized Cost | % of Total | |||||||||||||||||||
| Commercial Mortgage and other loans: | |||||||||||||||||||||||
| Transitional real estate loans: | |||||||||||||||||||||||
| Office | $ | 1,361 | 12.1 | % | $ | 1,807 | 14.1 | % | |||||||||||||||
| Retail | 349 | 3.1 | 473 | 3.7 | |||||||||||||||||||
| Apartments/Multi-Family | 2,201 | 19.6 | 2,608 | 20.4 | |||||||||||||||||||
| Industrial | 117 | 1.1 | 157 | 1.2 | |||||||||||||||||||
| Hospitality | 556 | 5.0 | 814 | 6.4 | |||||||||||||||||||
| Other | 318 | 2.8 | 255 | 2.0 | |||||||||||||||||||
| Total transitional real estate loans | 4,902 | 43.7 | 6,114 | 47.8 | |||||||||||||||||||
| Commercial mortgage loans: | |||||||||||||||||||||||
| Office | 300 | 2.7 | 359 | 2.8 | |||||||||||||||||||
| Retail | 214 | 1.9 | 301 | 2.4 | |||||||||||||||||||
| Apartments/Multi-Family | 572 | 5.1 | 586 | 4.6 | |||||||||||||||||||
| Industrial | 436 | 3.9 | 463 | 3.6 | |||||||||||||||||||
| Other | 15 | .1 | 0 | .0 | |||||||||||||||||||
| Total commercial mortgage loans | 1,537 | 13.7 | 1,709 | 13.4 | |||||||||||||||||||
| Middle market loans | 4,423 | 39.4 | 4,677 | 36.5 | |||||||||||||||||||
| Other loans | 362 | 3.2 | 301 | 2.3 | |||||||||||||||||||
| Total commercial mortgage and other loans | $ | 11,224 | 100.0 | % | $ | 12,801 | 100.0 | % | |||||||||||||||
| Allowance for credit losses | (355) | (274) | |||||||||||||||||||||
| Total net commercial mortgage and other loans | $ | 10,869 | $ | 12,527 |
CMLs and TREs are secured by properties entirely within the U.S. (with the largest concentrations in California (21%), Texas (13%) and Florida (10%)). MMLs are issued only to companies domiciled within the U.S. and Canada.
Item 8. Financial Statements and Supplementary Data
Transitional Real Estate Loans
TREs are relatively short-term floating rate commercial mortgage loans that are 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.
As of December 31, 2024, the Company had $273 million in outstanding commitments to fund TREs. These commitments are contingent on the final underwriting and due diligence to be performed.
Commercial Mortgage Loans
CMLs are typically fixed rate loans on commercial real estate with partial repayment of principal over the life of the loan with the remaining outstanding principal being repaid upon maturity. This loan portfolio is generally considered higher quality investment grade loans.
Middle Market Loans
MMLs are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade.
As of December 31, 2024, the Company had commitments of approximately $739 million to fund future MMLs. These commitments are contingent upon the availability of MMLs that meet the Company's underwriting criteria.
Other Loans
Other loans are primarily infrastructure loans. Infrastructure loans are typically senior secured, financing operating portfolios of renewable and conventional energy generation assets characterized by predictable, often contractual cash flows for loan repayment. The infrastructure loan portfolio weighted average rating is investment grade.
As of December 31, 2024, the Company had commitments of approximately $1 million to fund future other loans. These commitments are contingent upon the availability of other loans that meet the Company's underwriting criteria.
Credit Quality Indicators
For TREs, the Company’s key credit quality indicators include performance of the loan and loan-to-value (LTV), which is calculated by dividing the current outstanding loan balance by the estimated property value, primarily using values at origination. Given that TREs involve properties undergoing a repositioning of their commercial profile, LTV provides the most insight into the credit risk of the loan. The Company monitors the performance of the loans periodically, but not less frequently than quarterly. The monitoring process also focuses on higher risk loans, which include those that are delinquent or for which foreclosure or deed in lieu of foreclosure is anticipated.
For CMLs, the Company’s key credit quality indicators include LTV and debt service coverage ratios (DSCR). DSCR is the most recently available net 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 other loans, the Company's key credit quality indicator is credit ratings. The Company monitors these credit ratings periodically, but not less frequently than quarterly.
Item 8. Financial Statements and Supplementary Data
The following tables present as of December 31, 2024 the amortized cost basis of TREs, CMLs, MMLs, and other loans by year of origination and credit quality indicator.
| Transitional Real Estate Loans | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | ||||||||||||||||
| Loan-to-Value Ratio: | |||||||||||||||||||||||
| 0%-59.99% | $ | 0 | $ | 0 | $ | 314 | $ | 357 | $ | 36 | $ | 11 | $ | 718 | |||||||||
| 60%-69.99% | 0 | 116 | 500 | 599 | 18 | 390 | 1,623 | ||||||||||||||||
| 70%-79.99% | 0 | 14 | 903 | 660 | 24 | 58 | 1,659 | ||||||||||||||||
| 80% or greater | 0 | 0 | 259 | 271 | 104 | 268 | 902 | ||||||||||||||||
| Total | $ | 0 | $ | 130 | $ | 1,976 | $ | 1,887 | $ | 182 | $ | 727 | $ | 4,902 | |||||||||
| Current-period gross writeoffs: | $ | 0 | $ | 0 | $ | 0 | $ | 5 | $ | 0 | $ | 57 | $ | 62 |
| Commercial Mortgage Loans | ||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | Weighted-Average DSCR | ||||||||||||||||||
| Loan-to-Value Ratio: | ||||||||||||||||||||||||||
| 0%-59.99% | $ | 0 | $ | 32 | $ | 0 | $ | 266 | $ | 58 | $ | 920 | $ | 1,276 | 2.78 | |||||||||||
| 60%-69.99% | 0 | 0 | 0 | 25 | 0 | 47 | 72 | 2.11 | ||||||||||||||||||
| 70%-79.99% | 13 | 0 | 0 | 0 | 0 | 87 | 100 | 1.19 | ||||||||||||||||||
| 80% or greater | 0 | 0 | 0 | 0 | 0 | 89 | 89 | 0.57 | ||||||||||||||||||
| Total | $ | 13 | $ | 32 | $ | 0 | $ | 291 | $ | 58 | $ | 1,143 | $ | 1,537 | 2.52 | |||||||||||
| Weighted Average DSCR | 1.21 | 2.62 | 0.00 | 3.16 | 2.52 | 2.37 | ||||||||||||||||||||
| Current-period gross writeoffs: | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 19 | $ | 19 |
| Middle Market Loans | ||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total | ||||||||||||||||||
| Credit Ratings: | ||||||||||||||||||||||||||
| BBB | $ | 12 | $ | 27 | $ | 4 | $ | 84 | $ | 43 | $ | 95 | $ | 11 | $ | 276 | ||||||||||
| BB | 394 | 45 | 413 | 396 | 282 | 339 | 68 | 1,937 | ||||||||||||||||||
| B | 220 | 41 | 238 | 486 | 264 | 501 | 41 | 1,791 | ||||||||||||||||||
| CCC | 0 | 0 | 5 | 61 | 74 | 142 | 17 | 299 | ||||||||||||||||||
| CC | 0 | 0 | 13 | 0 | 0 | 24 | 5 | 42 | ||||||||||||||||||
| C and lower | 0 | 0 | 0 | 6 | 0 | 68 | 4 | 78 | ||||||||||||||||||
| Total | $ | 626 | $ | 113 | $ | 673 | $ | 1,033 | $ | 663 | $ | 1,169 | $ | 146 | $ | 4,423 | ||||||||||
| Current-period gross writeoffs: | $ | 0 | $ | 0 | $ | 0 | $ | 27 | $ | 0 | $ | 23 | $ | 0 | $ | 50 |
| Other Loans | ||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total | ||||||||||||||||||
| Credit Ratings: | ||||||||||||||||||||||||||
| A | $ | 0 | $ | 0 | $ | 82 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 82 | ||||||||||
| AA | 0 | 0 | 8 | 3 | 0 | 0 | 0 | 11 | ||||||||||||||||||
| BBB | 130 | 66 | 0 | 0 | 0 | 0 | 0 | 196 | ||||||||||||||||||
| BB | 0 | 0 | 73 | 0 | 0 | 0 | 0 | 73 | ||||||||||||||||||
| Total | $ | 130 | $ | 66 | $ | 163 | $ | 3 | $ | 0 | $ | 0 | $ | 0 | $ | 362 | ||||||||||
| Current-period gross writeoffs: | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
Item 8. Financial Statements and Supplementary Data
Past Due and Nonaccrual Loans
The following tables present an aging of past due and nonaccrual loans at amortized cost, before allowance for credit losses, as of December 31.
| 2024 | ||||||||||||||||||||
| (In millions) | Current | Less Than 90 Days Past Due | 90 Days or More Past Due*(1)* | Total Past Due | Total Loans | Nonaccrual Status | ||||||||||||||
| Transitional real estate loans | $ | 4,364 | $ | 195 | $ | 343 | $ | 538 | $ | 4,902 | $ | 378 | ||||||||
| Commercial mortgage loans | 1,537 | 0 | 0 | 0 | 1,537 | 0 | ||||||||||||||
| Middle market loans | 4,295 | 63 | 65 | 128 | 4,423 | 108 | ||||||||||||||
| Other loans | 362 | 0 | 0 | 0 | 362 | 0 | ||||||||||||||
| Total | $ | 10,558 | $ | 258 | $ | 408 | $ | 666 | $ | 11,224 | $ | 486 |
(1) As of December 31, 2024, there were no loans that were 90 days or more past due that continued to accrue interest.
| 2023 | ||||||||||||||||||||
| (In millions) | Current | Less Than 90 Days Past Due | 90 Days or More Past Due*(1)* | Total Past Due | Total Loans | Nonaccrual Status | ||||||||||||||
| Transitional real estate loans | $ | 5,481 | $ | 108 | $ | 525 | $ | 633 | $ | 6,114 | $ | 633 | ||||||||
| Commercial mortgage loans | 1,676 | 33 | 0 | 33 | 1,709 | 0 | ||||||||||||||
| Middle market loans | 4,592 | 0 | 85 | 85 | 4,677 | 85 | ||||||||||||||
| Other loans | 301 | 0 | 0 | 0 | 301 | 0 | ||||||||||||||
| Total | $ | 12,050 | $ | 141 | $ | 610 | $ | 751 | $ | 12,801 | $ | 718 |
(1) As of December 31, 2023, there were no loans that were 90 days or more past due that continued to accrue interest.
For the year ended December 31, 2024, the Company recognized $2 million of interest income for TREs, CMLs, MMLs, or other loans on nonaccrual status. For the years ended December 31, 2023 and 2022, the Company recognized no interest income for TREs, CMLs, MMLs, or other loans on nonaccrual status. Of these loans, TREs with an amortized cost of $140 million and $160 million had no credit loss allowance as of December 31, 2024 and December 31, 2023, respectively, because these loans are collateral dependent assets for which the estimated fair values of the collateral were in excess of amortized cost. As of December 31, 2024, MMLs with an amortized cost of $5 million were on nonaccrual status without an allowance for credit losses. As of December 31, 2023, there were no MMLs on nonaccrual status without an allowance for credit losses.
Loan Modifications to Borrowers Experiencing Financial Difficulties
The Company granted certain loan modifications to borrowers experiencing financial difficulty during 2024 and 2023. The types of modifications granted may include interest rate reductions, principal forgiveness, other-than-insignificant payment delays, term extensions or a combination of these types of modifications. The amount, timing, and extent of modifications granted are considered in determining any credit loss allowance recorded.
Loans that have both been modified and are paid or written off during the period, resulting in an amortized cost balance of zero at the end of the period, are not included in the disclosures below.
Item 8. Financial Statements and Supplementary Data
The following table presents the amortized cost basis of modified loans to borrowers experiencing financial difficulty and the financial effect of the modifications, disaggregated by loan classification and type of modification, for the year ended December 31.
| 2024 | |||||||||||||||||
| (In millions) | Amortized Cost (1) | % of Total | Financial Effect | ||||||||||||||
| Transitional Real Estate Loans: | |||||||||||||||||
| Other-than-insignificant payment delays | $ | 125 | 2.7 | % | Delay in payments of 24 months on average | ||||||||||||
| Other-than-insignificant payment delays and interest rate reduction | 278 | 5.9 | Delay in payments of 44 months on average and reduction in the weighted-average contractual interest rate from 8.0% to 6.6% | ||||||||||||||
| Other-than-insignificant payment delays, principal forgiveness and interest rate reduction | 81 | 1.7 | Delay in payments of 33 months on average, $1.3 million of principal forgiven, and reduction in the weighted-average contractual interest rate from 8.2% to 7.3% | ||||||||||||||
(1) Net of allowance for credit losses
Additionally, an immaterial percentage of MMLs with an amortized cost of $15 million were modified in the form of interest rate reductions and maturity extensions during the year ended December 31, 2024.
Loan modifications to borrowers experiencing financial difficulty for the year ended December 31, 2023, were immaterial.
The following table presents an aging of loans that received modifications in the 12 months preceding the period presented, at amortized cost.
| December 31, 2024 | |||||||||||
| (In millions) | Current | Less Than 90 Days Past Due | 90 Days or More Past Due | ||||||||
| Transitional real estate loans | $ | 403 | $ | 81 | $ | 0 | |||||
| Middle market loans | 15 | 0 | 0 | ||||||||
| Total | $ | 418 | $ | 81 | $ | 0 |
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Loans that were granted a modification in the past 12 months, as of December 31, 2024, and subsequently defaulted in the year ended December 31, 2024, were immaterial. There were no modified loans to borrowers experiencing financial difficulties in the past 12 months, as of December 31, 2023, that subsequently defaulted in the year ended December 31, 2023.
As of December 31, 2024, the Company had $14 million of outstanding commitments to lend additional funds to borrowers experiencing financial difficulty that were granted a loan modification.
Item 8. Financial Statements and Supplementary Data
Allowance for Credit Losses
The Company calculates its allowance for credit losses for held-to-maturity securities, loan receivables and loan commitments 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 securities, MMLs, and MML commitments, the Company groups assets by credit ratings, industry, and country.
The Company groups CMLs and TREs and respective loan commitments by property type, property location and the property’s LTV and DSCR. On a quarterly basis, CMLs and TREs within a portfolio segment that share similar risk characteristics are pooled for calculation of credit loss allowance. On an ongoing basis, TREs, CMLs and other loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), such as collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is probable), are evaluated individually for credit loss. For example, the credit loss allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of the collateral dependent loans, which are evaluated individually for credit loss, is recorded as a change in the credit loss allowance as a component of net investment gains (losses) in the consolidated statements of earnings.
The credit allowance for held-to-maturity securities and loan receivables is estimated using a probability-of-default (PD) / loss-given-default (LGD) method, discounted for the time value of money. For held-to-maturity securities, available-for-sale 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 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 portfolio includes Japan Government and Agency securities of $15.2 billion amortized cost as of December 31, 2024 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 security may be impaired if the fair value falls below amortized cost. The Company regularly reviews its available-for-sale portfolio for declines in fair value. The Company's available-for-sale 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 amortized cost basis, 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 securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as industry analysis and credit ratings of the 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.
Item 8. Financial Statements and Supplementary Data
The following table presents the roll forward of the allowance for credit losses by portfolio segment for loans and by accounting classification for securities.
| (In millions) | Transitional Real Estate Loans | Commercial Mortgage Loans | Middle Market Loans | Other Loans and Loan Commitments | Held-to- Maturity Securities | Available- for-Sale Securities | Total | ||||||||||||||||
| Balance at December 31, 2021 | $ | (68) | $ | (10) | $ | (96) | $ | (31) | $ | (8) | $ | 0 | $ | (213) | |||||||||
| (Addition to) release of allowance for credit losses | 14 | 1 | (39) | 7 | 0 | 0 | (17) | ||||||||||||||||
| Writeoffs, net of recoveries | 0 | 0 | 6 | 0 | 0 | 0 | 6 | ||||||||||||||||
| Change in foreign exchange | 0 | 0 | 0 | 0 | 1 | 0 | 1 | ||||||||||||||||
| Balance at December 31, 2022 | (54) | (9) | (129) | (24) | (7) | 0 | (223) | ||||||||||||||||
| (Addition to) release of allowance for credit losses (1) | (124) | (7) | (17) | 8 | 1 | 0 | (139) | ||||||||||||||||
| Writeoffs, net of recoveries | 66 | 0 | 0 | 0 | 0 | 0 | 66 | ||||||||||||||||
| Change in foreign exchange | 0 | 0 | 0 | 0 | 1 | 0 | 1 | ||||||||||||||||
| Balance at December 31, 2023 | (112) | (16) | (146) | (16) | (5) | 0 | (295) | ||||||||||||||||
| (Addition to) release of allowance for credit losses | (148) | (17) | (44) | (1) | 0 | 0 | (210) | ||||||||||||||||
| Writeoffs, net of recoveries | 61 | 19 | 50 | 0 | 0 | 0 | 130 | ||||||||||||||||
| Change in foreign exchange | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||
| Balance at December 31, 2024 | $ | (199) | $ | (14) | $ | (140) | $ | (17) | $ | (5) | $ | 0 | $ | (375) |
(1) Includes an allowance for credit losses of $4 recognized on financial assets accounted for as purchased financial assets with credit deterioration that is not recorded in earnings upon recognition.
As of December 31, 2024, the Company identified TREs with an amortized cost of $390 million in anticipation of potential foreclosure or deed in lieu of foreclosure transactions. As of December 31, 2024, the Company established a credit allowance of $57 million related to these loans.
Other Investments
The table below reflects the composition of the carrying value for other investments as of December 31.
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Other investments: | |||||||||||||||||||||||
| Policy loans | $ | 203 | $ | 214 | |||||||||||||||||||
| Short-term investments (1) | 1,599 | 1,304 | |||||||||||||||||||||
| Limited partnerships (2) | 3,435 | 2,750 | |||||||||||||||||||||
| Real estate owned | 682 | 227 | |||||||||||||||||||||
| Other | 39 | 35 | |||||||||||||||||||||
| Total other investments | $ | 5,958 | $ | 4,530 |
(1) Includes securities lending collateral
(2) Includes tax credit investments and asset classes such as private equity and real estate funds
The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits. These investments are classified as limited partnerships and included in other investments in the consolidated balance sheets. The change in value of each investment is recorded as a reduction to net investment income. Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statements of earnings.
REO consists of office buildings or other commercial properties obtained through foreclosure or deed in lieu of foreclosure of certain of the Company’s TREs. As of December 31, 2024, all REO was classified as held-and-used for the production of income and is carried at cost less accumulated depreciation. As of December 31, 2023, $210 million of REO was classified as held-and-used with the remaining $17 million classified as held-for-sale, which is carried at the lower of depreciated cost or fair value less cost to sell and is not further depreciated once classified as such. Depreciation expense was $13 million and an immaterial amount for the years ended December 31, 2024 and 2023, respectively. Additionally, as of December 31, 2024 and 2023, accumulated depreciation was $14 million and an immaterial amount, respectively.
Item 8. Financial Statements and Supplementary Data
The Company had $2.8 billion and $2.3 billion in outstanding commitments to fund investments in limited partnerships, which includes $2.1 billion and $2.0 billion of unfunded commitments related to VIEs that are non-consolidated as of December 31, 2024 and 2023, respectively.
Variable Interest Entities (VIEs)
In the normal course of its activities, the Company invests in legal entities that are VIEs. The Company's variable interests in VIEs are limited to the debt and equity instruments issued by them. With the exception of commitments to limited partnerships and to certain loan investments made in the normal course of business, the Company has not provided any direct or contingent obligations to fund the limited activities of these VIEs, or support related to the limited activities of these VIEs and does not have any intention to do so in the future, nor has it provided any direct or indirect financial guarantees.
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, and in certain cases, to any unfunded commitments held in the VIE.
For those VIEs other than certain unit trust structures, the Company's involvement is passive in nature.
VIEs - Consolidated
If the Company determines that it is the VIE’s primary beneficiary, it consolidates the VIE. Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company except to the extent of the unfunded commitments referenced above, as the Company’s obligation to each VIE is limited to the amount of its committed investment.
The following table presents carrying value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported as of December 31.
Investments in Consolidated Variable Interest Entities
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturity securities, available-for-sale | $ | 3,428 | $ | 3,712 | |||||||||||||||||||
| Commercial mortgage and other loans | 8,693 | 10,150 | |||||||||||||||||||||
| Other investments (1) | 2,176 | 2,381 | |||||||||||||||||||||
| Other assets (2) | 53 | 55 | |||||||||||||||||||||
| Total assets of consolidated VIEs | $ | 14,350 | $ | 16,298 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other liabilities (2) | $ | 604 | $ | 507 | |||||||||||||||||||
| Total liabilities of consolidated VIEs | $ | 604 | $ | 507 |
(1) Consists entirely of alternative investments in limited partnerships, which represent VIEs where the Company is not the primary beneficiary and, therefore, are not consolidated
(2) Consists entirely of derivatives
The Company is the sole investor in the consolidated VIEs listed in the table above. The Company invests in fixed maturity securities issued by VIEs that in turn hold U.S. dollar-denominated fixed maturity securities coupled with foreign currency swap agreements. The weighted-average lives of the Company's investments in these VIEs are very similar to the underlying collateral held by these VIEs. The activities of these VIEs are limited to holding invested assets and foreign currency swaps and utilizing the cash flows from these securities to service the VIEs' debt. Neither the Company nor any of its creditors are able to obtain the underlying collateral of these VIEs unless there is an event of default or other specified event. The Company is not a direct counterparty to the foreign currency swap contracts and has no control over them. The Company's loss exposure to these VIEs is limited to its original investment. These consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and foreign currency swap contracts, if applicable. The underlying collateral assets and funding of these consolidated VIEs are generally static in nature.
Item 8. Financial Statements and Supplementary Data
Investments in Unit Trust Structures
The Company also utilizes unit trust structures in its Aflac Japan segment to invest in various asset classes, which include CMLs, MMLs, TREs, other loans and limited partnerships. As the sole investor of these VIEs, the Company is required to consolidate these trusts under U.S. GAAP. The limited partnership investments are comprised of private equity and real estate funds. The Company's loss exposure to these VIEs is limited to its original investments, together with any unfunded portion of the Company's commitments made in the normal course of business to fund certain loan investments and limited partnership investments, as described in the Commercial Mortgage and Other Loans and Other Investments sections of this note. Excluding these commitments, the Company does not provide financial or other support to consolidated VIEs.
VIEs - Not Consolidated
The table below reflects the carrying value and balance sheet caption in which the Company's investments in VIEs that are not consolidated are reported as of December 31.
Investments in Variable Interest Entities Not Consolidated
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Fixed maturity securities, available-for-sale | $ | 6,243 | $ | 6,424 | |||||||||||||||||||
| Other investments (1) | 1,124 | 369 | |||||||||||||||||||||
| Total investments in VIEs not consolidated | $ | 7,367 | $ | 6,793 |
(1) Consists entirely of alternative investments in limited partnerships
Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations issued by the VIEs. These fixed maturity securities include structured securities, primarily asset-backed securities. The Company's involvement in the related VIEs is limited to that of a passive investor in asset-backed securities issued by the VIEs. The Company also invests in VIEs that 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 VIE entity or the right to receive benefits from the entity that could be significant to the entity. As such, the Company is not the primary beneficiary of these VIEs and therefore is not required to consolidate them.
The Company also holds equity investments in limited partnerships that have been determined to be VIEs. These partnerships primarily invest in private equity and real estate funds. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment and any unfunded commitments. As described in the Other Investments section of this note, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to unconsolidated VIEs. The Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them. The Company classifies these investments as other investments in the consolidated balance sheets.
Securities Lending and Pledged Securities
The Company lends fixed maturity securities and, from time to time, public equity securities to financial institutions in short-term securities lending transactions. These short-term securities lending arrangements increase investment income with minimal risk. The Company receives cash or other securities as collateral for such loans. The Company's securities 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 in the consolidated financial statements.
Item 8. Financial Statements and Supplementary Data
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 | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (In millions) | Overnight and Continuous**(1)** | Up to 30 days | Total | Overnight and Continuous(1) | Up to 30 days | Total | |||||||||||||||||
| Securities lending transactions: | |||||||||||||||||||||||
| Fixed maturity securities: | |||||||||||||||||||||||
| Japan government and agencies | $ | 0 | $ | 1,027 | $ | 1,027 | $ | 0 | $ | 737 | $ | 737 | |||||||||||
| Public utilities | 34 | 0 | 34 | 19 | 0 | 19 | |||||||||||||||||
| Banks/financial institutions | 193 | 0 | 193 | 72 | 0 | 72 | |||||||||||||||||
| Other corporate | 783 | 0 | 783 | 675 | 0 | 675 | |||||||||||||||||
| Total borrowings | $ | 1,010 | $ | 1,027 | $ | 2,037 | $ | 766 | $ | 737 | $ | 1,503 | |||||||||||
| Gross amount of recognized liabilities for securities lending transactions | $ | 2,037 | $ | 1,503 |
(1) The related loaned security, under the Company's U.S. securities lending program, can be returned to the Company at the transferee's discretion; therefore, they are classified as Overnight and Continuous.
In connection with securities lending, in addition to cash collateral received, the Company received from counterparties securities collateral of $3.0 billion and $4.3 billion at December 31, 2024, and 2023, 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, 2024 and 2023, 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.
At December 31, 2024, debt securities with a fair value of $20 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 include:
-
foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio, with options used on a standalone basis and/or in a collar strategy;
-
foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen;
-
cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures;
-
foreign currency swaps that are associated with 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; and
-
bond purchase commitments at the inception of investments in consolidated VIEs.
Item 8. Financial Statements and Supplementary Data
Some of the Company's derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting or the Company elects not to designate them as accounting hedges.
Derivative Types
Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held. In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged, the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. The Company also uses one-sided foreign currency put options to mitigate the settlement risk on U.S. dollar-denominated assets related to extreme foreign currency rate changes. From time to time, Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options. In the purchased put transactions, Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. In the sold call transactions, Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U.S. dollars at a specified future date. The combination of purchasing the put option and selling the call option results in no net premium being paid (i.e. a costless or zero-cost collar).
From time to time, the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, the Company agrees with another party to buy a fixed amount of U.S. dollars and sell a corresponding amount of yen at a specified price at a specified future date. In the option transactions, the Company may use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options (options that protect against a weakening yen) and selling yen call options (options that limit participation in a strengthening yen). The combination of these two actions create a zero-cost collar. Additionally, the Company enters into purchased options to hedge cash flows from the net investment in Aflac Japan.
The Company enters into foreign currency swaps pursuant to which it exchanges an initial principal amount in one currency for an initial principal amount of another currency, with an agreement to re-exchange the principal amounts at a future date. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in the Company's Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. The Company also uses foreign currency swaps to economically convert certain of its U.S. dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations.
In order to reduce investment income volatility from its variable-rate investments, the Company enters into receive–fixed, pay–floating interest rate swaps. These derivatives are cleared and settled through a central clearinghouse.
Swaptions are used to mitigate the adverse impact resulting from significant changes in the fair value of U.S. dollar-denominated available-for-sale securities due to fluctuation in interest rates. In a payer swaption, the Company pays a premium to obtain the right, but not the obligation, to enter into a swap contract where it will pay a fixed rate and receive a floating rate. Interest rate swaption collars are combinations of two swaption positions. In order to maximize the efficiency of the collars while minimizing cost, a collar strategy is used whereby the Company purchases a long payer swaption (the Company purchases an option that allows it to enter into a swap where the Company will pay the fixed rate and receive the floating rate of the swap) and sells a short receiver swaption (the Company sells an option that provides the counterparty with the right to enter into a swap where the Company will receive the fixed rate and pay the floating rate of the swap). The combination of purchasing the long payer swaption and selling the short receiver swaption results in no net premium being paid (i.e. a costless or zero-cost collar).
Bond purchase commitments result from repackaged bond structures that are consolidated VIEs whereby there is a delay in the trade date and settlement date of the bond within the structure to ensure completion of all necessary legal agreements to support the consolidated VIE that issues the repackaged bond. Since the Company has a commitment to purchase the underlying bond at a specified price, the agreement meets the definition of a derivative where the value is derived based on the current market value of the bond compared to the fixed purchase price to be paid on the settlement date.
Item 8. Financial Statements and Supplementary Data
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.
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 6 | $ | 18 | $ | 0 | $ | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash flow hedges | 18 | 0 | 6 | 18 | 0 | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 0 | 0 | 0 | 2,158 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total fair value hedges | 0 | 0 | 0 | 2,158 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment hedge: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 1,809 | 185 | 0 | 2,611 | 179 | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 0 | 0 | 0 | 456 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net investment hedge | 1,809 | 185 | 0 | 3,067 | 179 | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-qualifying strategies: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | 450 | 2 | 0 | 1,200 | 31 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps - VIE | 3,042 | 53 | 598 | 3,417 | 55 | 503 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 0 | 0 | 0 | 7,402 | 59 | 477 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 24,195 | 0 | 0 | 22,557 | 2 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 17,230 | 0 | 329 | 17,230 | 11 | 419 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total non-qualifying strategies | 44,917 | 55 | 927 | 51,806 | 158 | 1,399 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | 46,744 | $ | 240 | $ | 933 | $ | 57,049 | $ | 337 | $ | 1,430 |
Cash Flow Hedges
For certain variable-rate U.S. dollar-denominated available-for-sale securities held by Aflac Japan via consolidated VIEs, foreign currency swaps are used to swap the U.S. Dollar (USD) variable rate interest and principal payments to fixed rate Japanese Yen (JPY) interest and principal payments. The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). The remaining maximum length of time for which these cash flows are hedged is approximately two 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.
Item 8. Financial Statements and Supplementary Data
Interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated available-for-sale securities held in Aflac Japan. For these hedging relationships, the Company excludes time value from the assessment of hedge effectiveness and recognizes changes in the intrinsic value of the swaptions in current earnings within net investment income. The change in the time value of the swaptions is recognized in other comprehensive income (loss) and amortized into earnings (net investment income) over its legal term.
The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges for the years ended December 31. The Company had no fair value hedges during the year ended December 31, 2024.
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 | |||||||||||||||||||||||||||||
| 2023: | |||||||||||||||||||||||||||||||||||
| Foreign currency options | Fixed maturity securities | $ | (65) | $ | (65) | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| Total gains (losses) | $ | (65) | $ | (65) | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||||||
| 2022: | |||||||||||||||||||||||||||||||||||
| Foreign currency options | Fixed maturity securities | (18) | (18) | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Total gains (losses) | $ | (18) | $ | (18) | $ | 0 | $ | 0 | $ | 0 |
(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 statements of earnings as net investment gains (losses). It also includes the change in the fair value of the interest rate swaptions related to the time value of the swaptions which is recognized as a component of other comprehensive income (loss).
(2) Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statements 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 (losses) consistent with the impact of the hedged item. For the years ended December 31, 2023 and 2022, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.
The following table shows the carrying amounts of assets designated and qualifying as hedged items in fair value hedges of interest rate risk and the related cumulative hedge adjustment included in the carrying amount. The Company had no fair value hedges of interest rate risk as of December 31, 2024 and 2023; therefore, the amounts presented in the table below are related to previous fair value hedges of interest rate risk that were discontinued.
| (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) | |||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| Fixed maturity securities | $ | 1,294 | $ | 1,692 | $ | 137 | $ | 164 |
(1) The balance includes hedging adjustment on discontinued hedging relationships of $137 in 2024 and $164 in 2023.
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 and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company's net investment in Aflac Japan.
The Company's net investment hedge was effective during the years ended December 31, 2024, 2023 and 2022.
Item 8. Financial Statements and Supplementary Data
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 in 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 in current period earnings, the change in value of the available-for-sale fixed maturity securities associated with these swaps is recorded in other comprehensive income.
As of December 31, 2024, the Parent Company had $450 million 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 in current period earnings.
The Company uses foreign currency forwards and options to economically mitigate the currency risk of some of its U.S. dollar-denominated loan receivables and U.S. government fixed maturity securities held in the Aflac Japan segment. These arrangements are not designated as accounting hedges, as the foreign currency remeasurement of the loan receivables impacts current period earnings, and substantially offsets gains and losses from foreign currency forwards within net investment gains (losses). The Company also has certain foreign currency forwards on U.S. dollar-denominated available-for-sale securities where hedge accounting is not being applied.
The Company uses interest rate swaps to economically convert the variable rate investment income to a fixed rate on certain variable-rate investments.
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.
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Net Investment Income | Net Investment Gains (Losses) | Other Comprehensive Income (Loss) | Net Investment Income | Net Investment Gains (Losses) | Other Comprehensive Income (Loss) | Net Investment Income | Net Investment Gains (Losses) | Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Qualifying hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps - VIE | $ | (1) | $ | (4) | $ | 2 | $ | (1) | $ | (4) | $ | 5 | $ | (1) | $ | (4) | $ | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash flow hedges | (1) | (4) | (1) | 2 | (1) | (4) | (1) | 5 | (1) | (4) | (1) | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 0 | (65) | (18) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaptions (2) | (1) | 0 | 1 | (1) | 0 | 1 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total fair value hedges | (1) | 0 | 1 | (1) | (65) | 1 | 0 | (18) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net investment hedge: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-derivative hedging instruments | 0 | 426 | 0 | 257 | 0 | 371 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 138 | 258 | 234 | 313 | (80) | 673 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 0 | 0 | (5) | 0 | (1) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net investment hedge | 138 | 684 | 229 | 570 | (81) | 1,044 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-qualifying strategies: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | 2 | 4 | 159 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps - VIE | (215) | (201) | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 17 | (349) | (650) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | (107) | (53) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | (194) | (88) | (546) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaptions | 0 | 0 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forward bond purchase commitment - VIE | 0 | (4) | (21) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total non-qualifying strategies | (497) | (691) | (1,048) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (2) | $ | (363) | $ | 687 | $ | (2) | $ | (531) | $ | 576 | $ | (1) | $ | (1,151) | $ | 1,048 |
(1) Impact of cash flow hedges reported as net investment gains (losses) includes $4 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the year ended December 31, 2024, compared with $4 of losses during the years ended December 31, 2023 and 2022, respectively.
(2) Includes $1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the year ended December 31, 2024, compared with $1 of losses during the years ended December 31, 2023 and 2022, respectively, related to fair value hedges excluded component. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).
Item 8. Financial Statements and Supplementary Data
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 hedged 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. Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains (losses). Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statements of comprehensive income (loss).
As of December 31, 2024, $4 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.
Credit Risk Assumed through Derivatives
For the foreign currency swaps associated with the Company's VIE investments for which it is the primary beneficiary, the Company bears the risk of loss due to counterparty default even though it is not a direct counterparty to those contracts.
The Company is a direct counterparty to the foreign currency swaps that it has entered into in connection with certain of its senior notes and subordinated debentures; foreign currency forwards; and foreign currency options, and therefore the Company is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for the Company's foreign currency swaps, certain foreign currency forwards, and foreign currency options is mitigated by collateral posting requirements that counterparties to those transactions must meet.
As of December 31, 2024, all of the Company's derivative agreement counterparties were investment grade.
The Company engages in over-the-counter (OTC) bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annexes (CSAs) provisions, which generally provide for two-way collateral postings at the first dollar of exposure. The Company mitigates the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction. In addition, a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of the Company's financial strength rating. The actual amount of payments that the Company could be required to make depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade.
The Company also engages in OTC cleared derivative transactions through regulated central clearing counterparties. These positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to these derivatives.
Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $804 million and $1.2 billion as of December 31, 2024 and 2023, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2024, the Company estimates that it would be required to post a maximum of $475 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.
Item 8. Financial Statements and Supplementary Data
The Company has securities lending agreements with unaffiliated financial institutions that post collateral to the Company in return for the use of its fixed maturity and public equity securities (see Note 3). When the Company has entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off allows the Company to keep and apply collateral received if the counterparty failed to return the securities borrowed from the Company as contractually agreed.
The tables below summarize the Company's derivatives and securities lending transactions 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.
Offsetting of Financial Assets and Derivative Assets
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 187 | $ | 0 | $ | 187 | $ | 0 | $ | (45) | $ | (135) | $ | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets subject to a master netting agreement or offsetting arrangement | 187 | 0 | 187 | 0 | (45) | (135) | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets not subject to a master netting agreement or offsetting arrangement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - bilateral | 53 | 53 | 53 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets not subject to a master netting agreement or offsetting arrangement | 53 | 53 | 53 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets | 240 | 0 | 240 | 0 | (45) | (135) | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities lending and similar arrangements | 2,001 | 0 | 2,001 | 0 | 0 | (2,001) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,241 | $ | 0 | $ | 2,241 | $ | 0 | $ | (45) | $ | (2,136) | $ | 60 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 271 | $ | 0 | $ | 271 | $ | (85) | $ | (53) | $ | (130) | $ | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - cleared | 11 | 0 | 11 | (11) | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets subject to a master netting agreement or offsetting arrangement | 282 | 0 | 282 | (96) | (53) | (130) | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets not subject to a master netting agreement or offsetting arrangement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - bilateral | 55 | 55 | 55 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets not subject to a master netting agreement or offsetting arrangement | 55 | 55 | 55 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative assets | 337 | 0 | 337 | (96) | (53) | (130) | 58 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities lending and similar arrangements | 1,480 | 0 | 1,480 | 0 | 0 | (1,480) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,817 | $ | 0 | $ | 1,817 | $ | (96) | $ | (53) | $ | (1,610) | $ | 58 |
Item 8. Financial Statements and Supplementary Data
Offsetting of Financial Liabilities and Derivative Liabilities
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 - cleared | $ | 329 | $ | 0 | $ | 329 | $ | 0 | $ | 0 | $ | (329) | $ | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities subject to a master netting agreement or offsetting arrangement | 329 | 0 | 329 | 0 | 0 | (329) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities not subject to a master netting agreement or offsetting arrangement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - bilateral | 604 | 604 | 604 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities not subject to a master netting agreement or offsetting arrangement | 604 | 604 | 604 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities | 933 | 0 | 933 | 0 | 0 | (329) | 604 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities lending and similar arrangements | 2,037 | 0 | 2,037 | (2,001) | 0 | 0 | 36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,970 | $ | 0 | $ | 2,970 | $ | (2,001) | $ | 0 | $ | (329) | $ | 640 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 504 | $ | 0 | $ | 504 | $ | (85) | $ | (381) | $ | (37) | $ | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - cleared | 419 | 0 | 419 | (11) | (19) | (389) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities subject to a master netting agreement or offsetting arrangement | 923 | 0 | 923 | (96) | (400) | (426) | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities not subject to a master netting agreement or offsetting arrangement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OTC - bilateral | 507 | 507 | 507 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities not subject to a master netting agreement or offsetting arrangement | 507 | 507 | 507 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivative liabilities | 1,430 | 0 | 1,430 | (96) | (400) | (426) | 508 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities lending and similar arrangements | 1,503 | 0 | 1,503 | (1,480) | 0 | 0 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2,933 | $ | 0 | $ | 2,933 | $ | (1,576) | $ | (400) | $ | (426) | $ | 531 |
For additional information on the Company's financial instruments, see 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, as follows:
-
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.
Item 8. Financial Statements and Supplementary Data
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.
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 17,088 | $ | 758 | $ | 0 | $ | 17,846 | |||||||||||||||||||||||||||||||||||||||
| Municipalities | 0 | 2,034 | 0 | 2,034 | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset-backed securities | 0 | 2,407 | 1,156 | 3,563 | |||||||||||||||||||||||||||||||||||||||||||
| Public utilities | 0 | 6,398 | 647 | 7,045 | |||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 0 | 393 | 23 | 416 | |||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions | 0 | 8,946 | 10 | 8,956 | |||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 0 | 25,178 | 231 | 25,409 | |||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturity securities | 17,088 | 46,114 | 2,067 | 65,269 | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 639 | 0 | 157 | 796 | |||||||||||||||||||||||||||||||||||||||||||
| Other investments | 1,599 | 0 | 0 | 1,599 | |||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 6,229 | 0 | 0 | 6,229 | |||||||||||||||||||||||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | 0 | 55 | 0 | 55 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 0 | 185 | 0 | 185 | |||||||||||||||||||||||||||||||||||||||||||
| Total other assets | 0 | 240 | 0 | 240 | |||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 25,555 | $ | 46,354 | $ | 2,224 | $ | 74,133 | |||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | $ | 0 | $ | 604 | $ | 0 | $ | 604 | |||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 0 | 329 | 0 | 329 | |||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 0 | $ | 933 | $ | 0 | $ | 933 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 21,700 | $ | 900 | $ | 0 | $ | 22,600 | |||||||||||||||||||||||||||||||||||||||
| Municipalities | 0 | 2,298 | 0 | 2,298 | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset-backed securities | 0 | 2,314 | 772 | 3,086 | |||||||||||||||||||||||||||||||||||||||||||
| Public utilities | 0 | 7,339 | 253 | 7,592 | |||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 0 | 507 | 30 | 537 | |||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions | 0 | 8,757 | 78 | 8,835 | |||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 0 | 27,694 | 648 | 28,342 | |||||||||||||||||||||||||||||||||||||||||||
| Total fixed maturity securities | 21,700 | 49,809 | 1,781 | 73,290 | |||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 840 | 0 | 248 | 1,088 | |||||||||||||||||||||||||||||||||||||||||||
| Other investments | 1,304 | 0 | 0 | 1,304 | |||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 4,306 | 0 | 0 | 4,306 | |||||||||||||||||||||||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | 0 | 86 | 0 | 86 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 0 | 238 | 0 | 238 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency options | 0 | 2 | 0 | 2 | |||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 0 | 11 | 0 | 11 | |||||||||||||||||||||||||||||||||||||||||||
| Total other assets | 0 | 337 | 0 | 337 | |||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 28,150 | $ | 50,146 | $ | 2,029 | $ | 80,325 | |||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency swaps | $ | 0 | $ | 507 | $ | 0 | $ | 507 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency forwards | 0 | 504 | 0 | 504 | |||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | 0 | 419 | 0 | 419 | |||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 0 | $ | 1,430 | $ | 0 | $ | 1,430 |
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.
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 15,309 | $ | 15,916 | $ | 143 | $ | 0 | $ | 16,059 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities | 235 | 0 | 257 | 0 | 257 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities | 32 | 0 | 33 | 0 | 33 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 374 | 0 | 405 | 0 | 405 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 16 | 0 | 18 | 0 | 18 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage and other loans | 10,869 | 0 | 0 | 10,653 | 10,653 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments (1) | 39 | 0 | 39 | 0 | 39 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 26,874 | $ | 15,916 | $ | 895 | $ | 10,653 | $ | 27,464 | ||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other policyholders’ funds | $ | 5,460 | $ | 0 | $ | 0 | $ | 5,389 | $ | 5,389 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes payable (excluding leases) | 7,402 | 0 | 6,352 | 675 | 7,027 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 12,862 | $ | 0 | $ | 6,352 | $ | 6,064 | $ | 12,416 |
(1) Excludes policy loans of $203, equity method investments of $3,435, and REO of $682, at carrying value.
Item 8. Financial Statements and Supplementary Data
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 17,083 | $ | 18,662 | $ | 167 | $ | 0 | $ | 18,829 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities | 266 | 0 | 307 | 0 | 307 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities | 34 | 0 | 38 | 0 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 418 | 0 | 462 | 0 | 462 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 18 | 0 | 21 | 0 | 21 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage and other loans | 12,527 | 0 | 0 | 12,217 | 12,217 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments (1) | 35 | 0 | 35 | 0 | 35 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 30,381 | $ | 18,662 | $ | 1,030 | $ | 12,217 | $ | 31,909 | ||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other policyholders’ funds | $ | 6,169 | $ | 0 | $ | 0 | $ | 6,080 | $ | 6,080 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes payable (excluding leases) | 7,240 | 0 | 6,178 | 752 | 6,930 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 13,409 | $ | 0 | $ | 6,178 | $ | 6,832 | $ | 13,010 |
(1) Excludes policy loans of $214, equity method investments of $2,750, and REO of $227, at carrying value.
Fair Value of Financial Instruments
Fixed maturity and equity securities
The fair values of the Company's public fixed maturity securities are generally based on prices provided by third-party pricing vendors. The Company utilizes internally generated valuations or broker quotes for privately issued fixed maturity securities or fixed maturity securities where there is no price available from a third-party pricing vendor.
The fair values of the Company's public equity securities are generally based on price quotes, including quoted market prices readily available from independent public exchange markets or established security dealer associations. The Company determines the fair values of privately issued equity securities using the following approaches or techniques: price quotes and valuations from third-party pricing vendors, in-house valuations and non-binding price quotes the Company obtains from outside brokers.
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 provider. Additionally, the Company may compare the inputs to relevant market indices and other performance measurements. Based on management's analysis, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data. The Company has performed verification of the inputs and calculations in any valuation models, including independent validations and back testing, 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.
For internally generated valuations, the Company utilizes valuation models developed by a third-party pricing vendor. The models and associated processes and controls are executed by Company personnel.
Item 8. Financial Statements and Supplementary Data
These models are discounted cash flow (DCF) valuation models but also use information from related markets, specifically public bond markets and the credit default swap (CDS) market, to estimate expected cash flows. The 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 using the most appropriate comparable security(ies) of the issuer and issuer-specific CDS spreads. 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 market information for the specific issuer, the valuation methodology takes into consideration other market observable inputs, including:
-
the most appropriate comparable security(ies) of a guarantor and/or parent
-
CDS spreads of a guarantor and/or parent
-
bonds of comparable issuers with similar characteristics such as rating, geography, or sector
-
CDS spreads of an appropriate index or of comparable issuers with similar characteristics such as rating, geography, or sector
-
bond indices that are comparative in rating, industry, maturity, and region.
Item 8. Financial Statements and Supplementary Data
The following tables present the pricing sources for the fair values of the Company's fixed maturity and equity securities as of December 31.
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 17,088 | $ | 446 | $ | 0 | $ | 17,534 | ||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 312 | 0 | 312 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total government and agencies | 17,088 | 758 | 0 | 17,846 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 1,791 | 0 | 1,791 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 243 | 0 | 243 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total municipalities | 0 | 2,034 | 0 | 2,034 | ||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 2,352 | 0 | 2,352 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 55 | 37 | 92 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 1,119 | 1,119 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total mortgage- and asset-backed securities | 0 | 2,407 | 1,156 | 3,563 | ||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 3,628 | 0 | 3,628 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 2,770 | 0 | 2,770 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 647 | 647 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total public utilities | 0 | 6,398 | 647 | 7,045 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 78 | 0 | 78 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 315 | 0 | 315 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 23 | 23 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sovereign and supranational | 0 | 393 | 23 | 416 | ||||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 4,975 | 0 | 4,975 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 3,971 | 5 | 3,976 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total banks/financial institutions | 0 | 8,946 | 10 | 8,956 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 20,051 | 0 | 20,051 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 5,127 | 116 | 5,243 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 115 | 115 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total other corporate | 0 | 25,178 | 231 | 25,409 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 17,088 | $ | 46,114 | $ | 2,067 | $ | 65,269 | ||||||||||||||||||||||||||||||||||||||||||
| Equity securities, carried at fair value: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | $ | 639 | $ | 0 | $ | 0 | $ | 639 | ||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 0 | 26 | 26 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 0 | 131 | 131 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total equity securities | $ | 639 | $ | 0 | $ | 157 | $ | 796 |
Item 8. Financial Statements and Supplementary Data
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 15,916 | $ | 143 | $ | 0 | $ | 16,059 | ||||||||||||||||||||||||||||||||||||||||||
| Total government and agencies | 15,916 | 143 | 0 | 16,059 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 257 | 0 | 257 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total municipalities | 0 | 257 | 0 | 257 | ||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 33 | 0 | 33 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total public utilities | 0 | 33 | 0 | 33 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 198 | 0 | 198 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 207 | 0 | 207 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sovereign and supranational | 0 | 405 | 0 | 405 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 18 | 0 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total other corporate | 0 | 18 | 0 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 15,916 | $ | 856 | $ | 0 | $ | 16,772 |
Item 8. Financial Statements and Supplementary Data
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 21,692 | $ | 808 | $ | 0 | $ | 22,500 | ||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 60 | 0 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 8 | 32 | 0 | 40 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total government and agencies | 21,700 | 900 | 0 | 22,600 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 1,426 | 0 | 1,426 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 256 | 0 | 256 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 616 | 0 | 616 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total municipalities | 0 | 2,298 | 0 | 2,298 | ||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage- and asset-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 2,277 | 0 | 2,277 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 27 | 105 | 132 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 10 | 667 | 677 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total mortgage- and asset-backed securities | 0 | 2,314 | 772 | 3,086 | ||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 4,570 | 0 | 4,570 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 2,677 | 0 | 2,677 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 92 | 253 | 345 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total public utilities | 0 | 7,339 | 253 | 7,592 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 118 | 0 | 118 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 330 | 0 | 330 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 59 | 30 | 89 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sovereign and supranational | 0 | 507 | 30 | 537 | ||||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 5,085 | 0 | 5,085 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 3,008 | 69 | 3,077 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 664 | 9 | 673 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total banks/financial institutions | 0 | 8,757 | 78 | 8,835 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 18,088 | 4 | 18,092 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 4,210 | 230 | 4,440 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 0 | 5,396 | 414 | 5,810 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total other corporate | 0 | 27,694 | 648 | 28,342 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 21,700 | $ | 49,809 | $ | 1,781 | $ | 73,290 | ||||||||||||||||||||||||||||||||||||||||||
| Equity securities, carried at fair value: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | $ | 800 | $ | 0 | $ | 0 | $ | 800 | ||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 0 | 216 | 216 | ||||||||||||||||||||||||||||||||||||||||||||||
| Broker/other | 40 | 0 | 32 | 72 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total equity securities | $ | 840 | $ | 0 | $ | 248 | $ | 1,088 |
Item 8. Financial Statements and Supplementary Data
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 18,662 | $ | 167 | $ | 0 | $ | 18,829 | ||||||||||||||||||||||||||||||||||||||||||
| Total government and agencies | 18,662 | 167 | 0 | 18,829 | ||||||||||||||||||||||||||||||||||||||||||||||
| Municipalities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 307 | 0 | 307 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total municipalities | 0 | 307 | 0 | 307 | ||||||||||||||||||||||||||||||||||||||||||||||
| Public utilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 38 | 0 | 38 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total public utilities | 0 | 38 | 0 | 38 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 226 | 0 | 226 | ||||||||||||||||||||||||||||||||||||||||||||||
| Internal | 0 | 236 | 0 | 236 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sovereign and supranational | 0 | 462 | 0 | 462 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other corporate: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Third-party pricing vendor | 0 | 21 | 0 | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total other corporate | 0 | 21 | 0 | 21 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 18,662 | $ | 995 | $ | 0 | $ | 19,657 |
The following is a discussion of the determination of fair value of the Company's remaining financial instruments.
Derivatives
The Company uses derivative instruments to manage the risk associated with certain assets. However, the derivative instrument may not be classified in the same fair value hierarchy level as the associated asset. The significant inputs to pricing derivatives are generally observable in the market or can be derived by observable market data. When these inputs are observable, the derivatives are classified as Level 2.
The Company uses present value techniques to value non-option based derivatives. It also uses option pricing models to value option based derivatives. Key inputs are as follows:
| Instrument Type | Level 2 | ||||||||||
| Interest rate derivatives | Swap yield curves Basis curves Interest rate volatility (1) | ||||||||||
| Foreign currency exchange rate derivatives - Non-VIEs (forwards, swaps and options) | Foreign currency forward rates Swap yield curves Basis curves Foreign currency spot rates Foreign cross-currency basis curves Foreign currency volatility (1) | ||||||||||
| Foreign currency exchange rate derivatives - VIEs (swaps) | Foreign currency spot rates Swap yield curves Credit default swap curves Basis curves Recovery rates Foreign currency forward rates Foreign cross-currency basis curves |
(1) Option-based only
Item 8. Financial Statements and Supplementary Data
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 derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. Nevertheless, the Company has full transparency into the contracts to properly value the swaps for reporting purposes. For these derivatives, the Company utilizes valuation models developed by independent valuation analytics providers. The models are market standard DCF models and all associated processes and controls are executed by Company personnel. These models take into consideration any unique characteristics of the derivatives in determining the appropriate valuation methodology to estimate expected cash flows. The fair values of these swaps are based on observable market inputs and are classified as Level 2 within 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 within the fair value hierarchy.
Commercial mortgage and other loans
Commercial mortgage and other loans include TREs, CMLs, MMLs and other 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 floating-rate benchmark yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments are classified as Level 3 within the fair value hierarchy.
Other investments
Other investments includes short-term investments that are measured at fair value where amortized cost approximates fair value.
Other policyholders' funds
The largest component of the other policyholders' funds liability is the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. For this product, the Company estimates the fair value to be equal to the cash surrender value. This is analogous to the value paid to policyholders on the valuation date if they were to surrender their policy. The Company periodically checks the cash value against discounted cash flow projections for reasonableness. The Company considers its inputs for this valuation to be unobservable and have accordingly classified this valuation as Level 3.
Notes payable
The fair values of the Company's publicly issued notes payable are determined by utilizing available sources of observable inputs from third-party pricing vendors and are classified as Level 2. The Company's private placement notes payable are valued using the same internal models that the Company uses for its yen-denominated and U.S. dollar-denominated private placement investment portfolio. The fair values for these private placements are deemed Level 2 valuations, as they are model-derived valuations that are generated internally with all significant valuation inputs being observed in active markets. The fair values of the Company's yen-denominated loans approximate their carrying values and are classified as Level 3.
Item 8. Financial Statements and Supplementary Data
Transfers between Hierarchy Levels and Level 3 Rollforward
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.
The following tables present the changes in fair value of the Company's investments carried at fair value classified as Level 3 as of December 31.
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed Maturity Securities | Equity Securities | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Mortgage- and Asset- Backed Securities | Public Utilities | Sovereign and Supranational | Banks/ Financial Institutions | Other Corporate | Total | ||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 772 | $ | 253 | $ | 30 | $ | 78 | $ | 648 | $ | 248 | $ | 2,029 | ||||||||||||||||||||||||||||||
| Net investment gains (losses) included in earnings | 3 | 1 | 0 | 0 | 0 | (9) | (5) | |||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) included in other comprehensive income (loss) | 2 | (19) | (3) | (9) | (1) | 0 | (30) | |||||||||||||||||||||||||||||||||||||
| Purchases, issuances, sales and settlements: | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases | 377 | 179 | 0 | 9 | 193 | 3 | 761 | |||||||||||||||||||||||||||||||||||||
| Issuances | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
| Sales | 0 | 0 | 0 | 0 | 0 | (1) | (1) | |||||||||||||||||||||||||||||||||||||
| Settlements | (93) | (33) | (4) | (9) | (4) | (84) | (227) | |||||||||||||||||||||||||||||||||||||
| Transfers into Level 3 | 205 | 499 | 0 | 0 | 5 | 0 | 709 | |||||||||||||||||||||||||||||||||||||
| Transfers out of Level 3 | (110) | (233) | 0 | (59) | (610) | 0 | (1,012) | |||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | 1,156 | $ | 647 | $ | 23 | $ | 10 | $ | 231 | $ | 157 | $ | 2,224 | ||||||||||||||||||||||||||||||
| Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings | $ | 2 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | (10) | $ | (8) |
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed Maturity Securities | Equity Securities | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Mortgage- and Asset- Backed Securities | Public Utilities | Sovereign and Supranational | Banks/ Financial Institutions | Other Corporate | Total | ||||||||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 343 | $ | 497 | $ | 37 | $ | 159 | $ | 742 | $ | 209 | $ | 1,987 | ||||||||||||||||||||||||||||||
| Net investment gains (losses) included in earnings | 0 | 0 | 0 | 0 | 0 | 35 | 35 | |||||||||||||||||||||||||||||||||||||
| Unrealized gains (losses) included in other comprehensive income (loss) | 1 | (2) | (3) | 10 | 17 | 0 | 23 | |||||||||||||||||||||||||||||||||||||
| Purchases, issuances, sales and settlements: | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases | 430 | 46 | 0 | 0 | 183 | 10 | 669 | |||||||||||||||||||||||||||||||||||||
| Issuances | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
| Sales | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
| Settlements | (154) | (17) | (4) | (7) | (4) | 0 | (186) | |||||||||||||||||||||||||||||||||||||
| Transfers into Level 3 | 155 | 18 | 0 | 3 | 39 | 0 | 215 | |||||||||||||||||||||||||||||||||||||
| Transfers out of Level 3 | (3) | (289) | 0 | (87) | (329) | (6) | (714) | |||||||||||||||||||||||||||||||||||||
| Balance, end of period | $ | 772 | $ | 253 | $ | 30 | $ | 78 | $ | 648 | $ | 248 | $ | 2,029 | ||||||||||||||||||||||||||||||
| 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 | $ | 40 | $ | 40 |
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 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.
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 1,156 | Consensus pricing | Offered quotes | 84.08 | - | 104.60 | (a) | 99.07 | |||||||||||||||||||||||||||||||||||||||||
| Public utilities | 647 | Discounted cash flow | Credit spreads | 100 bps | - | 375 bps | (c) | 162 bps | ||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 23 | Consensus pricing | Offered quotes | N/A | (b) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions | 10 | Adjusted cost | Private financials | N/A | (d) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 231 | Discounted cash flow | Credit spreads | 91 bps | - | 294 bps | (c) | 173 bps | ||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 157 | Adjusted cost | Private financials | N/A | (d) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,224 |
(a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques.
(b) Category represents a single security; range not applicable.
(c) Actual or equivalent credit spreads in basis points.
(d) Prices do not utilize credit spreads; therefore, range is not applicable.
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 772 | Consensus pricing | Offered quotes | 84.81 | - | 105.89 | (a) | 99.39 | |||||||||||||||||||||||||||||||||||||||||
| Public utilities | 253 | Consensus pricing | Offered quotes | 94.34 | - | 102.99 | (a) | 96.46 | ||||||||||||||||||||||||||||||||||||||||||
| Sovereign and supranational | 30 | Consensus pricing | Offered quotes | N/A | (b) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Banks/financial institutions | 78 | Discounted cash flow | Credit spreads | N/A | (b) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Other corporate | 648 | Discounted cash flow | Credit spreads | 69 bps | - | 423 bps | (c) | 206 bps | ||||||||||||||||||||||||||||||||||||||||||
| Equity securities | 248 | Adjusted cost | Private financials | N/A | (d) | N/A | ||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,029 |
(a) Represents prices for securities where the Company receives unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques.
(b) Category represents a single security; range not applicable.
(c) Actual or equivalent credit spreads in basis points.
(d) Prices do not utilize credit spreads; therefore, range is not applicable.
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 classified as Level 3.
Credit Spreads
The Company holds certain assets that are of a unique, specialized, and/or securitized nature that do not trade on a regular basis in an active market, which makes their fair values difficult to estimate. Most of these assets are managed by external asset managers and the Company utilizes these managers for their expertise when evaluating various inputs used to determine the fair values for these assets, including identifying the appropriate credit or risk spread over risk-free interest rates that incorporates the unique nature or structure of the asset in the valuations. For those assets of a similar nature but not managed by external asset managers, the Company internally estimates the spreads and risk adjustments over risk-free interest rates that reflect the unique nature or structure of the asset as well as the current pricing environment and market conditions for comparable or related investments. Credit or risk spreads are an important input needed to complete the discounted cash flow analyses used to estimate an investment’s fair value. Credit or risk spreads underlying these fair values are a significant, unobservable input whose derivation is based on the Company’s evaluation of a combination of the external manager’s expertise and knowledge, the current pricing environment, and market conditions for the specific asset.
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 certain of 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.
Private Financials
The Company invests in the debt and equity securities of private companies operating in the cancer, healthtech, insurtech, finance, internet of things, big data and analytics sectors. Due to their private and often small, startup nature, these companies rely on capital provided by institutional and private equity investors for their ongoing operations. They do not have public securities that trade on a regular basis in an active market, which makes their fair values difficult to estimate. The Company values these investments on a cost basis with appropriate adjustments made based on monitoring private financial information provided by these companies. Adjustments to valuations are generally made as new funding tranches are executed or if the financial information provided significantly changes indicating the need for impairment. This private financial information is unobservable and is a significant determinant in the fair value of these corporate venture investments.
For additional information on the Company's investments and financial instruments, see Notes 1, 3 and 4.
Item 8. Financial Statements and Supplementary Data
6. DEFERRED POLICY ACQUISITION COSTS
The following tables present a rollforward of deferred policy acquisition costs by reporting segment and disaggregated by product type for the years ended December 31.
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | Total | ||||||||||||||||||||||||||||||||
| Deferred policy acquisition costs: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of year | $ | 2,971 | $ | 2,041 | $ | 491 | $ | 56 | $ | 917 | $ | 625 | $ | 1,336 | $ | 436 | $ | 86 | $ | 172 | $ | 1 | $ | 9,132 | ||||||||||||||||||||
| Capitalization | 300 | 103 | 36 | 4 | 141 | 129 | 165 | 89 | 12 | 77 | 0 | 1,056 | ||||||||||||||||||||||||||||||||
| Amortization expense | (184) | (100) | (34) | (3) | (143) | (118) | (153) | (73) | (12) | (30) | (1) | (851) | ||||||||||||||||||||||||||||||||
| Foreign currency translation and other | (311) | (211) | (52) | (5) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (579) | ||||||||||||||||||||||||||||||||
| Balance, end of year | $ | 2,776 | $ | 1,833 | $ | 441 | $ | 52 | $ | 915 | $ | 636 | $ | 1,348 | $ | 452 | $ | 86 | $ | 219 | $ | 0 | $ | 8,758 |
| 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | Total | ||||||||||||||||||||||||||||||||
| Deferred policy acquisition costs: | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of year | $ | 3,035 | $ | 2,161 | $ | 525 | $ | 55 | $ | 904 | $ | 613 | $ | 1,304 | $ | 418 | $ | 88 | $ | 135 | $ | 1 | $ | 9,239 | ||||||||||||||||||||
| Capitalization | 317 | 123 | 33 | 8 | 151 | 125 | 173 | 84 | 10 | 61 | 1 | 1,086 | ||||||||||||||||||||||||||||||||
| Amortization expense | (184) | (105) | (34) | (3) | (138) | (113) | (141) | (66) | (12) | (24) | 4 | (816) | ||||||||||||||||||||||||||||||||
| Foreign currency translation and other | (197) | (138) | (33) | (4) | 0 | 0 | 0 | 0 | 0 | 0 | (5) | (377) | ||||||||||||||||||||||||||||||||
| Balance, end of year | $ | 2,971 | $ | 2,041 | $ | 491 | $ | 56 | $ | 917 | $ | 625 | $ | 1,336 | $ | 436 | $ | 86 | $ | 172 | $ | 1 | $ | 9,132 |
Commissions deferred as a percentage of total acquisition costs deferred were 69% in 2024, compared with 67% in 2023 and 68% in 2022.
The Company uses the following constant level bases to amortize deferred policy acquisition costs:
| Policy Type | Constant-level Basis | |||||||
| Life Products (U.S.) | Face Amount | |||||||
| Health Products (U.S.) | Number of Policies in Force | |||||||
| Health & Life Products (Japan) | Units in Force |
Item 8. Financial Statements and Supplementary Data
Face amount is the stated dollar amount that the policy’s beneficiaries receive upon the death of the insured. For life and health products issued in Japan, the constant-level basis used is units in force, which is a proxy for face amount and insurance in force, respectively. Future DAC amortization is impacted by persistency.
There were no changes to the inputs, judgments or methods used to determine amortization amounts during 2024 and 2023. The Company updated the assumptions used to determine amortization using the same assumptions as those used for measuring the liability for future policy benefits during 2024 and 2023. The Company recognizes the effects of changes in assumptions prospectively over the remaining contract term as a revision of the future amortization pattern. See Note 1 for additional information on deferred policy acquisition costs.
7**.** POLICY LIABILITIES
Future Policy Benefits
The liability for future policy benefits is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company's insurance contracts. Future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR.
The following tables present the changes in the present value of expected future net premiums and the present value of expected future policy benefits by reporting segment and disaggregated by product type for the years ended December 31. The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of internal and external ceded reinsurance.
Item 8. Financial Statements and Supplementary Data
| 2024 | ||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||
| (In millions) | Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | |||||||||||||||||||||||||||
| Present value of expected future net premiums: | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 17,509 | $ | 14,697 | $ | 6,488 | $ | 1,088 | $ | 2,488 | $ | 1,652 | $ | 4,074 | $ | 1,107 | $ | 206 | $ | 853 | $ | 277 | ||||||||||||||||
| Beginning balance at original discount rate | 16,452 | 14,040 | 6,258 | 1,069 | 2,630 | 1,738 | 4,416 | 1,193 | 217 | 909 | 272 | |||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | (625) | (154) | (190) | (19) | 65 | (47) | (106) | (21) | (17) | (5) | (8) | |||||||||||||||||||||||||||
| Effect of actual variances from expected experience | (71) | (164) | (97) | (14) | 66 | 12 | (100) | 21 | (12) | (29) | 13 | |||||||||||||||||||||||||||
| Adjusted beginning of period balance | 15,756 | 13,722 | 5,971 | 1,036 | 2,761 | 1,703 | 4,210 | 1,193 | 188 | 875 | 277 | |||||||||||||||||||||||||||
| Issuances | 983 | 361 | 478 | 16 | 307 | 364 | 543 | 231 | 52 | 226 | 592 | |||||||||||||||||||||||||||
| Interest accrual | 378 | 302 | 110 | 17 | 106 | 66 | 173 | 46 | 9 | 37 | 25 | |||||||||||||||||||||||||||
| Net premiums collected (1) | (1,453) | (1,135) | (862) | (101) | (479) | (401) | (578) | (244) | (39) | (157) | (53) | |||||||||||||||||||||||||||
| Foreign currency translation | (1,655) | (1,405) | (613) | (104) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Other | (1) | 0 | 0 | 0 | (8) | (6) | (8) | (5) | (1) | (5) | (17) | |||||||||||||||||||||||||||
| Ending balance at original discount rate | 14,008 | 11,845 | 5,084 | 864 | 2,687 | 1,726 | 4,340 | 1,221 | 209 | 976 | 824 | |||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions | 176 | (28) | 72 | (18) | (190) | (91) | (439) | (99) | (13) | (67) | 2 | |||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | 14,184 | $ | 11,817 | $ | 5,156 | $ | 846 | $ | 2,497 | $ | 1,635 | $ | 3,901 | $ | 1,122 | $ | 196 | $ | 909 | $ | 826 | ||||||||||||||||
| Present value of expected future policy benefits: | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 50,161 | $ | 25,257 | $ | 29,731 | $ | 5,178 | $ | 3,109 | $ | 2,422 | $ | 11,290 | $ | 1,943 | $ | 478 | $ | 1,764 | $ | 798 | ||||||||||||||||
| Beginning balance at original discount rate | 43,626 | 25,023 | 30,256 | 5,444 | 3,302 | 2,541 | 12,120 | 2,076 | 506 | 1,971 | 769 | |||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | (815) | (228) | (302) | (7) | 109 | (73) | (112) | (31) | (28) | (3) | (12) | |||||||||||||||||||||||||||
| Effect of actual variances from expected experience | (117) | (193) | (110) | (24) | 91 | (16) | (144) | 21 | (16) | (43) | (7) | |||||||||||||||||||||||||||
| Adjusted beginning of period balance | 42,694 | 24,602 | 29,844 | 5,413 | 3,502 | 2,452 | 11,864 | 2,066 | 462 | 1,925 | 750 | |||||||||||||||||||||||||||
| Issuances | 1,004 | 373 | 488 | 22 | 311 | 381 | 559 | 237 | 55 | 231 | 597 | |||||||||||||||||||||||||||
| Interest accrual | 1,356 | 570 | 582 | 93 | 133 | 98 | 515 | 84 | 20 | 78 | 50 | |||||||||||||||||||||||||||
| Benefit payments | (2,773) | (1,033) | (1,510) | (208) | (560) | (465) | (925) | (314) | (60) | (108) | (104) | |||||||||||||||||||||||||||
| Foreign currency translation | (4,425) | (2,555) | (3,074) | (555) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Ending balance at original discount rate | 37,856 | 21,957 | 26,330 | 4,765 | 3,386 | 2,466 | 12,013 | 2,073 | 477 | 2,126 | 1,293 | |||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions | 2,925 | (1,351) | (2,065) | (540) | (259) | (136) | (1,312) | (176) | (36) | (279) | (5) | |||||||||||||||||||||||||||
| Balance at December 31, 2024 | 40,781 | 20,606 | 24,265 | 4,225 | 3,127 | 2,330 | 10,701 | 1,897 | 441 | 1,847 | 1,288 | |||||||||||||||||||||||||||
| Net liability for future policy benefits | 26,597 | 8,789 | 19,109 | 3,379 | 630 | 695 | 6,800 | 775 | 245 | 938 | 462 | |||||||||||||||||||||||||||
| Less: reinsurance recoverable | 5,085 | 1,245 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 18 | 0 | |||||||||||||||||||||||||||
| Net liability for future policy benefits after reinsurance recoverable | $ | 21,512 | $ | 7,544 | $ | 19,109 | $ | 3,379 | $ | 630 | $ | 695 | $ | 6,800 | $ | 775 | $ | 245 | $ | 920 | $ | 462 |
(1) Net premiums collected represent the portion of gross premiums collected from policyholders that is used to fund expected future benefit payments.
Item 8. Financial Statements and Supplementary Data
| 2023 | ||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||
| (In millions) | Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | |||||||||||||||||||||||||||
| Present value of expected future net premiums: | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 19,298 | $ | 16,714 | $ | 7,485 | $ | 1,256 | $ | 2,534 | $ | 1,635 | $ | 4,486 | $ | 1,220 | $ | 211 | $ | 724 | $ | 110 | ||||||||||||||||
| Beginning balance at original discount rate | 18,221 | 16,195 | 7,284 | 1,242 | 2,760 | 1,775 | 5,050 | 1,365 | 231 | 799 | 118 | |||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | (165) | (470) | 43 | (12) | (16) | (51) | (494) | (142) | (9) | 61 | (9) | |||||||||||||||||||||||||||
| Effect of actual variances from expected experience | (315) | (137) | (42) | (15) | (58) | (29) | (223) | (73) | (17) | (25) | (2) | |||||||||||||||||||||||||||
| Adjusted beginning of period balance | 17,741 | 15,588 | 7,285 | 1,215 | 2,686 | 1,695 | 4,333 | 1,150 | 205 | 835 | 107 | |||||||||||||||||||||||||||
| Issuances | 1,034 | 418 | 335 | 26 | 323 | 376 | 493 | 249 | 44 | 181 | 169 | |||||||||||||||||||||||||||
| Interest accrual | 412 | 334 | 124 | 20 | 102 | 62 | 179 | 45 | 8 | 31 | 6 | |||||||||||||||||||||||||||
| Net premiums collected (1) | (1,564) | (1,261) | (1,017) | (112) | (473) | (390) | (580) | (247) | (39) | (137) | (17) | |||||||||||||||||||||||||||
| Foreign currency translation | (1,170) | (1,038) | (469) | (80) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Other | (1) | (1) | 0 | 0 | (8) | (5) | (9) | (4) | (1) | (1) | 7 | |||||||||||||||||||||||||||
| Ending balance at original discount rate | 16,452 | 14,040 | 6,258 | 1,069 | 2,630 | 1,738 | 4,416 | 1,193 | 217 | 909 | 272 | |||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions | 1,057 | 657 | 230 | 19 | (142) | (86) | (342) | (86) | (11) | (56) | 5 | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 17,509 | $ | 14,697 | $ | 6,488 | $ | 1,088 | $ | 2,488 | $ | 1,652 | $ | 4,074 | $ | 1,107 | $ | 206 | $ | 853 | $ | 277 | ||||||||||||||||
| Present value of expected future policy benefits: | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 54,766 | $ | 27,419 | $ | 31,954 | $ | 5,582 | $ | 3,098 | $ | 2,445 | $ | 11,489 | $ | 2,074 | $ | 488 | $ | 1,526 | $ | 622 | ||||||||||||||||
| Beginning balance at original discount rate | 47,677 | 27,566 | 32,800 | 5,940 | 3,391 | 2,636 | 12,846 | 2,300 | 532 | 1,778 | 624 | |||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | (147) | (507) | 65 | (27) | (11) | (59) | (592) | (194) | (14) | 72 | (13) | |||||||||||||||||||||||||||
| Effect of actual variances from expected experience | (385) | (154) | (51) | (15) | (75) | (59) | (271) | (99) | (22) | (32) | (4) | |||||||||||||||||||||||||||
| Adjusted beginning of period balance | 47,145 | 26,905 | 32,814 | 5,898 | 3,305 | 2,518 | 11,983 | 2,007 | 496 | 1,818 | 607 | |||||||||||||||||||||||||||
| Issuances | 1,059 | 432 | 341 | 32 | 331 | 392 | 505 | 258 | 46 | 185 | 169 | |||||||||||||||||||||||||||
| Interest accrual | 1,473 | 608 | 625 | 100 | 127 | 96 | 524 | 84 | 21 | 68 | 33 | |||||||||||||||||||||||||||
| Benefit payments | (2,987) | (1,153) | (1,415) | (206) | (464) | (465) | (893) | (274) | (59) | (105) | (48) | |||||||||||||||||||||||||||
| Foreign currency translation | (3,064) | (1,769) | (2,109) | (380) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||
| Other | 0 | 0 | 0 | 0 | 3 | 0 | 1 | 1 | 2 | 5 | 8 | |||||||||||||||||||||||||||
| Ending balance at original discount rate | 43,626 | 25,023 | 30,256 | 5,444 | 3,302 | 2,541 | 12,120 | 2,076 | 506 | 1,971 | 769 | |||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions | 6,535 | 234 | (525) | (266) | (193) | (119) | (830) | (133) | (28) | (207) | 29 | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | 50,161 | 25,257 | 29,731 | 5,178 | 3,109 | 2,422 | 11,290 | 1,943 | 478 | 1,764 | 798 | |||||||||||||||||||||||||||
| Net liability for future policy benefits | 32,652 | 10,560 | 23,243 | 4,090 | 621 | 770 | 7,216 | 836 | 272 | 911 | 521 | |||||||||||||||||||||||||||
| Less: reinsurance recoverable | 4,135 | 1,521 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 15 | 0 | |||||||||||||||||||||||||||
| Net liability for future policy benefits after reinsurance recoverable | $ | 28,517 | $ | 9,039 | $ | 23,243 | $ | 4,090 | $ | 621 | $ | 770 | $ | 7,216 | $ | 836 | $ | 272 | $ | 896 | $ | 521 |
(1) Net premiums collected represent the portion of gross premiums collected from policyholders that is used to fund expected future benefit payments.
Item 8. Financial Statements and Supplementary Data
The following tables present the weighted-average interest rates and weighted-average liability duration (calculated using the original discount rate) by reporting segment and disaggregated by product type as of December 31.
| 2024 | ||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||
| Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | ||||||||||||||||||||||||||||
| Weighted-average interest, original discount rate (1) | 3.9 % | 2.5 % | 2.1 % | 1.8 % | 4.0 % | 4.3 % | 4.6 % | 4.5 % | 4.3 % | 3.8 % | 5.4 % | |||||||||||||||||||||||||||
| Weighted-average interest, current discount rate (1) | 2.2 % | 2.8 % | 2.1 % | 2.5 % | 5.3 % | 5.2 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | |||||||||||||||||||||||||||
| Weighted-average liability duration (years) | 12.6 | 23.5 | 16.1 | 16.7 | 7.7 | 5.6 | 11.1 | 9.0 | 7.6 | 13.5 | 9.1 |
(1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information.
| 2023 | ||||||||||||||||||||||||||||||||||||||
| Aflac Japan | Aflac U.S. | |||||||||||||||||||||||||||||||||||||
| Cancer | Medical and Other Health | Life Insurance | Other | Accident | Disability | Critical Care | Hospital Indemnity | Dental/Vision | Life Insurance | Other | ||||||||||||||||||||||||||||
| Weighted-average interest, original discount rate (1) | 3.9 % | 2.6 % | 2.1 % | 1.8 % | 3.9 % | 4.2 % | 4.6 % | 4.4 % | 4.3 % | 3.7 % | 5.4 % | |||||||||||||||||||||||||||
| Weighted-average interest, current discount rate (1) | 1.8 % | 2.3 % | 1.7 % | 2.1 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | 5.3 % | |||||||||||||||||||||||||||
| Weighted-average liability duration (years) | 13.1 | 24.9 | 16.3 | 17.3 | 8.1 | 5.6 | 11.3 | 9.3 | 7.9 | 13.6 | 9.4 |
(1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information.
Item 8. Financial Statements and Supplementary Data
The following table presents a reconciliation of the disaggregated rollforwards above to the ending future policy benefits presented in the consolidated balance sheets as of December 31. The deferred profit liability for limited-payment contracts and the deferred reinsurance gain liability are presented together with the liability for future policy benefits in the consolidated balance sheets and have been included as reconciling items in the table below.
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Balances included in future policy benefits rollforward: | |||||||||||||||||||||||
| Aflac Japan | |||||||||||||||||||||||
| Cancer | $ | 26,597 | $ | 32,652 | |||||||||||||||||||
| Medical and other health | 8,789 | 10,560 | |||||||||||||||||||||
| Life insurance | 19,109 | 23,243 | |||||||||||||||||||||
| Other | 3,379 | 4,090 | |||||||||||||||||||||
| Aflac U.S. | |||||||||||||||||||||||
| Accident | 630 | 621 | |||||||||||||||||||||
| Disability | 695 | 770 | |||||||||||||||||||||
| Critical care | 6,800 | 7,216 | |||||||||||||||||||||
| Hospital indemnity | 775 | 836 | |||||||||||||||||||||
| Dental/vision | 245 | 272 | |||||||||||||||||||||
| Life insurance | 938 | 911 | |||||||||||||||||||||
| Other | 462 | 521 | |||||||||||||||||||||
| Corporate and other | 5,072 | 4,225 | |||||||||||||||||||||
| Deferred profit liability | 1,844 | 1,806 | |||||||||||||||||||||
| Deferred reinsurance gain liability | 806 | 1,012 | |||||||||||||||||||||
| Intercompany eliminations (1) | (5,760) | (5,017) | |||||||||||||||||||||
| Total | $ | 70,381 | $ | 83,718 |
(1) Elimination entry necessary due to the internal reinsurance transactions with Aflac Re and to recapture a portion of policy liabilities ceded externally as a result of the reinsurance retrocession transaction. See Note 8 for additional details.
Discount rates are determined using upper-medium grade (low credit risk) fixed-income instrument yields that reflect the duration characteristics of the liability. Locked-in discount rates are determined separately for each issue-year cohort as a single discount rate, calculated as the weighted-average of monthly upper-medium grade (low credit risk) fixed-income instrument forward curves in the calendar year, where the weights are the annualized premiums issued for each month of the cohort. The single discount rate for each issue-year cohort is determined by solving for a rate that produces an equivalent NPR to the forward curve and will remain unchanged after the calendar year of issue.
Discount rates are updated each reporting period and require estimation techniques (e.g., interpolation, extrapolation) for determination of points on the curve for which there is limited or no observable market data. The Company constructs a current discount rate curve separately for discounting cash flows used to calculate each of the Japan and U.S. liabilities for future policy benefits, reflective of the characteristics of the corresponding insurance liabilities, such as currency and tenor.
In the Aflac Japan segment, all long-duration insurance policies are denominated in yen. A significant portion of policies are characterized by tenors exceeding the availability of liquid market data in Japan for single-A rated (as a proxy for upper-medium grade) corporate yen-denominated debt. The discount rate curve is designed to prioritize the observable inputs where available, while past the last liquid point, the data is derived based on estimation techniques consistent with the fair value guidance in ASC 820. The Aflac Japan segment curve utilizes liquid market indices tracking publicly traded yen-denominated single-A corporate debt for the initial 10-year tenor. For the bonds within these market indices where only local ratings are available, the Company prioritizes the bonds with local ratings that are equivalent to a single-A rating based on international rating standards.
For the discount rates applicable to tenors for which the Japan single-A debt market is not liquid but there is sufficient observable market data and/or the observable market data is available for similar instruments (between 10 and 30 years), the Company estimates tenor-specific single-A credit spreads and applies them to risk-free government rates. Lastly, for the tenors where there is limited or no observable single-A or similar market data or risk-free government rates (beyond 30 years), the discount curve is derived by extrapolation of risk-free rates beyond their last liquid point following the Smith-
Item 8. Financial Statements and Supplementary Data
Wilson method and grading of the estimated forward credit spread anchored by the ultimate forward rate. The ultimate forward rate is based on the economic value-based solvency regime, which is consistent with the International Association of Insurance Supervisors (IAIS) Insurance Capital Standards (ICS) (to be introduced in Japan in 2025), and is adjusted for credit and inflation components.
For the Aflac U.S. segment where all long-duration insurance policies are denominated in U.S. dollars and substantially all have cash flow duration within 30 years, for which the U.S. upper-medium grade fixed-income market is liquid and observable, the Company uses data from a liquid fixed-income market index tracking single-A U.S. corporate debt. For the insignificant portion of the policies with cash flow tenors exceeding 30 years, the discount curve beyond that tenor is extrapolated following the Smith-Wilson method from year 30 to the same ultimate forward rate calculated for the Japan discount curve at year 60 and held constant thereafter. The use of the same ultimate rate for U.S. and Japan segments is based on the assumption of long-term global economic convergence.
There were no changes to the methods used to determine the discount rates during the years ended December 31, 2024 and 2023.
Mortality rate assumptions are based on industry tables and adjusted for the Company's actual or expected experience where credible or appropriate. These assumptions typically vary by age, gender, and other demographic characteristics such as smoking status.
Morbidity assumptions are based on the Company's internal data and consider emerging experience. These assumptions are reflective of the coverage and benefits provided and generally vary by age, gender, duration, and any other material policyholder characteristics. In cases where a calendar-year trend is significant, future cash flow projections may include a trend adjustment.
In Japan, separate lapse assumptions are set based on actual or expected experience. These lapse and total termination rate assumptions vary by line of business and with policyholder characteristics such as duration. In the U.S., the majority of the future cash flows are modeled using total termination rates (which include both lapse and mortality) and are adjusted for actual experience. Policy provisions, such as reaching premium paid-up status, are taken into account when setting assumptions.
In 2024 and 2023, the variance of actual experience from expected experience was primarily due to favorable variances in morbidity assumptions as compared to actual experience. There were no changes to the inputs, judgments or methods used in measuring the liability for future policy benefits in 2024 and 2023.
The Company performs an annual review of its assumptions during the third quarter. In 2024, the Company's annual assumption review process resulted in favorable changes largely due to recent favorable Japan morbidity experience. In 2023, the Company's annual assumption review process resulted in favorable changes to its morbidity and termination assumptions, largely due to reflecting more recent favorable U.S. morbidity experience.
Item 8. Financial Statements and Supplementary Data
The following table summarizes the amount of net earned premiums recognized in the consolidated statements of earnings by reporting segment and disaggregated by product type for the years ended December 31.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Net earned premiums: | ||||||||||||||||||||
| Aflac Japan | ||||||||||||||||||||
| Cancer | $ | 3,545 | $ | 4,063 | $ | 4,716 | ||||||||||||||
| Medical and other health | 2,181 | 2,631 | 2,917 | |||||||||||||||||
| Life insurance | 1,225 | 1,532 | 1,769 | |||||||||||||||||
| Other | 134 | 149 | 161 | |||||||||||||||||
| Aflac U.S. | ||||||||||||||||||||
| Accident | 1,265 | 1,288 | 1,317 | |||||||||||||||||
| Disability | 1,327 | 1,256 | 1,179 | |||||||||||||||||
| Critical care | 1,763 | 1,749 | 1,758 | |||||||||||||||||
| Hospital indemnity | 727 | 725 | 725 | |||||||||||||||||
| Dental/vision | 202 | 214 | 199 | |||||||||||||||||
| Life insurance | 565 | 475 | 396 | |||||||||||||||||
| Other | 110 | 45 | 38 | |||||||||||||||||
| Corporate and other | 680 | 400 | 145 | |||||||||||||||||
| Reinsurance ceded | (284) | (404) | (419) | |||||||||||||||||
| Total | $ | 13,440 | $ | 14,123 | $ | 14,901 |
The following table summarizes the amount of interest expense related to insurance contracts recognized in benefits and claims, excluding reserve remeasurement in the consolidated statements of earnings by reporting segment and disaggregated by product type for the years ended December 31.
| (In millions) | 2024 | 2023 | 2022 | |||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| Aflac Japan | ||||||||||||||||||||
| Cancer | $ | 978 | $ | 1,061 | $ | 1,140 | ||||||||||||||
| Medical and other health | 268 | 274 | 278 | |||||||||||||||||
| Life insurance | 472 | 501 | 524 | |||||||||||||||||
| Other | 76 | 80 | 84 | |||||||||||||||||
| Aflac U.S. | ||||||||||||||||||||
| Accident | 27 | 25 | 23 | |||||||||||||||||
| Disability | 32 | 34 | 37 | |||||||||||||||||
| Critical care | 342 | 345 | 346 | |||||||||||||||||
| Hospital indemnity | 38 | 39 | 40 | |||||||||||||||||
| Dental/vision | 11 | 13 | 12 | |||||||||||||||||
| Life insurance | 41 | 37 | 35 | |||||||||||||||||
| Other | 25 | 27 | 27 | |||||||||||||||||
| Total | $ | 2,310 | $ | 2,436 | $ | 2,546 |
Item 8. Financial Statements and Supplementary Data
The following tables summarize the amount of undiscounted expected future gross premiums and expected future policy benefits and expenses and discounted (discounted at the current period discount rate) expected future gross premiums and expected future policy benefits and expenses by reporting segment and disaggregated by product type as of December 31. These tables are presented gross of internal and external ceded reinsurance. Future gross premiums represent the expected amount of future premiums to be received. For limited-payment policies, the premiums are collected over a shorter period than the policy term over which benefits are provided. As a result, once the policy reaches premium paid-up status, the future gross premiums can be significantly less than the future benefit payments. Further, benefits and expenses are generally greater in the later years of a policy. These are the primary factors that result in future gross premiums lower than future benefit and expense payments for certain lines of business of the Company.
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Gross Premiums | Benefits and Expenses | Gross Premiums | Benefits and Expenses | |||||||||||||||||||||||||||||||||||||||||||
| Undiscounted expected future gross premiums and expected future policy benefits and expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Aflac Japan | |||||||||||||||||||||||||||||||||||||||||||||||
| Cancer | $ | 51,712 | $ | 56,881 | $ | 59,169 | $ | 66,427 | |||||||||||||||||||||||||||||||||||||||
| Medical and other health | 33,250 | 34,864 | 38,583 | 39,884 | |||||||||||||||||||||||||||||||||||||||||||
| Life insurance | 10,915 | 37,520 | 12,677 | 42,541 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 1,477 | 6,479 | 1,781 | 7,448 | |||||||||||||||||||||||||||||||||||||||||||
| Aflac U.S. | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident | 8,862 | 4,687 | 9,095 | 4,548 | |||||||||||||||||||||||||||||||||||||||||||
| Disability | 5,727 | 3,094 | 5,776 | 3,177 | |||||||||||||||||||||||||||||||||||||||||||
| Critical care | 19,624 | 20,340 | 19,886 | 20,626 | |||||||||||||||||||||||||||||||||||||||||||
| Hospital indemnity | 4,859 | 3,017 | 4,922 | 3,025 | |||||||||||||||||||||||||||||||||||||||||||
| Dental/vision | 1,118 | 679 | 1,162 | 726 | |||||||||||||||||||||||||||||||||||||||||||
| Life insurance | 2,966 | 3,559 | 2,719 | 3,260 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 2,143 | 2,273 | 724 | 1,396 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 142,653 | $ | 173,393 | $ | 156,494 | $ | 193,058 |
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Gross Premiums | Benefits and Expenses | Gross Premiums | Benefits and Expenses | |||||||||||||||||||||||||||||||||||||||||||
| Discounted expected future gross premiums and expected future policy benefits and expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Aflac Japan | |||||||||||||||||||||||||||||||||||||||||||||||
| Cancer | $ | 40,170 | $ | 40,781 | $ | 48,363 | $ | 50,161 | |||||||||||||||||||||||||||||||||||||||
| Medical and other health | 25,171 | 20,606 | 30,757 | 25,257 | |||||||||||||||||||||||||||||||||||||||||||
| Life insurance | 9,367 | 24,265 | 11,240 | 29,731 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 1,204 | 4,225 | 1,512 | 5,178 | |||||||||||||||||||||||||||||||||||||||||||
| Aflac U.S. | |||||||||||||||||||||||||||||||||||||||||||||||
| Accident | 6,057 | 3,127 | 6,369 | 3,109 | |||||||||||||||||||||||||||||||||||||||||||
| Disability | 4,404 | 2,330 | 4,488 | 2,422 | |||||||||||||||||||||||||||||||||||||||||||
| Critical care | 11,900 | 10,701 | 12,417 | 11,290 | |||||||||||||||||||||||||||||||||||||||||||
| Hospital indemnity | 3,312 | 1,897 | 3,419 | 1,943 | |||||||||||||||||||||||||||||||||||||||||||
| Dental/vision | 761 | 441 | 807 | 478 | |||||||||||||||||||||||||||||||||||||||||||
| Life insurance | 2,050 | 1,847 | 1,914 | 1,764 | |||||||||||||||||||||||||||||||||||||||||||
| Other | 1,290 | 1,288 | 467 | 798 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 105,686 | $ | 111,508 | $ | 121,753 | $ | 132,131 |
Loss expense as a result of NPR capping for the years ended December 31, 2024, 2023 and 2022 was immaterial.
Item 8. Financial Statements and Supplementary Data
Other Policyholders' Funds
As of December 31, 2024 and 2023, 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.
The following table presents the changes in other policyholders’ funds for the years ended December 31.
| (In millions) | 2024 | 2023 | |||||||||
| Other policyholders' funds: | |||||||||||
| Fixed annuities account balance, beginning of period (1) | $ | 5,939 | $ | 6,423 | |||||||
| Premiums received | 104 | 126 | |||||||||
| Transfers from WAYS conversions | 249 | 229 | |||||||||
| Surrenders and withdrawals | (58) | (59) | |||||||||
| Benefit payments | (446) | (419) | |||||||||
| Interest credited | 49 | 53 | |||||||||
| Foreign currency translation and other | (616) | (414) | |||||||||
| Fixed annuities account balance, end of period | 5,221 | 5,939 | |||||||||
| Other deposit type reserves | 239 | 230 | |||||||||
| Total | $ | 5,460 | $ | 6,169 |
(1) Aflac Japan fixed annuities
The following table presents other policyholders’ funds balances by range of guaranteed crediting rates as of December 31.
| 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Range of Guaranteed Minimum Crediting Rates (2) | At Guaranteed Minimum | Cash Surrender Value | Range of Guaranteed Minimum Crediting Rates (2) | At Guaranteed Minimum | Cash Surrender Value | ||||||||||||||||||||||||||||||||||||||||||||
| Fixed annuities (1) | 0.5% - 2.2% | $5,221 | $5,150 | 0.5% - 2.3% | $5,939 | $5,850 |
(1) Aflac Japan fixed annuities
(2) Weighted-average crediting rate of 1.5% at December 31, 2024 and December 31, 2023.
Aflac Japan’s fixed annuities have guaranteed fixed crediting rates which results in the policyholders' funds balances being sufficient to cover all guaranteed benefit amounts. The reserves are adequate to fully fund future benefits at any given time.
See Note 1 for additional information on policy liabilities.
Item 8. Financial Statements and Supplementary Data
8. REINSURANCE
The Company periodically enters into fixed quota-share coinsurance agreements in the normal course of business, primarily to provide additional capacity for future growth, optimize capital, limit losses, and minimize exposure to significant risks. 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. These reinsurance transactions are indemnity reinsurance agreements 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.
The following table reconciles direct earned premiums, direct benefits and claims, excluding reserve remeasurement gains and losses, and reserve remeasurement gains and losses to net amounts after the effect of reinsurance for the years ended December 31.
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||
| Earned premiums: | |||||||||||||||||||||||||||||
| Direct | $ | 13,562 | $ | 14,318 | $ | 15,025 | |||||||||||||||||||||||
| Ceded | (284) | (404) | (419) | ||||||||||||||||||||||||||
| Assumed | 162 | 209 | 295 | ||||||||||||||||||||||||||
| Net earned premiums | $ | 13,440 | $ | 14,123 | $ | 14,901 | |||||||||||||||||||||||
| Benefits and claims, excluding reserve remeasurement: | |||||||||||||||||||||||||||||
| Direct | $ | 8,098 | $ | 8,599 | $ | 9,171 | |||||||||||||||||||||||
| Ceded | (153) | (147) | (322) | ||||||||||||||||||||||||||
| Assumed | 63 | 142 | 253 | ||||||||||||||||||||||||||
| Benefits and claims, excluding reserve remeasurement | $ | 8,008 | $ | 8,594 | $ | 9,102 | |||||||||||||||||||||||
| Reserve remeasurement (gains) losses: | |||||||||||||||||||||||||||||
| Direct | $ | (558) | $ | (394) | $ | (196) | |||||||||||||||||||||||
| Ceded | 0 | 11 | (19) | ||||||||||||||||||||||||||
| Reserve remeasurement (gains) losses | $ | (558) | $ | (383) | $ | (215) | |||||||||||||||||||||||
| Total benefits and claims, net | $ | 7,450 | $ | 8,211 | $ | 8,887 |
The Company has recorded a deferred reinsurance gain liability related to reinsurance transactions which represents ceded reserves in excess of consideration paid, or consideration received in excess of assumed reserves. The remaining consolidated deferred reinsurance gain liability of $146 million and $175 million as of December 31, 2024 and 2023, respectively, is included in future policy benefits in the consolidated balance sheets and is being amortized into income over the expected lives of the policies.
The Company has also recorded a reinsurance recoverable for reinsurance transactions. The reinsurance recoverable, which is included in other assets in the consolidated balance sheets, is reported net of allowance for credit losses and had a remaining balance of $163 million and $183 million as of December 31, 2024 and 2023, respectively. The allowance for credit losses related to the Company's reinsurance recoverable balance was $4 million and $10 million as of December 31, 2024 and 2023, respectively. The credit allowance for the reinsurance recoverable balance is estimated using a PD / LGD method and the key credit quality indicator is the credit rating of the Company’s reinsurance counterparty. The Company uses external credit ratings focused on the reinsurer’s financial strength and credit worthiness. As of December 31, 2024, the Company's reinsurance counterparties were rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly.
Aflac Re is a Bermuda domiciled insurer that reinsures certain policies issued by ALIJ. The inter-segment amounts associated with these internal reinsurance transactions are eliminated in consolidation.
Item 8. Financial Statements and Supplementary Data
In October 2024, ALIJ entered into a coinsurance transaction whereby it ceded 30% of the liabilities associated with certain cancer insurance policies and riders to Aflac Re. This transaction transferred approximately $1.8 billion of reserves associated with these policies. Approximately $1.7 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk. This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis, except for the effect of foreign currency accounting.
In December 2023, the Company entered into a novation agreement under which Aflac Re assumed the duties, obligations and liabilities through reinsurance of business ALIJ previously ceded to an external reinsurer and recorded a pretax loss of $151 million in 2023.
In October 2023, ALIJ entered into a coinsurance transaction whereby it ceded 30% of the liabilities associated with certain cancer insurance policies and riders to Aflac Re. This transaction transferred approximately $1.9 billion of reserves associated with these policies. Approximately $1.7 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk. This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis, except for the effect of foreign currency accounting.
In January 2023, ALIJ entered into a coinsurance transaction whereby it ceded 28% of the liabilities associated with certain cancer insurance policies and riders to Aflac Re. This transaction transferred approximately $2.1 billion of reserves associated with these policies. Approximately $1.9 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk. This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis, except for the effect of foreign currency accounting.
In January 2023, ALIJ also entered into an external coinsurance transaction to cede 1.5% of the liabilities associated with the same cancer insurance policies and riders, in connection with which ALIJ transferred cash consideration to the reinsurer.
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) | 2024 | 2023 | |||||||||||||||||||||
| 1.125% senior sustainability notes due March 2026 | $ | 399 | $ | 398 | |||||||||||||||||||
| 2.875% senior notes due October 2026 | 299 | 299 | |||||||||||||||||||||
| 3.60% senior notes due April 2030 | 994 | 993 | |||||||||||||||||||||
| 6.90% senior notes due December 2039 | 221 | 221 | |||||||||||||||||||||
| 6.45% senior notes due August 2040 | 255 | 254 | |||||||||||||||||||||
| 4.00% senior notes due October 2046 | 394 | 394 | |||||||||||||||||||||
| 4.750% senior notes due January 2049 | 542 | 542 | |||||||||||||||||||||
| Yen-denominated senior notes and subordinated debentures: | |||||||||||||||||||||||
| .300% senior notes due September 2025 (principal amount ¥12.4 billion) | 79 | 87 | |||||||||||||||||||||
| .932% senior notes due January 2027 (principal amount ¥60.0 billion) | 378 | 422 | |||||||||||||||||||||
| 1.048% senior notes due March 2029 (principal amount ¥13.0 billion) | 81 | 0 | |||||||||||||||||||||
| 1.075% senior notes due September 2029 (principal amount ¥33.4 billion) | 211 | 234 | |||||||||||||||||||||
| .500% senior notes due December 2029 (principal amount ¥12.6 billion) | 79 | 88 | |||||||||||||||||||||
| .550% senior notes due March 2030 (principal amount ¥13.3 billion) | 84 | 93 | |||||||||||||||||||||
| 1.159% senior notes due October 2030 (principal amount ¥29.3 billion) | 184 | 206 | |||||||||||||||||||||
| 1.412% senior notes due March 2031 (principal amount ¥27.9 billion) | 176 | 0 | |||||||||||||||||||||
| .633% senior notes due April 2031 (principal amount ¥30.0 billion) | 189 | 211 | |||||||||||||||||||||
| .843% senior notes due December 2031 (principal amount ¥9.3 billion) | 58 | 65 | |||||||||||||||||||||
| .750% senior notes due March 2032 (principal amount ¥20.7 billion) | 130 | 145 | |||||||||||||||||||||
| 1.320% senior notes due December 2032 (principal amount ¥21.1 billion) | 133 | 148 | |||||||||||||||||||||
| .844% senior notes due April 2033 (principal amount ¥12.0 billion) | 76 | 84 | |||||||||||||||||||||
| 1.488% senior notes due October 2033 (principal amount ¥15.2 billion) | 95 | 106 | |||||||||||||||||||||
| 1.682% senior notes due March 2034 (principal amount ¥7.7 billion) | 48 | 0 | |||||||||||||||||||||
| 1.600% senior notes due March 2034 (principal amount ¥18.3 billion) | 115 | 0 | |||||||||||||||||||||
| .934% senior notes due December 2034 (principal amount ¥9.8 billion) | 62 | 69 | |||||||||||||||||||||
| .830% senior notes due March 2035 (principal amount ¥10.6 billion) | 66 | 74 | |||||||||||||||||||||
| 1.740% senior notes due March 2036 (principal amount ¥15.0 billion) | 94 | 0 | |||||||||||||||||||||
| 1.039% senior notes due April 2036 (principal amount ¥10.0 billion) | 63 | 70 | |||||||||||||||||||||
| 1.594% senior notes due September 2037 (principal amount ¥6.5 billion) | 41 | 45 | |||||||||||||||||||||
| 1.750% senior notes due October 2038 (principal amount ¥8.9 billion) | 56 | 62 | |||||||||||||||||||||
| 1.920% senior notes due March 2039 (principal amount ¥16.5 billion) | 103 | 0 | |||||||||||||||||||||
| 1.122% senior notes due December 2039 (principal amount ¥6.3 billion) | 39 | 44 | |||||||||||||||||||||
| 1.264% senior notes due April 2041 (principal amount ¥10.0 billion) | 63 | 70 | |||||||||||||||||||||
| 2.160% senior notes due March 2044 (principal amount ¥5.7 billion) | 35 | 0 | |||||||||||||||||||||
| 2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion) | 375 | 419 | |||||||||||||||||||||
| .963% subordinated bonds paid April 2024 (principal amount ¥30.0 billion) | 0 | 211 | |||||||||||||||||||||
| 1.560% senior notes due April 2051 (principal amount ¥20.0 billion) | 125 | 140 | |||||||||||||||||||||
| 2.144% senior notes due September 2052 (principal amount ¥12.0 billion) | 75 | 84 | |||||||||||||||||||||
| 1.958% subordinated bonds due December 2053 (principal amount ¥30.0 billion) | 188 | 210 | |||||||||||||||||||||
| 2.400% senior notes due March 2054 (principal amount ¥19.5 billion) | 122 | 0 | |||||||||||||||||||||
| Yen-denominated loans: | |||||||||||||||||||||||
| Variable interest rate loan due August 2027 (.84% in 2024 and .35% in 2023, principal amount ¥11.7 billion) | 74 | 82 | |||||||||||||||||||||
| Variable interest rate loan due August 2029 (.94% in 2024 and .45% in 2023, principal amount ¥25.3 billion) | 160 | 178 | |||||||||||||||||||||
| Variable interest rate loan due August 2032 (1.09% in 2024 and .60% in 2023, principal amount ¥70.0 billion) | 441 | 492 | |||||||||||||||||||||
| Finance lease obligations payable through 2030 | 5 | 6 | |||||||||||||||||||||
| Operating lease obligations payable through 2049 | 91 | 118 | |||||||||||||||||||||
| Total notes payable and lease obligations | $ | 7,498 | $ | 7,364 |
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.
Item 8. Financial Statements and Supplementary Data
In March 2024, the Parent Company issued five series of senior notes totaling ¥75.0 billion through a private placement. The first series, which totaled ¥18.3 billion, bears interest at a fixed rate of 1.600% per annum, payable semi-annually, and will mature in March 2034. The second series, which totaled ¥15.0 billion, bears interest at a fixed rate of 1.740% per annum, payable semi-annually, and will mature in March 2036. The third series, which totaled ¥16.5 billion, bears interest at a fixed rate of 1.920% per annum, payable semi-annually, and will mature in March 2039. The fourth series, which totaled ¥5.7 billion, bears interest at a fixed rate of 2.160% per annum, payable semi-annually, and will mature in March 2044. The fifth series, which totaled ¥19.5 billion, bears interest at a fixed rate of 2.400% per annum, payable semi-annually, and will mature in March 2054. These notes are redeemable at the Parent Company's option (i) in whole at any time or (ii) in part from time to time in an amount not less than 5% of the aggregate principal amount then outstanding of the notes to be redeemed.
In March 2024, the Parent Company issued three series of senior notes totaling ¥48.6 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥13.0 billion, bears interest at a fixed rate of 1.048% per annum, payable semi-annually, and will mature in March 2029. The second series, which totaled ¥27.9 billion, bears interest at a fixed rate of 1.412% per annum, payable semi-annually, and will mature in March 2031. The third series, which totaled ¥7.7 billion, bears interest at a fixed rate of 1.682% per annum, payable semi-annually, and will mature in March 2034. These notes are redeemable at the Parent Company’s option at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance. In addition, the notes maturing in March 2029, March 2031 and March 2034 are redeemable at the Parent Company's option, in whole or in part from time to time, on or after December 21, 2028, December 31, 2030 and September 21, 2033, respectively, at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.
In December 2023, ALIJ issued ¥30.0 billion (par value) of subordinated bonds that will mature in December 2053. The bonds bear interest at an initial rate of 1.958% per annum until December 5, 2028. Thereafter, the rate of interest of the bonds will be reset every five years to a rate of interest equal to the then-current five-year JGB rate plus (i) 1.650% per annum on and after the day immediately following December 5, 2028 to December 5, 2033, and (ii) 2.650% per annum on and after the day immediately following December 5, 2033 to December 5, 2053. The bonds are redeemable, in whole but not in part, (i) at any time upon the occurrence of certain regulatory or tax events, as specified in the indenture governing the terms of the bonds or (ii) on each interest rate reset date on or after December 5, 2028.
In September 2022, the Parent Company issued four series of senior notes totaling ¥73.0 billion through a public debt offering under its U.S. shelf registration statement. The first series, which totaled ¥33.4 billion, bears interest at a fixed rate of 1.075% per annum, payable semi-annually, and will mature in September 2029. The second series, which totaled ¥21.1 billion, bears interest at a fixed rate of 1.320% per annum, payable semi-annually, and will mature in December 2032. The third series, which totaled ¥6.5 billion, bears interest at a fixed rate of 1.594% per annum, payable semi-annually, and will mature in September 2037. The fourth series, which totaled ¥12.0 billion, bears interest at a fixed rate of 2.144% per annum, payable semi-annually, and will mature in September 2052. These notes are redeemable at the Parent Company’s option at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance. In addition, the notes maturing in September 2029, December 2032 and September 2037 are redeemable at the Parent Company's option, in whole or in part from time to time, on or after June 14, 2029, June 14, 2032 and March 14, 2037, respectively, at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.
In August 2022, the Parent Company renewed a senior term loan facility with a commitment amount totaling ¥107.0 billion. The first tranche of the facility, which totaled ¥11.7 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 August 2027. The applicable margin ranges between .225% and .625%, depending on the Parent Company's debt ratings as of the date of determination. The second tranche, which totaled ¥25.3 billion, bears interest at a rate per annum equal to TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in August 2029. The applicable margin ranges between .325% and .725%, depending on the Parent Company's debt ratings as of the date of determination. The third tranche, which totaled ¥70.0 billion, bears interest at a rate per annum equal to TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and will mature in August 2032. The applicable margin ranges between .475% and 1.025%, depending on the Parent Company's debt ratings as of the date of determination.
Item 8. Financial Statements and Supplementary Data
In April 2021, the Parent Company issued five series of senior notes totaling ¥82.0 billion through a public debt offering under its then existing U.S. shelf registration statement. The first series, which totaled ¥30.0 billion, bears interest at a fixed rate of .633% per annum, payable semi-annually, and will mature in April 2031. The second series, which totaled ¥12.0 billion, bears interest at a fixed rate of .844% per annum, payable semi-annually, and will mature in April 2033. The third series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.039% per annum, payable semi-annually, and will mature in April 2036. The fourth series, which totaled ¥10.0 billion, bears interest at a fixed rate of 1.264% per annum, payable semi-annually, and will mature in April 2041. The fifth series, which totaled ¥20.0 billion, bears interest at a fixed rate of 1.560% per annum, payable semi-annually, and will mature in April 2051. The notes are redeemable at the Parent Company’s option (i) at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance or (ii) on or after the date that is six months prior to the stated maturity date of the series, in whole or in part, at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.
In March 2021, the Parent Company issued $400 million of senior sustainability notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 1.125% per annum, payable semi-annually, and will mature in March 2026. The Company intends, but is not contractually committed, to allocate an amount at least equivalent to the net proceeds from this issuance exclusively to existing or future investments in, or financing of, assets, businesses or projects that meet the eligibility criteria of the Company's sustainability bond framework described in the offering documentation in connection with such notes. These notes are redeemable at the Parent Company's option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the yield to maturity for a U.S. Treasury security with a maturity comparable to the remaining term of the notes, plus 10 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date.
In 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 then existing U.S. shelf registration statement. The first series, which totaled ¥12.4 billion, bears interest at a fixed rate of .300% per annum, payable semi-annually 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 semi-annually 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 then existing 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. The notes are redeemable at the Parent Company’s option (i) at any time, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance or (ii) on or after the date that is six months prior to the stated maturity date of the series, in whole or in part, at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to, but excluding, the date of redemption.
Item 8. Financial Statements and Supplementary Data
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 April 2024, ALIJ redeemed ¥30.0 billion of its .963% subordinated bonds due April 2049.
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 then existing 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 interest of the debentures will be reset every five years to 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.
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 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 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 non-derivative hedge of the foreign currency exposure of the Company's investment in Aflac Japan.
Item 8. Financial Statements and Supplementary Data
The aggregate contractual maturities of notes payable during each of the years after December 31, 2024, are as follows:
| (In millions) | Total Notes Payable | ||||||||||
| 2025 | $ | 79 | |||||||||
| 2026 | 700 | ||||||||||
| 2027 | 453 | ||||||||||
| 2028 | 0 | ||||||||||
| 2029 | 533 | ||||||||||
| Thereafter | 5,690 | ||||||||||
| Total | $ | 7,455 |
Interest expense related to the Company's notes payable, which is included in interest expense in the consolidated statements of earnings, was $194 million, $190 million and $217 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Operating lease costs, included in insurance and other expenses in the consolidated statements of earnings, were $43 million, $49 million and $52 million for the years ended December 31, 2024, 2023 and 2022, respectively. Operating cash outflows for operating leases were $41 million, $48 million and $49 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Item 8. Financial Statements and Supplementary Data
A summary of the Company's lines of credit as of December 31, 2024 follows:
| Borrower(s) | Type | Term | Expiration Date | Capacity | Amount Outstanding | Interest Rate on Borrowed Amount | Maturity Period | Commitment Fee | Business Purpose | ||||||||||||||||||||
| Aflac Incorporated and Aflac | uncommitted bilateral | 364 days | December 5, 2025 | $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 | May 9, 2027, 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 May 10, 2027 | .28% to .45%, 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 15, 2027, 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) Secured Overnight Financing Rate (SOFR) for U.S. dollar-denominated borrowings or TIBOR for Japanese yen-denominated borrowings, in either case adjusted for certain costs, or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the rate of interest for such day announced by the agent as its prime rate, or (3) SOFR for an interest period of one month plus 1.00%, in each case plus an applicable margin | No later than November 15, 2027 | .08% to .20%, 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 rate determined by reference to SOFR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the highest of (1) the lender's USD short-term commercial loan rate and (2) the federal funds rate plus 1/2 of 1% | Up to 3 months | None | General corporate purposes | ||||||||||||||||||||
| Aflac*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $250 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Incorporated*(1)* (Tranche 1) | uncommitted revolving | 364 days | November 25, 2025 | ¥50.0 billion | ¥0.0 billion | Three-month yen TIBOR plus 75 basis points per annum | No later than November 26, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Incorporated*(1)* (Tranche 2) | uncommitted revolving | 364 days | November 25, 2025 | ¥50.0 billion | ¥0.0 billion | Three-month yen TIBOR plus 75 basis points per annum | No later than November 26, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac New York*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $25 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| CAIC*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $15 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum | No later than December 2, 2025 | None | General corporate purposes |
(1) Intercompany credit agreement
(continued)
Item 8. Financial Statements and Supplementary Data
| Borrower(s) | Type | Term | Expiration Date | Capacity | Amount Outstanding | Interest Rate on Borrowed Amount | Maturity Period | Commitment Fee | Business Purpose | ||||||||||||||||||||
| TOIC*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $0.3 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac GI Holdings LLC*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $30 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 75 basis points per annum | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Incorporated*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $400 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 97 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 97 basis points per annum for Japanese yen-denominated borrowings | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Re*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $400 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 68 basis points per annum for Japanese yen-denominated borrowings | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Asset Management LLC*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $25 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 68 basis points per annum for Japanese yen-denominated borrowings | No later than December 2, 2025 | None | General corporate purposes | ||||||||||||||||||||
| Aflac Global Ventures LLC*(1)* | uncommitted revolving | 364 days | December 1, 2025 | $2 million | $0 million | Three-month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U.S. dollar-denominated borrowings or three-month TIBOR plus 68 basis points per annum for Japanese yen-denominated borrowings | No later than December 2, 2025 | None | General corporate purposes |
(1) Intercompany credit agreement
The Company was in compliance with all of the covenants of its notes payable and lines of credit at December 31, 2024. No events of default or defaults occurred during 2024 and 2023.
Item 8. Financial Statements and Supplementary Data
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 | ||||||||||||||||||||||||||||||||
| 2024: | |||||||||||||||||||||||||||||||||||
| Current | $ | 1,196 | $ | 134 | $ | 1,330 | |||||||||||||||||||||||||||||
| Deferred | 159 | (515) | (356) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,355 | $ | (381) | $ | 974 | |||||||||||||||||||||||||||||
| 2023: | |||||||||||||||||||||||||||||||||||
| Current | $ | 1,275 | $ | 388 | $ | 1,663 | |||||||||||||||||||||||||||||
| Deferred | (160) | (900) | (1,060) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,115 | $ | (512) | $ | 603 | |||||||||||||||||||||||||||||
| 2022: | |||||||||||||||||||||||||||||||||||
| Current | $ | 913 | $ | 268 | $ | 1,181 | |||||||||||||||||||||||||||||
| Deferred | 200 | (930) | (730) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,113 | $ | (662) | $ | 451 |
The Japan income tax rate for the fiscal years 2024, 2023 and 2022 was 28.0%.
Aflac Japan holds certain U.S. dollar-denominated assets in a Delaware Statutory Trust (DST). These assets are mostly comprised of various U.S. dollar-denominated commercial mortgage loans. The functional currency of the DST for U.S. tax purposes was historically the Japanese yen. In 2022, the Company requested a change in tax accounting method through the Internal Revenue Service's automatic consent procedures to change the functional currency of the DST for U.S. tax purposes to the U.S. dollar. As a result, foreign currency translation gains or losses on assets held in the DST are no longer recognized for U.S. tax purposes. The Company historically recorded a deferred tax liability for foreign currency translation gains on the DST assets, which was released in the third quarter of 2022 as a result of the functional currency change. The release of the deferred tax liability resulted in the Company recognizing an income tax benefit of $208 million in 2024, $174 million in 2023 and $452 million in 2022.
Income tax expense in the accompanying statements of earnings varies from the amount computed by applying the expected U.S. tax rate of 21% 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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Income taxes based on U.S. statutory rates | $ | 1,348 | $ | 1,105 | $ | 1,023 | |||||||||||||||||||||||||||||
| DST functional currency change | (208) | (174) | (452) | ||||||||||||||||||||||||||||||||
| Solar and historic tax credits, net of amortization | (164) | (348) | (83) | ||||||||||||||||||||||||||||||||
| Other, net | (2) | 20 | (37) | ||||||||||||||||||||||||||||||||
| Income tax expense | $ | 974 | $ | 603 | $ | 451 |
Item 8. Financial Statements and Supplementary Data
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Statements of earnings | $ | 974 | $ | 603 | $ | 451 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Unrealized foreign currency translation gains (losses) during period | 160 | 140 | 547 | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Unrealized holding gains (losses) on fixed maturity securities during period | (265) | 520 | (2,657) | ||||||||||||||||||||||||||||||||
| Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings | (41) | (35) | (95) | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on derivatives during period | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions during period | 1,214 | (122) | 3,650 | ||||||||||||||||||||||||||||||||
| Pension liability adjustment during period | 5 | 7 | 35 | ||||||||||||||||||||||||||||||||
| Total income tax expense (benefit) related to items of other comprehensive income (loss) | 1,074 | 511 | 1,481 | ||||||||||||||||||||||||||||||||
| Total income taxes | $ | 2,048 | $ | 1,114 | $ | 1,932 |
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) | 2024 | 2023 | |||||||||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||||||||
| Deferred policy acquisition costs | $ | 2,637 | $ | 2,883 | |||||||||||||||||||
| Unrealized gains and other basis differences on investments | 615 | 988 | |||||||||||||||||||||
| Foreign currency gain on Aflac Japan | 1 | 2 | |||||||||||||||||||||
| Premiums receivable | 43 | 85 | |||||||||||||||||||||
| Policy benefit reserves | 2,509 | 110 | |||||||||||||||||||||
| Other | 54 | 0 | |||||||||||||||||||||
| Total deferred income tax liabilities | 5,859 | 4,068 | |||||||||||||||||||||
| Deferred income tax assets: | |||||||||||||||||||||||
| Unfunded retirement benefits | 4 | 5 | |||||||||||||||||||||
| Other accrued expenses | 32 | 28 | |||||||||||||||||||||
| Policy and contract claims | 514 | 572 | |||||||||||||||||||||
| Deferred compensation | 31 | 45 | |||||||||||||||||||||
| Depreciation | 255 | 265 | |||||||||||||||||||||
| Anticipatory foreign tax credit | 3,262 | 2,210 | |||||||||||||||||||||
| Deferred foreign tax credit and carryforward | 1,428 | 1,077 | |||||||||||||||||||||
| Other | 0 | 135 | |||||||||||||||||||||
| Total deferred income tax assets | 5,526 | 4,337 | |||||||||||||||||||||
| Net deferred income tax (asset) liability | 333 | (269) | |||||||||||||||||||||
| Current income tax (asset) liability | 240 | 423 | |||||||||||||||||||||
| Total income tax liability | $ | 573 | $ | 154 |
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. 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 2025 due to Japan's current tax year not closing until March 31, 2025. 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 it is more likely than not that all other deferred tax assets will be realized.
Item 8. Financial Statements and Supplementary Data
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, 2024, there were non-life operating loss carryforwards of $26 million available to offset against future taxable income, which expire after December 31, 2040, and there were life operating loss carryforwards available to offset against future taxable income of $92 million, which do not expire. The Company has no capital loss carryforwards available to offset capital gains. The Company has a foreign tax credit carryforward of $314 million as of December 31, 2024, which expires after December 31, 2034.
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. There are currently no other open Federal, State, or local U.S. income tax audits. U.S. federal income tax returns for years before 2021 are no longer subject to examination. Japan corporate income tax returns for years before the tax year ended March 2023 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) | 2024 | 2023 | ||||||||||||||||||
| Balance, beginning of year | $ | 1 | $ | 5 | ||||||||||||||||
| Additions for tax positions of prior years | 0 | 0 | ||||||||||||||||||
| Reductions for tax positions of prior years | (1) | (4) | ||||||||||||||||||
| Balance, end of year | $ | 0 | $ | 1 |
Included in the balance of the liability for unrecognized tax benefits at December 31, 2024 and 2023, were no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. 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 an immaterial amount as of December 31, 2024, 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 an immaterial amount of interest and penalties in 2024, 2023 and 2022. The Company accrued an immaterial amount for the payment of interest and penalties as of December 31, 2024 and 2023, respectively.
As of December 31, 2024, 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.
Item 8. Financial Statements and Supplementary Data
11. SHAREHOLDERS' EQUITY
Share Data: The following table is a reconciliation of the number of shares of the Company's common stock for the years ended December 31.
| (In thousands of shares) | 2024 | 2023 | 2022 | ||||||||||||||
| Common stock - issued: | |||||||||||||||||
| Balance, beginning of period | 1,355,398 | 1,354,079 | 1,352,739 | ||||||||||||||
| Exercise of stock options and issuance of restricted shares | 1,365 | 1,319 | 1,340 | ||||||||||||||
| Balance, end of period | 1,356,763 | 1,355,398 | 1,354,079 | ||||||||||||||
| Treasury stock: | |||||||||||||||||
| Balance, beginning of period | 776,919 | 738,823 | 700,607 | ||||||||||||||
| Purchases of treasury stock: | |||||||||||||||||
| Share repurchase program | 30,428 | 38,896 | 39,187 | ||||||||||||||
| Other | 494 | 364 | 370 | ||||||||||||||
| Dispositions of treasury stock: | |||||||||||||||||
| Shares issued to AFL Stock Plan | (751) | (897) | (1,009) | ||||||||||||||
| Exercise of stock options | (104) | (88) | (117) | ||||||||||||||
| Other | (187) | (179) | (215) | ||||||||||||||
| Balance, end of period | 806,799 | 776,919 | 738,823 | ||||||||||||||
| Shares outstanding, end of period | 549,964 | 578,479 | 615,256 |
Share Repurchase Program: In November 2022, the Company's board of directors authorized the purchase of an additional 100 million shares of its common stock. As of December 31, 2024, a remaining balance of 47.3 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.
During 2024, the Company repurchased 30.4 million shares of its common stock in the open market for $2.8 billion. The Company repurchased 38.9 million shares for $2.8 billion in 2023 and 39.2 million shares for $2.4 billion in 2022.
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.
EPS: A reconciliation of basic and diluted weighted-average shares outstanding used in the computation of basic and diluted EPS for the years ended December 31 is as follows:
| (In thousands of shares) | 2024 | 2023 | 2022 | ||||||||||||||
| Weighted-average outstanding shares used for calculating basic EPS | 562,492 | 596,173 | 634,816 | ||||||||||||||
| Dilutive effect of share-based awards | 2,523 | 2,572 | 2,839 | ||||||||||||||
| Weighted-average outstanding shares used for calculating diluted EPS | 565,015 | 598,745 | 637,655 |
Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic EPS, but are included in the calculation of weighted-average shares used in the computation of diluted EPS. Anti-dilutive share-based awards are excluded from the computation of diluted 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) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Anti-dilutive share-based awards | 17 | 51 | 118 |
Item 8. Financial Statements and Supplementary Data
Reclassifications from Accumulated Other Comprehensive Income
The tables below are reconciliations of accumulated other comprehensive income by component for the years ended December 31.
Changes in Accumulated Other Comprehensive Income
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Foreign Currency Translation Gains (Losses) | Unrealized Gains (Losses) on Fixed Maturity Securities | Unrealized Gains (Losses) on Derivatives | Effect of Changes in Discount Rate Assumptions | Pension Liability Adjustment | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (4,069) | $ | 1,139 | $ | (22) | $ | (2,560) | $ | (8) | $ | (5,520) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification | (929) | (959) | (3) | 4,566 | 20 | 2,695 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 0 | (156) | 5 | 0 | (2) | (153) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (929) | (1,115) | 2 | 4,566 | 18 | 2,542 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | (4,998) | $ | 24 | $ | (20) | $ | 2,006 | $ | 10 | $ | (2,978) |
All amounts in the table above are net of tax.
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Foreign Currency Translation Gains (Losses) | Unrealized Gains (Losses) on Fixed Maturity Securities | Unrealized Gains (Losses) on Derivatives | Effect of Changes in Discount Rate Assumptions | Pension Liability Adjustment | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (3,564) | $ | (702) | $ | (27) | $ | (2,100) | $ | (36) | $ | (6,429) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification | (505) | 1,972 | 1 | (460) | 28 | 1,036 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 0 | (131) | 4 | 0 | 0 | (127) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (505) | 1,841 | 5 | (460) | 28 | 909 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (4,069) | $ | 1,139 | $ | (22) | $ | (2,560) | $ | (8) | $ | (5,520) |
All amounts in the table above are net of tax.
Item 8. Financial Statements and Supplementary Data
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Unrealized Foreign Currency Translation Gains (Losses) | Unrealized Gains (Losses) on Fixed Maturity Securities | Unrealized Gains (Losses) on Derivatives | Effect of Changes in Discount Rate Assumptions | Pension Liability Adjustment | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | (1,985) | $ | 9,602 | $ | (30) | $ | (15,832) | $ | (166) | $ | (8,411) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification | (1,579) | (9,946) | (1) | 13,732 | 111 | 2,317 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 0 | (358) | 4 | 0 | 19 | (335) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | (1,579) | (10,304) | 3 | 13,732 | 130 | 1,982 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (3,564) | $ | (702) | $ | (27) | $ | (2,100) | $ | (36) | $ | (6,429) |
All amounts in the table above are net of tax.
The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income into net earnings for the years ended December 31.
Reclassifications Out of Accumulated Other Comprehensive Income
| (In millions) | 2024 | |||||||||||||
| 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 | $ | 197 | Net investment gains (losses) | |||||||||||
| (41) | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | 156 | Net of tax | ||||||||||||
| Unrealized gains (losses) on derivatives | $ | (5) | Net investment gains (losses) | |||||||||||
| (1) | Net investment income | |||||||||||||
| (6) | Total before tax | |||||||||||||
| 1 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | (5) | Net of tax | ||||||||||||
| Amortization of defined benefit pension items: | ||||||||||||||
| Actuarial gains (losses) | $ | 1 | Acquisition and operating expenses*(2)* | |||||||||||
| Prior service (cost) credit | 1 | Acquisition and operating expenses*(2)* | ||||||||||||
| 0 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | 2 | Net of tax | ||||||||||||
| Total reclassifications for the period | $ | 153 | Net of tax |
(1) Based on 21% tax rate
(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost (see Note 14 for additional details).
Item 8. Financial Statements and Supplementary Data
| (In millions) | 2023 | |||||||||||||
| 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 | $ | 166 | Net investment gains (losses) | |||||||||||
| (35) | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | 131 | Net of tax | ||||||||||||
| Unrealized gains (losses) on derivatives | $ | (4) | Net investment gains (losses) | |||||||||||
| (1) | Net investment income | |||||||||||||
| (5) | Total before tax | |||||||||||||
| 1 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | (4) | Net of tax | ||||||||||||
| Amortization of defined benefit pension items: | ||||||||||||||
| Actuarial gains (losses) | $ | 0 | Acquisition and operating expenses*(2)* | |||||||||||
| Prior service (cost) credit | 0 | Acquisition and operating expenses*(2)* | ||||||||||||
| 0 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | 0 | Net of tax | ||||||||||||
| Total reclassifications for the period | $ | 127 | Net of tax |
(1) Based on 21% tax rate
(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost (see Note 14 for additional details).
| (In millions) | 2022 | |||||||||||||
| Details about Accumulated Other Comprehensive Income Components | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statements of Earnings | ||||||||||||
| Unrealized gains (losses) on available-for-sale securities | $ | 453 | Net investment gains (losses) | |||||||||||
| (95) | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | 358 | Net of tax | ||||||||||||
| Unrealized gains (losses) on derivatives | $ | (4) | Net investment gains (losses) | |||||||||||
| (1) | Net investment income | |||||||||||||
| (5) | Total before tax | |||||||||||||
| 1 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | (4) | Net of tax | ||||||||||||
| Amortization of defined benefit pension items: | ||||||||||||||
| Actuarial gains (losses) | $ | (24) | Acquisition and operating expenses*(2)* | |||||||||||
| Prior service (cost) credit | 0 | Acquisition and operating expenses*(2)* | ||||||||||||
| 5 | Tax (expense) or benefit*(1)* | |||||||||||||
| $ | (19) | Net of tax | ||||||||||||
| Total reclassifications for the period | $ | 335 | Net of tax |
(1) Based on 21% tax rate
(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost (see Note 14 for additional details).
Item 8. Financial Statements and Supplementary Data
12. SHARE-BASED COMPENSATION
As of December 31, 2024, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (As Amended and Restated February 14, 2017), as further amended on August 9, 2022 (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 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, 2024, approximately 33.6 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to the Company's financial performance. As of December 31, 2024, 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 generally vest on a ratable basis over three years. The Compensation Committee of the board of directors has the discretion to determine vesting schedules.
Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares.
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 years ended December 31.
| (In millions, except for per-share amounts) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Impact on earnings from continuing operations | $ | 72 | $ | 79 | $ | 69 | |||||||||||||||||||||||||||||
| Impact on earnings before income taxes | 72 | 79 | 69 | ||||||||||||||||||||||||||||||||
| Impact on net earnings | 57 | 62 | 55 | ||||||||||||||||||||||||||||||||
| Impact on net earnings per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | .10 | $ | .10 | $ | .09 | |||||||||||||||||||||||||||||
| Diluted | .10 | .10 | .09 |
Item 8. Financial Statements and Supplementary Data
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, 2021 | 2,145 | $ | 31.02 | ||||||||||||||||||||
| Granted in 2022 | 0 | 0.00 | |||||||||||||||||||||
| Canceled in 2022 | (8) | 32.43 | |||||||||||||||||||||
| Exercised in 2022 | (560) | 28.11 | |||||||||||||||||||||
| Outstanding at December 31, 2022 | 1,577 | 32.05 | |||||||||||||||||||||
| Granted in 2023 | 0 | 0.00 | |||||||||||||||||||||
| Canceled in 2023 | 0 | 24.75 | |||||||||||||||||||||
| Exercised in 2023 | (526) | 30.35 | |||||||||||||||||||||
| Outstanding at December 31, 2023 | 1,051 | 32.90 | |||||||||||||||||||||
| Granted in 2024 | 0 | 0.00 | |||||||||||||||||||||
| Canceled in 2024 | (3) | 31.21 | |||||||||||||||||||||
| Exercised in 2024 | (425) | 31.40 | |||||||||||||||||||||
| Outstanding at December 31, 2024 | 623 | $ | 33.92 |
| (In thousands of shares) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Shares exercisable, end of year | 623 | 1,051 | 1,577 |
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. There were no options granted in 2024, 2023 or 2022. The following table presents the assumptions used in valuing options granted, if applicable, during the years ended December 31.
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Expected term (years) | 8.0 | 8.0 | 7.8 | ||||||||||||||||||||||||||||||||
| Expected volatility | 26.8 | % | 26.7 | % | 25.8 | % | |||||||||||||||||||||||||||||
| Annual forfeiture rate | 4.4 | 4.2 | 4.0 | ||||||||||||||||||||||||||||||||
| Risk-free interest rate | 4.0 | 3.0 | 1.6 | ||||||||||||||||||||||||||||||||
| Dividend yield | 2.4 | 2.3 | 2.7 |
The following table summarizes information about stock options outstanding and exercisable at December 31, 2024.
| (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 | - | $ | 28.97 | 173 | 1.1 | $ | 28.96 | 173 | $ | 28.96 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 28.97 | - | 31.21 | 76 | 0.5 | 30.30 | 76 | 30.30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 31.21 | - | 36.21 | 252 | 1.9 | 34.84 | 252 | 34.84 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 36.21 | - | 44.59 | 122 | 2.9 | 41.33 | 122 | 41.33 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 0.00 | - | $ | 44.59 | 623 | 1.7 | $ | 33.92 | 623 | $ | 33.92 |
Item 8. Financial Statements and Supplementary Data
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 $103.44 as of December 31, 2024, for those awards that have an exercise price currently below the closing price. As of December 31, 2024, the aggregate intrinsic value of stock options outstanding was $43 million, with a weighted-average remaining term of 1.7 years. The total number of in-the-money stock options exercisable as of December 31, 2024, was 623 thousand shares. The aggregate intrinsic value of stock options exercisable at that same date was $43 million, with a weighted-average remaining term of 1.7 years.
The following table summarizes stock option activity during the years ended December 31.
| (In millions) | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| Total intrinsic value of options exercised | $ | 25 | $ | 22 | $ | 20 | |||||||||||||||||||||||||||||
| Cash received from options exercised | 13 | 16 | 16 | ||||||||||||||||||||||||||||||||
| Tax benefit realized as a result of options exercised and restricted stock releases | 28 | 20 | 18 |
Performance-Based Restricted Stock Awards and Units
Under the Plan, each February, the Company grants selected executive officers performance-based restricted stock awards (PBRS) and performance-based restricted stock units (PSU) with vesting contingent upon meeting various performance goals. PBRS and PSU are generally granted at-the-money and contingently cliff vest over a period of three years, generally subject to continued employment. In February 2024, the Company granted 303 thousand performance-based stock awards and units, which are contingent on the achievement of the Company's financial performance metrics and its market-based conditions. On the date of grant, the Company estimated the fair value of restricted stock awards 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 and PSU issued, with the potential for no award if company performance goals are not achieved during the three-year period. PBRS and PSU subject to accelerated vesting at the date of retirement eligibility are expensed over the implicit service period.
The Company also granted selected executive officers PSU throughout the year with vesting contingent upon meeting various performance goals. PSU are generally granted at-the-money and contingently cliff vest over a period of three years, generally subject to continued employment. In 2024, the Company granted 93 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 150% percent of the initial number of PSU issued, with the potential for no award if the Company determined metrics are not achieved during the three-year period. Compensation expense for PSU subject to accelerated vesting at the date of retirement eligibility is expensed 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 2024 follows:
| (In millions) | 2024 | ||||||||||
| Expected volatility (based on Aflac Inc. and peer group historical daily stock price) | 21.8 | % | |||||||||
| Expected life from grant date (years) | 2.9 | ||||||||||
| Risk-free interest rate (based on U.S. Treasury yields at the date of grant) | 4.3 | % |
Item 8. Financial Statements and Supplementary Data
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, 2021 | 2,557 | $ | 49.38 | ||||||||||||||||||||
| Granted in 2022 | 1,119 | 66.72 | |||||||||||||||||||||
| Canceled in 2022 | (96) | 54.59 | |||||||||||||||||||||
| Vested in 2022 | (1,166) | 49.64 | |||||||||||||||||||||
| Restricted stock at December 31, 2022 | 2,414 | 56.21 | |||||||||||||||||||||
| Granted in 2023 | 1,171 | 70.74 | |||||||||||||||||||||
| Canceled in 2023 | (112) | 60.62 | |||||||||||||||||||||
| Vested in 2023 | (1,165) | 52.77 | |||||||||||||||||||||
| Restricted stock at December 31, 2023 | 2,308 | 62.96 | |||||||||||||||||||||
| Granted in 2024 | 1,300 | 80.90 | |||||||||||||||||||||
| Canceled in 2024 | (48) | 74.68 | |||||||||||||||||||||
| Vested in 2024 | (1,461) | 47.22 | |||||||||||||||||||||
| Restricted stock at December 31, 2024 | 2,099 | $ | 73.65 |
As of December 31, 2024, total compensation cost not yet recognized in the Company's financial statements related to restricted stock awards and restricted stock units was $34 million, of which $14 million (1.8 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 1.7 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. For example, under Japanese regulatory accounting practices, policy acquisition costs are expensed immediately; policy benefit and claim reserving methods and assumptions are different; premiums are 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 current Japanese regulatory accounting practices, was $8.1 billion at both December 31, 2024 and 2023.
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 (NYSDFS). The NYSDFS 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.
Item 8. Financial Statements and Supplementary Data
Statutory Accounting Principles (SAP) as detailed by the National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual have 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 NYSDFS 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, 2024, and 2023.
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) | 2024 | 2023 | ||||||||||||
| Aflac | $ | 2,682 | $ | 2,881 | ||||||||||
| CAIC | 375 | 398 | ||||||||||||
| TOIC | 51 | 51 | ||||||||||||
| Aflac New York | 316 | 323 |
As of December 31, 2024, the capital and surplus for each of the Company's U.S. life insurance subsidiaries exceeded the required company action level capital and surplus.
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) | 2024 | 2023 | 2022 | ||||||||||||||
| Aflac | $ | 912 | $ | 1,106 | $ | 1,134 | |||||||||||
| CAIC | (94) | (121) | (69) | ||||||||||||||
| TOIC | (20) | (27) | (35) | ||||||||||||||
| Aflac New York | 46 | 54 | 67 |
Aflac Re is licensed by the BMA as a long-term insurer and is subject to the Bermuda Insurance Act of 1978 (Bermuda Insurance Act). Aflac Re is required to file an annual return for its Bermuda Solvency Capital Requirement (BSCR) which utilizes an Economic Balance Sheet (EBS) framework to determine Aflac Re’s Enhanced Capital Requirement (ECR). Aflac Re is also subject to a Minimum Margin of Solvency (MMS) related to its statutory financial statements. The MMS is equal to the greater of $500,000, 1.5% of the total statutory assets, or 25% of ECR.
Under the EBS framework, Aflac Re is required to value assets equal to U.S. GAAP fair values, and insurance reserves are valued using technical provisions which consist of a best estimate liability plus a risk margin. The best estimate liability can be calculated by applying the standard approach or, with regulatory approval, the scenario-based approach. The standard approach uses discount rates for insurance reserves as prescribed by the BMA. The scenario-based approach uses a discount rate based on the yield of eligible assets owned by the insurer as determined using a series of prescribed stress scenarios. At December 31, 2024 and 2023, Aflac Re was in compliance with the ECR and MMS requirements. Statutory capital and surplus of Aflac Re, based on Bermuda statutory accounting practices, was $581 million at December 31, 2024, compared with $439 million at December 31, 2023.
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 subsidiaries. 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 risk-based capital (RBC) for U.S. regulatory authorities, Aflac Japan must maintain adequate solvency margins for Japanese regulatory authorities, and Aflac Re must maintain minimum capital requirements for Bermuda 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
Item 8. Financial Statements and Supplementary Data
surplus as of the previous year-end. In 2024, Aflac declared dividends of $976 million, compared with $894 million in 2023. Dividends declared by Aflac during 2025 in excess of $912 million would require such approval. CAIC and TOIC did not declare dividends in 2024 or 2023. 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 NYSDFS. Aflac New York declared dividends of $54 million in 2024 and $67 million in 2023, which were authorized by the NYSDFS.
Aflac Japan is required to meet certain financial criteria as governed by the Companies Act of Japan in order to provide dividends to the Parent Company. Under these criteria, dividend capacity at Aflac Japan is 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. Profits remitted by Aflac Japan to the Parent Company were as follows for the years ended December 31:
| In Dollars | In Yen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions of dollars and billions of yen) | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Profit remittances | $ | 2,865 | $ | 2,623 | $ | 2,412 | ¥ | 441.6 | ¥ | 374.7 | ¥ | 324.2 |
Under the Bermuda Insurance Act, Aflac Re is prohibited from paying dividends in an amount that exceeds 25% of the prior year's statutory capital and surplus without an affidavit stating that Aflac Re will continue to meet its solvency margin. Further, Aflac Re may not reduce its total statutory capital by 15% or more without prior regulatory approval. Additionally, Aflac Re is not permitted to pay any dividends that would cause Aflac Re to fail to meet its minimum capital requirements. Aflac Re did not declare dividends in 2024 or 2023.
14. BENEFIT PLANS
Pension and Other Postretirement Plans
The Company has funded defined benefit plans in Japan and the U.S.; however, future benefits under the U.S. plan were frozen effective January 1, 2024, which resulted in the Company recognizing a curtailment gain of $49 million in 2023. As part of the U.S. plan freeze, the company offered lump sum payments to certain participants. The lump sum payments were distributed in the fourth quarter of 2024 and resulted in a settlement charge of $18 million in 2024 due to the payments being greater than the settlement threshold. In January 2025, the Company purchased a nonparticipating single premium group annuity contract from an external insurer to settle its obligations under the U.S. defined pension plan and paid to the insurer the related annuity premium. Effective April 1, 2025, the external insurer will begin making annuity payments to plan participants.
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, future benefits under the Company's Supplemental Executive Retirement Plan and Retirement Plan for Senior Officers were frozen effective January 1, 2024, provided that actively employed participants may continue to accrue service toward eligibility for early retirement benefits or delayed early retirement benefits.
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.
Item 8. Financial Statements and Supplementary Data
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) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Projected benefit obligation: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation, beginning of year | $ | 324 | $ | 327 | $ | 764 | $ | 843 | $ | 25 | $ | 32 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | 14 | 14 | 0 | 7 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest cost | 8 | 9 | 36 | 41 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial (gain) loss | (18) | 7 | (7) | 37 | 2 | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benefits and expenses paid | (16) | (13) | (32) | (58) | (5) | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Curtailment (gain) loss | 0 | 0 | 0 | (106) | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement | 0 | 0 | (177) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of foreign exchange rate changes | (30) | (20) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benefit obligation, end of year | 282 | 324 | 584 | 764 | 23 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plan assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets, beginning of year | 344 | 335 | 648 | 659 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actual return on plan assets | 27 | 17 | (8) | 39 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employer contributions | 27 | 27 | 8 | 8 | 5 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benefits and expenses paid | (16) | (13) | (32) | (58) | (5) | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement | 0 | 0 | (177) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effect of foreign exchange rate changes | (37) | (22) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets, end of year | 345 | 344 | 439 | 648 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Funded status of the plans**(1)** | $ | 63 | $ | 20 | $ | (145) | $ | (116) | $ | (23) | $ | (25) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts recognized in accumulated other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial (gain) loss | $ | (10) | $ | 30 | $ | 1 | $ | (13) | $ | 4 | $ | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prior service (credit) cost | 0 | 0 | (1) | (2) | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total included in accumulated other comprehensive income | $ | (10) | $ | 30 | $ | 0 | $ | (15) | $ | 4 | $ | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated benefit obligation | $ | 184 | $ | 213 | $ | 584 | $ | 764 | N/A | N/A |
(1) Underfunded amounts are recognized in other liabilities in the consolidated balance sheets and overfunded amounts are recognized in other assets in the consolidated balance sheets
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) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated benefit obligation | $ | 184 | $ | 213 | $ | 584 | $ | 764 | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets | 345 | 344 | 439 | 648 |
Information for Pension Plans with a Projected Benefit Obligation in Excess of Plan Assets
| Pension Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan (1) | U.S.(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Projected benefit obligation | $ | 282 | $ | 324 | $ | 584 | $ | 764 | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets | 345 | 344 | 439 | 648 |
(1) The net amount of projected benefit obligation and plan assets for the overfunded Japan pension plan was $63 and $20 at December 31, 2024 and 2023, respectively, and was classified as other assets 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 $145 and $116 at December 31, 2024 and 2023, respectively, and was classified as other 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average actuarial assumptions: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate - net periodic benefit cost | 1.84 | % | 1.95 | % | .94 | % | 5.33 | % | (1) | 5.24 | % | (2) | 2.94 | % | 5.04 | % | 5.28 | % | 2.94 | % | ||||||||||||||||||||||||||||||||||||||||||
| Discount rate - benefit obligations | 2.31 | 1.84 | 1.95 | 5.60 | 5.04 | 5.28 | 5.60 | 5.04 | 5.28 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected long-term return on plan assets | 2.00 | 2.00 | 2.00 | 4.75 | 4.75 | 5.50 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rate of compensation increase | 5.90 | N/A | N/A | N/A | 4.00 | 4.00 | N/A | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Health care cost trend rates | N/A | N/A | N/A | N/A | N/A | N/A | 6.30 | (3) | 6.80 | (3) | 6.50 | (3) |
(1) An interim valuation was required due to the U.S. pension plan settlement. The rate shown is the rate used on the interim valuation date of November 1, 2024.
(2) An interim valuation was required due to the U.S. pension plan curtailment. The rate shown is the rate used on the interim valuation date of June 12, 2023.
(3) For the years 2024, 2023 and 2022, the health care cost trend rates are expected to trend down to 3.7% in 49 years, 3.7% in 50 years, and 3.7% in 51 years, respectively.
The Company determines its discount rate assumption for its U.S. pension retirement obligations based on indices for AA corporate bonds with an average duration of approximately 11 years, and determination of the U.S. pension plan discount rate utilizes the 85-year extrapolated yield curve. In Japan, the discount rate assumption is determined using the yield curve equivalent approach, and participant salary and future salary increases are 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 are modeled to determine a best estimate of the long-term rate of return. The Company in turn uses 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 $24 million, $(39) million and $14 million of other components of net periodic pension cost and postretirement costs (other than service costs) for the years ended December 31, 2024, 2023 and 2022, respectively. Total net periodic benefit cost includes the following components:
| Pension Benefits | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan | U.S. | Postretirement Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 14 | $ | 14 | $ | 19 | $ | 0 | $ | 7 | $ | 26 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest cost | 8 | 9 | 5 | 36 | 41 | 34 | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (7) | (7) | (8) | (30) | (34) | (42) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of net actuarial (gain) loss | 0 | 0 | 1 | (1) | (2) | 21 | 0 | 2 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost (credit) | 0 | 0 | 0 | (1) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Curtailment (gain) loss | 0 | 0 | 0 | 0 | (49) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement (gain) loss | 0 | 0 | 0 | 18 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | $ | 15 | $ | 16 | $ | 17 | $ | 22 | $ | (37) | $ | 39 | $ | 1 | $ | 3 | $ | 3 |
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) | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net actuarial (gain) loss | $ | (40) | $ | (5) | $ | (14) | $ | 31 | $ | 31 | $ | (127) | $ | 2 | $ | (4) | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of net actuarial gain (loss) | 0 | 0 | (1) | 1 | 2 | (21) | 0 | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost | 0 | 0 | 0 | 1 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Curtailment (gain) loss | 0 | 0 | 0 | 0 | (57) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement (gain) loss | 0 | 0 | 0 | (18) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | (40) | $ | (5) | $ | (15) | $ | 15 | $ | (24) | $ | (148) | $ | 2 | $ | (6) | $ | (2) |
No transition obligations arose during 2024.
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 | ||||||||||||||||||||||||||||||||
| 2025 | $ | 16 | $ | 37 | $ | 4 | |||||||||||||||||||||||||||||
| 2026 | 10 | 37 | 4 | ||||||||||||||||||||||||||||||||
| 2027 | 11 | 43 | 3 | ||||||||||||||||||||||||||||||||
| 2028 | 11 | 42 | 2 | ||||||||||||||||||||||||||||||||
| 2029 | 12 | 42 | 2 | ||||||||||||||||||||||||||||||||
| 2030-2034 | 72 | 212 | 3 |
Item 8. Financial Statements and Supplementary Data
Funding
The Company plans to make contributions of $23 million to the Japanese funded defined benefit plan in 2025. The Company does not plan to make any contributions to the U.S. funded defined benefit plan in 2025. The Company did not make a contribution to the U.S. funded defined benefit plan in 2024. 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.
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. In January 2025, the assets of the U.S. defined benefit plan were moved to cash in anticipation of plan termination. 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, 2024 were as follows:
| Japan Pension | U.S. Pension | |||||||||||||||||||||||||
| Domestic equities | 8 | % | 0 | % | ||||||||||||||||||||||
| International equities | 10 | 0 | ||||||||||||||||||||||||
| Fixed income securities | 45 | 99 | ||||||||||||||||||||||||
| Other | 37 | 1 | ||||||||||||||||||||||||
| Total | 100 | % | 100 | % |
The following tables present the fair value of Aflac Japan's pension plan assets that are measured at fair value on a recurring basis as of December 31.
| 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | |||||||||||||||||||||||||||||||||||||||||||
| Japan pension plan assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Equities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Japanese equity securities | $ | 0 | $ | 29 | $ | 0 | $ | 29 | |||||||||||||||||||||||||||||||||||||||
| International equity securities | 0 | 36 | 0 | 36 | |||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Japanese bonds | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| International bonds | 0 | 154 | 0 | 154 | |||||||||||||||||||||||||||||||||||||||||||
| Insurance contracts | 0 | 64 | 0 | 64 | |||||||||||||||||||||||||||||||||||||||||||
| Alternative investments | 0 | 0 | 62 | 62 | |||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 0 | $ | 283 | $ | 62 | $ | 345 |
Item 8. Financial Statements and Supplementary Data
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | |||||||||||||||||||||||||||||||||||||||||||
| Japan pension plan assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Equities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Japanese equity securities | $ | 0 | $ | 21 | $ | 0 | $ | 21 | |||||||||||||||||||||||||||||||||||||||
| International equity securities | 0 | 38 | 0 | 38 | |||||||||||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Japanese bonds | 0 | 22 | 0 | 22 | |||||||||||||||||||||||||||||||||||||||||||
| International bonds | 0 | 194 | 0 | 194 | |||||||||||||||||||||||||||||||||||||||||||
| Insurance contracts | 0 | 26 | 0 | 26 | |||||||||||||||||||||||||||||||||||||||||||
| Alternative investments | 0 | 0 | 16 | 16 | |||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 27 | 0 | 0 | 27 | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 27 | $ | 301 | $ | 16 | $ | 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.
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| U.S. pension plan assets: | |||||||||||||||||||||||
| Mutual funds: | |||||||||||||||||||||||
| Fixed income bond funds | 435 | $ | 648 | ||||||||||||||||||||
| Cash and cash equivalents | 4 | 0 | |||||||||||||||||||||
| Total | $ | 439 | $ | 648 |
The fair values of the Company's pension plan investments categorized as Level 1, consisting of mutual funds, 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. The fair values of the Company's pension plan investments classified as Level 3 are based on certain inputs that are not observable in an active market including the difference between contract rates and market rates, the difference of interest spread on contract and interest spread on market and the appraisal value of collateralized real estate.
The following table presents the changes in fair value of Aflac Japan's pension plan assets that are classified as Level 3 for the years ended December 31.
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Alternative investments: | |||||||||||||||||||||||
| Balance, beginning of period | $ | 16 | $ | 0 | |||||||||||||||||||
| Actual return on plan assets: | |||||||||||||||||||||||
| Relating to assets still held at the reporting date | 2 | 0 | |||||||||||||||||||||
| Relating to assets sold during the period | 0 | 0 | |||||||||||||||||||||
| Purchases, sales and settlements | 44 | 16 | |||||||||||||||||||||
| Transfers in and/or out of Level 3 | 0 | 0 | |||||||||||||||||||||
| Balance, end of period | $ | 62 | $ | 16 |
Item 8. Financial Statements and Supplementary Data
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, in 2024, 2023, and 2022, provided matching contributions by the Company of 100% of each employee's contributions which were not in excess of 4% of the employee's annual cash compensation. The Company also provides a nonelective contribution to the 401(k) plan of 4% of annual cash compensation. Effective January 1, 2024, the nonelective 401(k) employer contribution was extended to U.S. employees who were participants in the defined benefit plan prior to the freeze of future benefits on January 1, 2024.
The 401(k) contributions by the Company, included in acquisition and operating expenses in the consolidated statements of earnings, were $21 million in 2024 and $20 million in 2023 and $18 million in 2022. The plan trustee held approximately 1.9 million shares of the Company's common stock for plan participants at December 31, 2024.
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 $21 million in 2024 and $19 million in 2023 and $16 million in 2022.
15. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has an outsourcing agreement with a technology and consulting corporation that provides for mainframe computer operations, distributed mid-range server computer operations, and related support for Aflac Japan. The agreement has a remaining term of four years with an aggregate remaining cost of ¥43.4 billion ($274 million using the December 31, 2024 exchange rate).
The Company has three outsourcing agreements with a management consulting and technology services company. The first agreement provides for application maintenance and development services for Aflac Japan. The first agreement has a remaining term of four years with an aggregate remaining cost of ¥14.7 billion ($93 million using the December 31, 2024 exchange rate). The second agreement provides for policy administrative services for Aflac Japan. The second agreement has a remaining term of four years with an aggregate remaining cost of ¥6.8 billion ($43 million using the December 31, 2024 exchange rate). The third agreement provides for comprehensive project-related support services for Aflac Japan. The third agreement has a remaining term of two years with an aggregate remaining cost of ¥2.3 billion ($15 million using the December 31, 2024 exchange rate).
The Company has two outsourcing agreements with information technology and data services companies to provide application maintenance and development services for Aflac Japan. The first agreement has a remaining term of less than a year with an aggregate remaining cost of ¥1.1 billion ($7 million using the December 31, 2024, exchange rate). The second agreement has a remaining term of less than a year with an aggregate remaining cost of ¥1.8 billion ($11 million using the December 31, 2024 exchange rate).
The Company has an enterprise agreement with an information technology and data services company to license software for Aflac Japan. The agreement has a remaining term of two years with an aggregate remaining cost of ¥1.5 billion ($10 million using the December 31, 2024 exchange rate).
The Company has an outsourcing agreement with an information technology and software company to provide application maintenance and development services for Aflac Japan. The agreement has a remaining term of one year with an aggregate remaining cost of ¥.9 billion ($6 million using the December 31, 2024 exchange rate).
The Company has an outsourcing agreement with an information technology and data services company to provide cloud hosting services for the Company. The agreement has a remaining term of three years with an aggregate remaining cost of $54 million.
The Company has a comprehensive agreement with a cloud-based software company to license software for Aflac Japan. The agreement has a remaining term of five years with an aggregate remaining cost of ¥8.0 billion ($51 million using the December 31, 2024 exchange rate).
Item 8. Financial Statements and Supplementary Data
The Company is a defendant in various lawsuits and receives various regulatory inquiries considered to be in the normal course of business. Members of the Company's senior legal and financial management teams review litigation and regulatory inquiries on a quarterly and annual basis. The final results of any litigation or regulatory inquiries 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 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.
Guaranty fund assessments for the years ended December 31, 2024, 2023 and 2022 were immaterial.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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