Item 1. Financial Statements.

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Item 1. Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except for share and per-share amounts - Unaudited)	2022			2021			2022			2021
Revenues:
Net earned premiums, principally supplemental health insurance		$	3,849		$	4,441		$	8,028		$	9,034
Net investment income		937			993			1,840			1,918
Net investment gains (losses)		564			89			686			396
Other income (loss)		50			41			118			85
Total revenues		5,400			5,564			10,672			11,433
Benefits and expenses:
Benefits and claims, net		2,298			2,653			4,785			5,387
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		268			280			590			592
Insurance commissions		279			315			579			641
Insurance and other expenses (1)		799			881			1,629			1,712
Interest expense		55			62			112			124
Total acquisition and operating expenses		1,401			1,538			2,910			3,069
Total benefits and expenses		3,699			4,191			7,695			8,456
Earnings before income taxes		1,701			1,373			2,977			2,977
Income taxes		313			268			557			579
Net earnings		$	1,388		$	1,105		$	2,420		$	2,398
Net earnings per share:
Basic		$	2.17		$	1.63		$	3.75		$	3.51
Diluted		2.16			1.62			3.73			3.49
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		640,707			678,050			645,205			683,464
Diluted		643,243			680,920			648,010			686,400
Cash dividends per share		$	.40		$	.33		$	.80		$	.66

(1) Includes expense of $48 in the three- and six-month periods ended June 30, 2021 for the early extinguishment of debt.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions - Unaudited)	2022			2021			2022			2021
Net earnings		$	1,388		$	1,105		$	2,420		$	2,398
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		(779)			25			(1,246)			(557)
Unrealized gains (losses) on fixed maturity securities:
Unrealized holding gains (losses) on fixed maturity securities during period		(3,503)			1,522			(8,254)			(481)
Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings		(114)			(5)			(192)			15
Unrealized gains (losses) on derivatives during period		0			1			1			1
Pension liability adjustment during period		5			0			8			6
Total other comprehensive income (loss) before income taxes		(4,391)			1,543			(9,683)			(1,016)
Income tax expense (benefit) related to items of other comprehensive income (loss)		(730)			331			(1,742)			(101)
Other comprehensive income (loss), net of income taxes		(3,661)			1,212			(7,941)			(915)
Total comprehensive income (loss)		$	(2,273)		$	2,317		$	(5,521)		$	1,483

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets


(In millions, except for share and per-share amounts)	June 30, 2022 (Unaudited)			December 31, 2021
Assets:
Investments and cash:
Fixed maturity securities available for sale, at fair value, (no allowance for credit losses in 2022 and 2021, amortized cost $71,551 in 2022 and $82,105 in 2021)		$	75,611		$	94,206
Fixed maturity securities available for sale - consolidated variable interest entities, at fair value (amortized cost $2,995 in 2022 and $3,264 in 2021)		3,820			4,490
Fixed maturity securities held to maturity, at amortized cost, net of allowance for credit losses of $7 in 2022 and $8 in 2021 (fair value $21,532 in 2022 and $26,869 in 2021)		18,507			22,000
Equity securities, at fair value		1,149			1,603
Commercial mortgage and other loans, net of allowance for credit losses of $170 in 2022 and $174 in 2021 (includes $10,630 in 2022 and $9,740 in 2021 of consolidated variable interest entities)		13,053			11,786
Other investments (includes $1,823 in 2022 and $1,535 in 2021 of consolidated variable interest entities)		4,102			3,842
Cash and cash equivalents		5,173			5,051
Total investments and cash		121,415			142,978
Receivables		687			693
Accrued investment income		714			737
Deferred policy acquisition costs		8,458			9,525
Property and equipment, at cost less accumulated depreciation		512			538
Other		3,843			3,071
Total assets		$	135,629		$	157,542
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	78,210		$	90,588
Unpaid policy claims		4,453			4,836
Unearned premiums		1,971			2,576
Other policyholders’ funds		5,984			7,072
Total policy liabilities		90,618			105,072
Income taxes		2,275			4,339
Payables for return of cash collateral on loaned securities		3,261			2,162
Notes payable and lease obligations		7,416			7,956
Other		5,672			4,760
Total liabilities		109,242			124,289
Commitments and contingent liabilities (Note 12)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2022 and 2021; issued 1,353,871 shares in 2022 and 1,352,739 shares in 2021		135			135
Additional paid-in capital		2,589			2,529
Retained earnings		43,547			41,381
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(3,289)			(2,013)
Unrealized gains (losses) on fixed maturity securities		2,930			9,602
Unrealized gains (losses) on derivatives		(29)			(30)
Pension liability adjustment		(160)			(166)
Treasury stock, at average cost		(19,336)			(18,185)
Total shareholders’ equity		26,387			33,253
Total liabilities and shareholders’ equity		$	135,629		$	157,542

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity


(In millions, except for per share amounts - Unaudited)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders' Equity
Balance at December 31, 2021	$	135	$	2,529	$	41,381	$	7,393	$	(18,185)	$	33,253
Net earnings	0		0		1,032		0		0		1,032
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		(469)		0		(469)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(3,815)		0		(3,815)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		1		0		1
Pension liability adjustment during period, net of income taxes	0		0		0		3		0		3
Dividends to shareholders (1) ($.00 per share)	0		0		0		0		0		0
Exercise of stock options	0		6		0		0		0		6
Share-based compensation	0		13		0		0		0		13
Purchases of treasury stock	0		0		0		0		(523)		(523)
Treasury stock reissued	0		12		0		0		14		26
Balance at March 31, 2022	$	135	$	2,560	$	42,413	$	3,113	$	(18,694)	$	29,527
Net earnings	0		0		1,388		0		0		1,388
Unrealized foreign currency translation gains (losses) during period, net of income taxes	0		0		0		(807)		0		(807)
Unrealized gains (losses) on fixed maturity securities during period, net of income taxes and reclassification adjustments	0		0		0		(2,857)		0		(2,857)
Unrealized gains (losses) on derivatives during period, net of income taxes	0		0		0		0		0		0
Pension liability adjustment during period, net of income taxes	0		0		0		3		0		3
Dividends to shareholders (1) ($.40 per share)	0		0		(254)		0		0		(254)
Exercise of stock options	0		1		0		0		0		1
Share-based compensation	0		19		0		0		0		19
Purchases of treasury stock	0		0		0		0		(650)		(650)
Treasury stock reissued	0		9		0		0		8		17
Balance at June 30, 2022	$	135	$	2,589	$	43,547	$	(548)	$	(19,336)	$	26,387

(1) Dividends to shareholders are recorded in the period in which they are declared.

See the accompanying Notes to the Consolidated Financial Statements.

(continued)

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity (continued)


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

(1) Dividends to shareholders are recorded in the period in which they are declared.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows


	Six Months Ended June 30,
(In millions - Unaudited)	2022			2021
Cash flows from operating activities:
Net earnings		$	2,420		$	2,398
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Change in receivables and advance premiums		(29)			(4)
Capitalization of deferred policy acquisition costs		(509)			(515)
Amortization of deferred policy acquisition costs		590			592
Increase in policy liabilities		357			478
Change in income tax liabilities		52			98
Net investment (gains) losses		(686)			(396)
Other, net		(425)			(323)
Net cash provided (used) by operating activities		1,770			2,328
Cash flows from investing activities:
Proceeds from investments sold or matured:
Available-for-sale fixed maturity securities		2,164			1,468
Equity securities		398			124
Held-to-maturity fixed maturity securities		2			2
Commercial mortgage and other loans		1,270			1,679
Costs of investments acquired:
Available-for-sale fixed maturity securities		(2,395)			(3,365)
Equity securities		(320)			(258)
Commercial mortgage and other loans		(2,537)			(2,376)
Other investments, net		(180)			(685)
Settlement of derivatives, net		(330)			155
Cash received (pledged or returned) as collateral, net		1,839			2,412
Other, net		172			5
Net cash provided (used) by investing activities		83			(839)
Cash flows from financing activities:
Purchases of treasury stock		(1,150)			(1,150)
Proceeds from borrowings		0			1,153
Principal payments under debt obligations		0			(700)
Dividends paid to shareholders		(498)			(430)
Change in investment-type contracts, net		(41)			(24)
Treasury stock reissued		10			13
Other, net		35			(3)
Net cash provided (used) by financing activities		(1,644)			(1,141)
Effect of exchange rate changes on cash and cash equivalents		(87)			(20)
Net change in cash and cash equivalents		122			328
Cash and cash equivalents, beginning of period		5,051			5,141
Cash and cash equivalents, end of period		$	5,173		$	5,469
Supplemental disclosures of cash flow information:
Income taxes paid		$	505		$	480
Interest paid		104			109
Noncash interest		8			14
Noncash financing activities:
Lease obligations		66			30
Treasury stock issued for:
Associate stock bonus		8			8
Shareholder dividend reinvestment		19			16
Share-based compensation grants		6			4

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Notes to the Consolidated Financial Statements

(Interim period data – Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States (U.S.) and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac) in the U.S. and through Aflac Life Insurance Japan Ltd. (ALIJ) in Japan. The Company’s operations consist of two reportable business segments: Aflac U.S., which includes Aflac, and Aflac Japan, which includes ALIJ. American Family Life Assurance Company of New York (Aflac New York) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. With the exception of dental and vision products administered by Aflac Benefits Solutions, Inc. (ABS), formerly known as Argus Dental & Vision, Inc., and certain group life insurance products, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. The Company's insurance operations in the U.S. and Japan service the two markets for the Company's insurance business. Aflac Japan's revenues, including net gains and losses on its investment portfolio, accounted for 69% of the Company's total revenues in both of the six-month periods ended June 30, 2022 and 2021. The percentage of the Company's total assets attributable to Aflac Japan was 79% at June 30, 2022, compared with 82% at December 31, 2021.

Basis of Presentation

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

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

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of June 30, 2022 and December 31, 2021, the consolidated statements of earnings and comprehensive income (loss) for the three- and six-month periods ended June 30, 2022 and 2021, the consolidated statement of shareholders' equity for the three-month periods ended March 31, 2022 and 2021 and June 30, 2022 and 2021, and the consolidated statement of cash flows for the six-month periods ended June 30, 2022 and 2021. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2021 (2021 Annual Report).

Market Conditions: The impact of the Coronavirus Disease 2019 (COVID-19) global pandemic on the Company continues to evolve and the continued path of the global economic recovery remains uncertain given the potential longer term impacts of the pandemic. For example, economic conditions have acted as headwinds to sales in the first six months of 2022, particularly in Japan and most notably in the first quarter with a gradually decreasing impact in the second quarter, pressuring premium growth rates. Further, in the U.S., supply shortages, upward pressure on wages to attract employees and higher commodity prices have all driven near-term increases in inflation. Central bank and government efforts to control inflation, as well the impacts of the Russia-Ukraine conflict, including volatility in energy prices and additional disruptions in the global supply chain, could lead to slower economic growth in Japan and the U.S. Additionally,

continued widening of the differential between U.S. and Japan interest rates has contributed to a weakening of the yen, which has the effect of suppressing the Company's current period results in relation to the comparable prior period.

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

Accounting Pronouncements Pending Adoption

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 will significantly change how insurers account for long-duration contracts. The amendments will change existing recognition, measurement, presentation, and disclosure requirements. Issues addressed in the new guidance include: 1) a requirement to review and, if there is a change, update assumptions for the liability for future policy benefits (LFPB) at least annually, and to update the discount rate assumption quarterly, 2) accounting for market risk benefits at fair value, 3) simplified amortization for deferred acquisition costs, and 4) enhanced financial statement presentation and disclosures.

In November 2019, the FASB issued an amendment extending the effective date for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be small reporting companies as defined by the SEC, by one year.

In November 2020, the FASB issued an amendment providing an additional year deferral for all insurance entities due to the impact of COVID-19. The amendments are now effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application of the amendments is permitted.

The Company continues to evaluate the impact of adoption and has determined that the adoption will have a significant impact on the Company’s financial position, results of operations, and disclosures. The requirement to update assumptions for LFPB will have a significant impact on the Company's results of operations, systems, processes and controls and the requirement to update discount rates will have a significant impact on its equity.

As part of working toward implementation of the updated standard, the Company has made progress on key accounting policy decisions, including processes to identify insurance policy groupings (cohorts) for LFPB measurement and DAC amortization purposes, applicable discount rates, development of liability cash flow and claim expense assumptions, and DAC amortization methodology.

The Company will not early adopt the updated standard and has selected the modified retrospective transition method, which requires the amended guidance be applied as of the beginning of the earliest period presented beginning 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 calculates the ratio of expected benefits less existing carrying values to gross premiums (net premium ratio) using updated assumptions and the discount rate immediately before the Transition Date. For any cohorts that have a net premium ratio greater than 100% on the Transition Date, the net premium ratio will be capped at 100%. The Company uses the net premium ratio calculated on the Transition Date (and capped at 100% if required) to calculate the LFPB using 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 net premium ratio capped at 100% on the Transition Date, 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 is recorded as an adjustment (decrease) to opening retained earnings. For all cohorts on the Transition Date, 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) is recorded in accumulated other comprehensive income (AOCI) net of tax at transition.

When the Company adopts the updated standard beginning January 1, 2023, opening equity will be adjusted for the Transition Date impacts to AOCI and retained earnings and prior periods presented (years 2021 and 2022) will be restated following the updated standard. Based on the modified retrospective transition method, the Company currently estimates

that the Transition Date impact from adoption is likely to result in a decrease in AOCI in a range between $18 billion and $19 billion and a decrease in retained earnings of approximately $0.3 billion. The variability around the impact of adoption results from the Company making certain estimates, primarily related to the determination of Transition Date market level yields.

The Company has advanced and continues to refine the design of its discount rate methodology for both the U.S. and Japan insurance business. The methodology incorporates constructing a discount rate curve separately for discounting cash flows used to calculate the U.S. and Japan LFPB, with each curve intended to be reflective of the currency, tenor and characteristics of the insurance liabilities. Discount rates comprising each curve will be determined by reference to upper-medium grade (low credit risk) fixed-income instrument yields that are intended to reflect the duration characteristics of the corresponding insurance liabilities. The Company intends to use 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 intends to select the fixed-income instruments with local ratings that are equivalent to a single-A rating based on international rating standards. The methodology will be 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 will use various estimation techniques consistent with the fair value guidance in ASC 820, 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. Discount rates will be updated each reporting period.

Long duration insurance contracts issued by the Company will be grouped into annual calendar-year cohorts based on the contract issue date, reportable segment, legal entity and product type. Limited pay contracts will be grouped into separate cohorts from other traditional products in the same manner and will be further separated based on their premium payment structures. Riders will be combined with base policies with similar insurance coverage types and the same contract issue years.

In addition to the preliminary policy elections related to cohorts and LFPB discount rates directly impacting Transition Date AOCI, the Company has also advanced the following accounting policies relevant to the post-Transition Date accounting:

Cash flow assumptions underlying insurance liabilities will be evaluated as to whether an update is needed at least annually in the same fiscal quarter each year. To facilitate the review, experience studies will be performed annually in the consistent quarter year-to-year to substantiate assumptions, including mortality, morbidity, and terminations in future periods.
Locked-in discount rates used for the computation of interest accretion on LFPB for policies issued on or after January 1, 2021 will be determined 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 over 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 will remain unchanged after the calendar year of issue. Locked-in discount rates on the policies held at Transition Date reflect the locked-in rates in existence immediately before the Transition Date.
For DAC amortization, the Company has made a preliminary policy election to group insurance policies into cohorts that are consistent with the groupings used in estimating the associated LFPB. DAC will be amortized on a constant-level basis for the grouped contracts over the expected remaining term of the related contracts. For both life and health products issued by Aflac Japan, the constant-level basis used will be units in force, which is a proxy for face amount and insurance in force, respectively. For life products issued by Aflac U.S., the constant level basis used will be face amount of policies in force; for health products issued by Aflac U.S., the constant level basis used will be the number of policies in force.
The Company has made a preliminary entity-wide election to use locked-in claim expense assumptions determined for each issue-year cohort as a percentage of paid claims; these assumptions would remain unchanged over the term of the insurance policy.

The Company has created a governance framework and a plan to support implementation of the updated standard. As part of its implementation plan, the Company has also advanced the modernization of its actuarial technology platform to enhance its modeling, data management, experience study and analytical capabilities, increase the end-to-end automation of key reporting and analytical processes and optimize its control framework. The Company has also put in

place internal controls related to the new processes created as part of implementing the updated standard and will continue to refine and maturate these internal controls until the formal implementation in the first quarter of 2023.

The Company continues testing its reporting and disclosure capabilities under the new ASU for post-Transition Date accounting periods.

The Company currently has no products with market risk benefits.

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

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on the Company's financial position, results of operations or disclosures, see Note 1 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

2. BUSINESS SEGMENT INFORMATION

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2022		2021		2022		2021
Revenues:
Aflac Japan:
Net earned premiums	$	2,419	$	2,987	$	5,143	$	6,111
Adjusted net investment income (1),(2)	723		792		1,402		1,497
Other income	9		10		18		22
Total adjusted revenue Aflac Japan	3,151		3,789		6,563		7,630
Aflac U.S.:
Net earned premiums	1,394		1,408		2,807		2,830
Adjusted net investment income (3)	193		189		377		366
Other income	41		30		83		58
Total adjusted revenue Aflac U.S.	1,628		1,627		3,267		3,254
Corporate and other (4),(5)	42		50		116		133
Total adjusted revenues	4,821		5,466		9,946		11,017
Net investment gains (losses) (1),(2),(3),(4)	579		98		726		416
Total revenues	$	5,400	$	5,564	$	10,672	$	11,433

(1) Amortized hedge costs of $30 and $17 for the three-month periods and $55 and $36 for the six-month periods ended June 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(2) Net interest cash flows from derivatives associated with certain investment strategies of $(2) and $(9) for the three-month periods and $(12) and $(17) for the six-month periods ended June 30, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(3) Net interest cash flows from derivatives associated with certain investment strategies of $1 for the three-month period and $2 for the six-month period ended June 30, 2022, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income when analyzing operations.

(4) Amortized hedge income of $14 and $16 for the three-month periods and $25 and $33 for the six-month periods ended June 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase to net investment income when analyzing operations.

(5) The change in value of federal historic rehabilitation and solar investments in partnerships of $31 and $30 for the three-month periods and $42 and $30 for the six-month periods ended June 30, 2022, and 2021, respectively, is included as a reduction to net investment income. Tax credits on these investments of $28 and $12 for the three-month periods and $44 and $25 for the six-month periods ended June 30, 2022, and 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2022		2021		2022		2021
Pretax earnings:
Aflac Japan (1),(2)	$	860	$	1,004	$	1,722	$	1,891
Aflac U.S. (3)	349		413		674		859
Corporate and other (4),(5),(6)	(75)		(76)		(120)		(102)
Pretax adjusted earnings (7)	1,134		1,341		2,276		2,648
Net investment gains (losses) (1),(2),(3),(4),(5)	567		85		701		388
Other income (loss)	0		(53)		0		(59)
Total earnings before income taxes	$	1,701	$	1,373	$	2,977	$	2,977
Income taxes applicable to pretax adjusted earnings	$	194	$	262	$	409	$	510
Effect of foreign currency translation on after-tax adjusted earnings	(57)		(6)		(94)		7

(1) Amortized hedge costs of $30 and $17 for the three-month periods and $55 and $36 for the six-month periods ended June 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies have been reclassified from net investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

(4) Amortized hedge income of $14 and $16 for the three-month periods and $25 and $33 for the six-month periods ended June 30, 2022, and 2021, respectively, related to certain foreign currency exposure management strategies has been reclassified from net investment gains (losses) and reported as an increase in net investment income when analyzing operations.

(5) A gain of $12 and $14 for the three-month periods and $25 and $27 for the six-month periods ended June 30, 2022, and 2021, respectively, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable has been reclassified from net investment gains (losses) and included in adjusted earnings when analyzing operations.

(6) The change in value of federal historic rehabilitation and solar investments in partnerships of $31 and $30 for the three-month periods and $42 and $30 for the six-month periods ended June 30, 2022, and 2021, respectively, is included as a reduction to net investment income. Tax credits on these investments of $28 and $12 for the three-month periods and $44 and $25 for the six-month periods ended June 30, 2022, and 2021, respectively, have been recorded as an income tax benefit in the consolidated statement of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

(7) Includes $41 and $45 for the three-month periods and $82 and $89 for the six-month periods ended June 30, 2022, and 2021, respectively, of interest expense on debt.

Assets were as follows:


(In millions)	June 30, 2022			December 31, 2021
Assets:
Aflac Japan		$	107,698		$	128,536
Aflac U.S.		20,828			23,106
Corporate and other		7,103			5,900
Total assets		$	135,629		$	157,542

3. INVESTMENTS

Investment Holdings

The amortized cost for the Company's investments in fixed maturity securities, the cost for equity securities and the fair values of these investments are shown in the following tables.


	June 30, 2022
(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	$	24,916	$	0	$	1,770	$	903	$	25,783
Municipalities	1,003		0		195		32		1,166
Mortgage- and asset-backed securities	245		0		11		6		250
Public utilities	3,816		0		375		52		4,139
Sovereign and supranational	639		0		44		2		681
Banks/financial institutions	6,081		0		421		343		6,159
Other corporate	6,136		0		858		187		6,807
Total yen-denominated	42,836		0		3,674		1,525		44,985
U.S. dollar-denominated:
U.S. government and agencies	180		0		1		5		176
Municipalities	1,274		0		76		48		1,302
Mortgage- and asset-backed securities	1,670		0		85		53		1,702
Public utilities	3,495		0		414		91		3,818
Sovereign and supranational	196		0		48		12		232
Banks/financial institutions	3,091		0		437		62		3,466
Other corporate	21,804		0		2,591		645		23,750
Total U.S. dollar-denominated	31,710		0		3,652		916		34,446
Total securities available for sale	$	74,546	$	0	$	7,326	$	2,441	$	79,431


	December 31, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	30,335	$	0	$	3,343	$	61	$	33,617
Municipalities	1,192		0		322		5		1,509
Mortgage- and asset-backed securities	300		0		19		1		318
Public utilities	4,462		0		906		2		5,366
Sovereign and supranational	760		0		82		0		842
Banks/financial institutions	6,963		0		787		72		7,678
Other corporate	7,148		0		1,535		26		8,657
Total yen-denominated	51,160		0		6,994		167		57,987
U.S. dollar-denominated:
U.S. government and agencies	196		0		8		1		203
Municipalities	1,340		0		189		2		1,527
Mortgage- and asset-backed securities	897		0		33		2		928
Public utilities	3,781		0		909		5		4,685
Sovereign and supranational	222		0		57		6		273
Banks/financial institutions	3,169		0		747		3		3,913
Other corporate	24,604		0		4,629		53		29,180
Total U.S. dollar-denominated	34,209		0		6,572		72		40,709
Total securities available for sale	$	85,369	$	0	$	13,566	$	239	$	98,696


	June 30, 2022
(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	$	17,743	$	3	$	17,740	$	2,866	$	0	$	20,606
Municipalities	280		0		280		66		0		346

Public utilities	37		0		37		6		0		43
Sovereign and supranational	436		4		432		82		0		514

Other corporate	18		0		18		5		0		23
Total yen-denominated	18,514		7		18,507		3,025		0		21,532
Total securities held to maturity	$	18,514	$	7	$	18,507	$	3,025	$	0	$	21,532


	December 31, 2021
(In millions)	Amortized Cost		Allowance for Credit Losses		Net Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies	$	21,089	$	3	$	21,086	$	4,613	$	0	$	25,699
Municipalities	335		0		335		101		0		436
Public utilities	44		1		43		12		0		55
Sovereign and supranational	518		4		514		136		0		650
Other corporate	22		0		22		7		0		29
Total yen-denominated	22,008		8		22,000		4,869		0		26,869
Total securities held to maturity	$	22,008	$	8	$	22,000	$	4,869	$	0	$	26,869


(In millions)	June 30, 2022			December 31, 2021
Equity securities, carried at fair value through net earnings:	Fair Value			Fair Value
Equity securities:
Yen-denominated		$	636		$	744
U.S. dollar-denominated		466			817
Other currencies		47			42
Total equity securities		$	1,149		$	1,603

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

During the first and second quarters of 2022 and 2021, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at June 30, 2022, were as follows:


(In millions)	Amortized Cost (1)			Fair Value
Available for sale:
Due in one year or less		$	1,291		$	1,455
Due after one year through five years		7,265			7,883
Due after five years through 10 years		12,779			14,177
Due after 10 years		51,296			53,964
Mortgage- and asset-backed securities		1,915			1,952
Total fixed maturity securities available for sale		$	74,546		$	79,431
Held to maturity:
Due in one year or less		$	0		$	0
Due after one year through five years		39			42
Due after five years through 10 years		9,840			11,171
Due after 10 years		8,628			10,319
Mortgage- and asset-backed securities		0			0
Total fixed maturity securities held to maturity		$	18,507		$	21,532

(1) Net of allowance for credit losses

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

Investment Concentrations

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

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


	June 30, 2022			December 31, 2021
(In millions)	Credit Rating	Amortized Cost	Fair Value	Credit Rating	Amortized Cost	Fair Value
Japan National Government(1)	A+	$41,620	$45,262	A+	$50,186	$57,862

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

Net Investment Gains and Losses

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2022		2021		2022		2021
Net investment gains (losses):
Sales and redemptions:
Fixed maturity securities available for sale:
Gross gains from sales	$	15	$	14	$	85	$	16
Gross losses from sales	(23)		(2)		(26)		(3)
Foreign currency gains (losses)	123		(6)		133		(18)
Other investments:
Gross gains from sales	0		0		9		0
Total sales and redemptions	115		6		201		(5)
Equity securities	(135)		170		(291)		102


Credit losses:
Fixed maturity securities available for sale	0		0		0		11
Fixed maturity securities held to maturity	0		0		0		1
Commercial mortgage and other loans	(12)		17		4		44
Impairment losses	(17)		0		(17)		(20)
Loan commitments	(5)		(5)		2		0
Reinsurance recoverables and other	0		0		2		(2)
Total credit losses	(34)		12		(9)		34
Derivatives and other:
Derivative gains (losses)	(558)		(96)		(1,024)		(383)
Foreign currency gains (losses)	1,176		(3)		1,809		648
Total derivatives and other	618		(99)		785		265
Total net investment gains (losses)	$	564	$	89	$	686	$	396

The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the three-month period ended June 30, 2022, that relate to equity securities still held at the June 30, 2022 reporting date, were $137 million. The unrealized holding losses, net of gains, recorded as a component of net investment gains and losses for the six-month period ended June 30, 2022, that relate to equity securities still held at the June 30, 2022 reporting date, were $294 million.

Unrealized Investment Gains and Losses

Effect on Shareholders’ Equity

The net effect on shareholders’ equity of unrealized gains and losses from fixed maturity securities was as follows:


(In millions)	June 30, 2022			December 31, 2021
Unrealized gains (losses) on securities available for sale		$	4,885		$	13,330
Deferred income taxes		(1,955)			(3,728)
Shareholders’ equity, unrealized gains (losses) on fixed maturity securities		$	2,930		$	9,602

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's available-for-sale investments for the periods ended June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.


	June 30, 2022
	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		$	1		$	5		$	0		$	5		$	1		$	0
Japan government and agencies:
Yen-denominated		8,816			903			5,552			454			3,264			449
Municipalities:
U.S. dollar-denominated		719			48			701			43			18			5
Yen-denominated		306			32			205			16			101			16
Mortgage- and asset- backed securities:
U.S. dollar-denominated		784			53			758			51			26			2
Yen-denominated		65			6			40			3			25			3
Public utilities:
U.S. dollar-denominated		1,044			91			1,005			86			39			5
Yen-denominated		761			52			716			47			45			5
Sovereign and supranational:
U.S. dollar-denominated		31			12			5			2			26			10
Yen-denominated		71			2			35			2			36			0
Banks/financial institutions:
U.S. dollar-denominated		754			62			684			53			70			9
Yen-denominated		3,421			343			2,576			246			845			97
Other corporate:
U.S. dollar-denominated		6,549			645			5,912			515			637			130
Yen-denominated		1,662			187			1,453			149			209			38
Total		$	24,984		$	2,441		$	19,642		$	1,672		$	5,342		$	769


	December 31, 2021
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities available for sale:
U.S. government and agencies:
U.S. dollar-denominated		$	1		$	1		$	0		$	1		$	1		$	0
Japan government and agencies:
Yen-denominated		2,868			61			445			3			2,423			58
Municipalities:
U.S. dollar-denominated		82			2			79			2			3			0
Yen-denominated		187			5			53			0			134			5
Mortgage- and asset- backed securities:
U.S. dollar-denominated		278			2			278			2			0			0
Yen-denominated		33			1			0			0			33			1
Public utilities:
U.S. dollar-denominated		130			5			70			2			60			3
Yen-denominated		26			2			0			0			26			2
Sovereign and supranational:
U.S. dollar-denominated		37			6			6			1			31			5
Banks/financial institutions:
U.S. dollar-denominated		292			3			274			3			18			0
Yen-denominated		2,074			72			1,011			16			1,063			56
Other corporate:
U.S. dollar-denominated		1,365			53			458			8			907			45
Yen-denominated		541			26			274			4			267			22
Total		$	7,914		$	239		$	2,948		$	42		$	4,966		$	197

Analysis of Securities in Unrealized Loss Positions

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

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

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

However, from time to time the Company identifies certain available-for-sale fixed maturity securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors and as a result, a credit allowance will be estimated. Refer to the Allowance for Credit Losses section below for additional information.

Commercial Mortgage and Other Loans

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

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


(In millions)	June 30, 2022				December 31, 2021
	Amortized Cost		% of Total		Amortized Cost		% of Total
Commercial Mortgage and other loans:
Transitional real estate loans:
Office	$	2,057	15.5	%	$	2,001	16.7	%
Retail	348		2.6		267		2.2
Apartments/Multi-Family	2,560		19.4		1,893		15.8
Industrial	154		1.2		94		.8
Hospitality	843		6.4		876		7.3
Other	298		2.3		228		1.9
Total transitional real estate loans	6,260		47.4		5,359		44.7
Commercial mortgage loans:
Office	388		2.9		398		3.3
Retail	315		2.4		332		2.8
Apartments/Multi-Family	640		4.8		649		5.4
Industrial	533		4.0		525		4.4


Total commercial mortgage loans	1,876		14.1		1,904		15.9
Middle market loans	5,087		38.5		4,697		39.4
Total commercial mortgage and other loans	$	13,223	100.0	%	$	11,960	100.0	%
Allowance for credit losses	(170)				(174)
Total net commercial mortgage and other loans	$	13,053			$	11,786

CMLs and TREs were secured by properties entirely within the U.S. (with the largest concentrations in California (20%), Texas (12%) and Florida (10%)). Middle market loans are issued only to companies domiciled within the U.S. and Canada.

Transitional Real Estate Loans

TREs are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or

economic profile and do not typically require any principal repayment prior to the maturity date. This loan portfolio is generally considered to be investment grade. As of June 30, 2022, the Company had $763 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. As of June 30, 2022, the Company had no outstanding commitments to fund CMLs. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

MMLs are typically first lien senior secured cash flow loans to small to mid-size companies for working capital, refinancing, acquisition, and recapitalization. These loans are generally considered to be below investment grade. The carrying value for MMLs included $15 million and $11 million for a short term credit facility that is reflected in other liabilities on the consolidated balance sheets, as of June 30, 2022, and December 31, 2021, respectively.

As of June 30, 2022, the Company had commitments of approximately $1.2 billion to fund future MMLs. These commitments are contingent upon the availability of middle market loans that meet the Company's underwriting criteria.

Credit Quality Indicators

For TREs, the Company’s key credit quality indicator is loan-to-value (LTV). Given that TRE loans involve properties undergoing renovation or construction, LTV provides the most insight into the credit risk of the loan. The Company monitors the performance of the loans periodically, but not less frequently than quarterly.

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

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

For the Company’s reinsurance recoverable balance, the key credit quality indicator is the credit rating of the Company’s reinsurance counterparty. The Company uses external credit ratings focused on the reinsurer’s financial strength and credit worthiness. As of June 30, 2022, the Company's reinsurance counterparties were rated A+. The Company monitors the credit ratings periodically, but not less frequently than quarterly.

The following tables present as of June 30, 2022 the amortized cost basis of TREs, CMLs and MMLs by year of origination and credit quality indicator.


Transitional Real Estate Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Total
Loan-to-Value Ratio:
0%-59.99%	$	452	$	630	$	36	$	268	$	86	$	0	$	1,472
60%-69.99%	423		732		138		524		430		50		2,297
70%-79.99%	672		936		125		412		207		1		2,353
80% or greater	0		138		0		0		0		0		138
Total	$	1,547	$	2,436	$	299	$	1,204	$	723	$	51	$	6,260


Commercial Mortgage Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Total		Weighted-Average DSCR
Loan-to-Value Ratio:
0%-59.99%	$	54	$	299	$	46	$	516	$	153	$	586	$	1,654	2.52
60%-69.99%	0		34		0		46		0		77		157		2.08
70%-79.99%	0		0		0		40		0		25		65		1.18
80% or greater	0		0		0		0		0		0		0		0.00
Total	$	54	$	333	$	46	$	602	$	153	$	688	$	1,876	2.43
Weighted Average DSCR	0.00		2.84		1.94		2.55		2.08		2.25


Middle Market Loans
(In millions)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Credit Ratings:
BBB	$	38	$	184	$	67	$	37	$	19	$	0	$	104	$	449
BB	120		437		333		240		86		69		325		1,610
B	196		722		467		525		259		225		291		2,685
CCC	0		0		21		83		70		91		55		320
CC	0		0		0		0		14		8		1		23
C and lower	0		0		0		0		0		0		0		0
Total	$	354	$	1,343	$	888	$	885	$	448	$	393	$	776	$	5,087

Allowance for Credit Losses

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

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

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

The Company’s held-to-maturity fixed maturity portfolio includes Japan Government and Agency securities of $17.6 billion amortized cost as of June 30, 2022 that meet the requirements for zero-credit-loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement.

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

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

The Company’s methodology for estimating credit losses for available-for-sale fixed maturity securities utilizes the discounted cash flow model, based on past events, current market conditions and future economic conditions, as well as industry analysis and credit ratings of the fixed maturity securities. In addition, the Company evaluates the specific issuer’s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and/or security of other debt holders in the issuer when developing management’s best estimate of expected cash flows.

The Company granted certain loan modifications in its MML and TRE portfolios during the period ended June 30, 2022. As of June 30, 2022, these loan modifications did not have a material impact on the Company’s results of operations.

The Company had no troubled debt restructurings (TDRs) during the six-month periods ended June 30, 2022 and June 30, 2021.

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

As of June 30, 2022 and December 31, 2021, the Company had an immaterial amount of loans and fixed maturity securities on nonaccrual status.

The following table presents the roll forward of the allowance for credit losses by portfolio segment.


(in millions)	Transitional Real Estate Loans		Commercial Mortgage Loans		Middle Market Loans		Held to Maturity Securities		Available for Sale Securities		Reinsurance Recoverables
Three Months Ended June 30, 2022:
Balance at March 31, 2022	$	(52)	$	(8)	$	(98)	$	(8)	$	0	$	(9)
(Addition to) release of allowance for credit losses	(1)		0		(16)		0		0		0
Write-offs, net of recoveries	0		0		5		0		0		0
Change in foreign exchange	0		0		0		1		0		1
Balance at June 30, 2022	$	(53)	$	(8)	$	(109)	$	(7)	$	0	$	(8)
Three Months Ended June 30, 2021:
Balance at March 31, 2021	$	(47)	$	(24)	$	(83)	$	(8)	$	(27)	$	(13)
(Addition to) release of allowance for credit losses	6		2		7		0		1		0

Balance at June 30, 2021	$	(41)	$	(22)	$	(76)	$	(8)	$	(26)	$	(13)
Six Months Ended June 30, 2022:
Balance at December 31, 2021	$	(68)	$	(10)	$	(96)	$	(8)	$	0	$	(13)
(Addition to) release of allowance for credit losses	15		2		(18)		0		0		2
Write-offs, net of recoveries	0		0		5		0		0		0
Change in foreign exchange	0		0		0		1		0		3
Balance at June 30, 2022	$	(53)	$	(8)	$	(109)	$	(7)	$	0	$	(8)
Six Months Ended June 30, 2021:
Balance at December 31, 2020	$	(63)	$	(33)	$	(85)	$	(9)	$	(38)	$	(11)

(Addition to) release of allowance for credit losses	22		11		9		1		0		(2)
Write-offs, net of recoveries	0		0		0		0		12		0
Balance at June 30, 2021	$	(41)	$	(22)	$	(76)	$	(8)	$	(26)	$	(13)

For assets that are subject to the credit loss measurement, the change in credit loss allowance will be significantly impacted by purchases and sales in those assets during the period as well as entering into new non-cancelable loan commitments. The estimate of credit losses for loan commitments as of June 30, 2022 was $30 million.

Other Investments

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


(In millions)	June 30, 2022			December 31, 2021
Other investments:
Policy loans		$	204		$	236
Short-term investments (1)		1,695			1,726
Limited partnerships		2,173			1,858
Other		30			22
Total other investments		$	4,102		$	3,842

(1) Includes securities lending collateral

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

As of June 30, 2022, the Company had $1.6 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

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

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

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

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

VIEs - Consolidated

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

Investments in Consolidated Variable Interest Entities


	June 30, 2022						December 31, 2021
(In millions)	Amortized Cost (1)			Fair Value			Amortized Cost (1)			Fair Value
Assets:
Fixed maturity securities, available for sale		$	2,995		$	3,820		$	3,264		$	4,490

Commercial mortgage and other loans		10,630			10,575			9,740			9,910
Other investments (2)		1,823			1,823			1,535			1,535
Other assets (3)		65			65			78			78
Total assets of consolidated VIEs		$	15,513		$	16,283		$	14,617		$	16,013
Liabilities:
Other liabilities (3)		$	457		$	457		$	414		$	414
Total liabilities of consolidated VIEs		$	457		$	457		$	414		$	414

(1) Net of allowance for credit losses

(2) Consists entirely of alternative investments in limited partnerships

(3) Consists entirely of derivatives

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

Investments in Unit Trust Structures

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

VIEs - Not Consolidated

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

Investments in Variable Interest Entities Not Consolidated


	June 30, 2022						December 31, 2021
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale		$	4,118		$	4,643		$	4,779		$	5,864
Other investments (1)		350			350			323			323
Total investments in VIEs not consolidated		$	4,468		$	4,993		$	5,102		$	6,187

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

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

Securities Lending and Pledged Securities

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

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


Securities Lending Transactions Accounted for as Secured Borrowings
Remaining Contractual Maturity of the Agreements
	June 30, 2022				December 31, 2021
(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	$	2,245	$	2,245	$	0	$	920	$	920

Public utilities	17		0		17		40		0		40
Sovereign and supranational	1		0		1		2		0		2
Banks/financial institutions	86		0		86		88		0		88
Other corporate	864		0		864		1,112		0		1,112
Equity securities	48		0		48		0		0		0
Total borrowings	$	1,016	$	2,245	$	3,261	$	1,242	$	920	$	2,162
Gross amount of recognized liabilities for securities lending transactions					$	3,261					$	2,162

(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 $5.7 billion and $6.8 billion at June 30, 2022 and December 31, 2021, 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 June 30, 2022, and December 31, 2021, 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.

4. DERIVATIVE INSTRUMENTS

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

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

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). In 2021, the Company moved to a strategy that contains one-sided put options, fewer foreign currency forwards and no collars.

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.

Derivative Balance Sheet Classification

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


		June 30, 2022									December 31, 2021
(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		$	4		$	18		$	0		$	2
Total cash flow hedges		18			0			4			18			0			2
Fair value hedges:
Foreign currency forwards		0			0			0			62			0			5
Foreign currency options		8,043			6			0			8,829			5			0

Total fair value hedges		8,043			6			0			8,891			5			5
Net investment hedge:
Foreign currency forwards		5,001			729			0			4,996			341			0
Foreign currency options		2,013			0			0			1,949			0			0
Total net investment hedge		7,014			729			0			6,945			341			0
Non-qualifying strategies:
Foreign currency swaps		1,900			156			0			2,250			59			13
Foreign currency swaps - VIE		3,407			65			453			3,151			78			412
Foreign currency forwards		9,309			601			1,331			15,953			450			1,133
Foreign currency options		5,417			1			0			2,746			3			0

Interest rate swaps		10,280			0			342			3,500			0			54


Total non-qualifying strategies		30,313			823			2,126			27,600			590			1,612
Total derivatives		$	45,388		$	1,558		$	2,130		$	43,454		$	936		$	1,619

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

Fair Value Hedges

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

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

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

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

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

Fair Value Hedging Relationships


(In millions)		Hedging Derivatives						Hedged Items
Hedging Derivatives	Hedged Items	Total Gains (Losses)		Gains (Losses) Excluded from Effectiveness Testing(1)		Gains (Losses) Included in Effectiveness Testing(2)		Gains (Losses)(2)		Net Investment Gains (Losses) Recognized for Fair Value Hedge
Three Months Ended June 30, 2022:

Foreign currency options	Fixed maturity securities	$	(11)	$	(11)	$	0	$	0	$	0

Total gains (losses)		$	(11)	$	(11)	$	0	$	0	$	0
Six Months Ended June 30, 2022:

Foreign currency options	Fixed maturity securities	$	(26)	$	(26)	$	0	$	0	$	0

Total gains (losses)		$	(26)	$	(26)	$	0	$	0	$	0
Three Months Ended June 30, 2021:

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

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

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

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

(2) Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statement of earnings as net investment gains (losses). For interest rate swaptions and related hedged items, gains and losses included in the hedge assessment, premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income. The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains and losses consistent with the impact of the hedged item. For the three-month and six-month periods ended June 30, 2022 and 2021, gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial.

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


(In millions)	Carrying Amount of the Hedged Assets/(Liabilities)(1)					Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of Hedged Assets/(Liabilities)
		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Fixed maturity securities		$	2,352	$	3,038	$	195	$	205

(1) The balance includes hedging adjustment on discontinued hedging relationships of $195 in 2022 and $205 in 2021.

Net Investment Hedge

The Company's investment in Aflac Japan is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, the Parent Company's yen-denominated liabilities (see Note 8) have been designated as non-derivative hedges and 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 three- and six-month periods ended June 30, 2022 and 2021, respectively.

Non-qualifying Strategies

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

As of June 30, 2022, the Parent Company had $1.9 billion notional amount of cross-currency interest rate swap agreements related to certain of its U.S. dollar-denominated senior notes to effectively convert a portion of the interest on the notes from U.S dollar to Japanese yen. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 9 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

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

The Company uses interest rate swaps to economically convert the variable rate investment income to a fixed rate on certain variable-rate investments.

Impact of Derivatives and Hedging Instruments

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


	Three Months Ended June 30,
	2022										2021
(In millions)	Net Investment Income (1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)			Net Investment Income (1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE		$	0		$	(1)			$	0		$	0		$	(1)			$	1
Total cash flow hedges		0			(1)		(3)		0			0			(1)		(3)		1
Fair value hedges:

Foreign currency options (3)					(11)										(6)

Total fair value hedges		0			(11)				0			0			(6)				0
Net investment hedge:
Non-derivative hedging instruments					0				324						0				8

Foreign currency forwards					(25)				522						31				6
Foreign currency options					0				0						(1)				0
Total net investment hedge					(25)				846						30				14
Non-qualifying strategies:
Foreign currency swaps					107										12
Foreign currency swaps - VIE					(39)										(108)
Foreign currency forwards					(473)										(11)
Foreign currency options					(3)										(15)

Interest rate swaps					(110)										3
Forward bond purchase commitment - VIE					(3)										0
Total non- qualifying strategies					(521)										(119)
Total		$	0		$	(558)			$	846		$	0		$	(96)			$	15

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

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

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the three-month period ended June 30, 2022, and an immaterial amount during the three-month period ended June 30, 2021. In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the three-month periods ended June 30, 2022 and 2021, respectively, related to fair value hedges excluded component. Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail).


	Six Months Ended June 30,
	2022										2021
(In millions)	Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)			Net Investment Income(1)			Net Investment Gains (Losses)				Other Comprehensive Income (Loss)(2)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps - VIE		$	0		$	(2)			$	1		$	0		$	(2)			$	1
Total cash flow hedges		0			(2)		(3)		1			0			(2)		(3)		1
Fair value hedges:

Foreign currency options(3)					(26)										(7)

Total fair value hedges		0			(26)				0			0			(7)				0
Net investment hedge:
Non-derivative hedging instruments					0				523						0				196
Foreign currency forwards					(101)				823						49				341
Foreign currency options					(1)				0						(3)				0
Total net investment hedge					(102)				1,346						46				537
Non-qualifying strategies:
Foreign currency swaps					135										99
Foreign currency swaps - VIE					(16)										(79)
Foreign currency forwards					(714)										(443)
Foreign currency options					(13)										1
Interest rate swaps					(266)										3
Forward bond purchase commitment - VIE					(20)										(1)
Total non-qualifying strategies					(894)										(420)
Total		$	0		$	(1,024)			$	1,347		$	0		$	(383)			$	538

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

(3) Impact of cash flow hedges reported as net investment gains (losses) includes $1 of losses reclassified from accumulated other comprehensive income (loss) into earnings during the six-month period ended June 30, 2022, and $2 of losses during the six-month period ended June 30, 2021. In addition, an immaterial amount of losses were reclassified from accumulated other comprehensive income (loss) into earnings during the six-month periods ended June 30, 2022 and 2021, 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).

As of June 30, 2022, $5 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months.

Credit Risk Assumed through Derivatives

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

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

As of June 30, 2022, 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 $1.2 billion and $904 million as of June 30, 2022, and December 31, 2021, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2022, the Company estimates that it would be required to post a maximum of $270 million of additional collateral to these derivative counterparties. The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties, although it does not typically exercise such rights. (See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates.)

Offsetting of Financial Instruments and Derivatives

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

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

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

Offsetting of Financial Assets and Derivative Assets


June 30, 2022
										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		$	1,493		$	0		$	1,493		$	(608)	$	(2)		$	(883)		$	0

Total derivative assets subject to a master netting agreement or offsetting arrangement		1,493			0			1,493			(608)		(2)			(883)			0
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		65						65											65

Total derivative assets not subject to a master netting agreement or offsetting arrangement		65						65											65
Total derivative assets		1,558			0			1,558			(608)		(2)			(883)			65
Securities lending and similar arrangements		3,242			0			3,242			0		0			(3,242)			0
Total		$	4,800		$	0		$	4,800		$	(608)	$	(2)		$	(4,125)		$	65


December 31, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Received			Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	858		$	0		$	858		$	(471)	$	(53)		$	(334)		$	0

Total derivative assets subject to a master netting agreement or offsetting arrangement		858			0			858			(471)		(53)			(334)			0
Derivative assets not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		78						78											78

Total derivative assets not subject to a master netting agreement or offsetting arrangement		78						78											78
Total derivative assets		936			0			936			(471)		(53)			(334)			78
Securities lending and similar arrangements		2,124			0			2,124			0		0			(2,124)			0
Total		$	3,060		$	0		$	3,060		$	(471)	$	(53)		$	(2,458)		$	78

Offsetting of Financial Liabilities and Derivative Liabilities


June 30, 2022
										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		$	1,331		$	0		$	1,331		$	(608)	$	(656)		$	(55)		$	12
OTC - cleared		342			0			342			0		0			(178)			164
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		1,673			0			1,673			(608)		(656)			(233)			176
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		457						457											457

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		457						457											457
Total derivative liabilities		2,130			0			2,130			(608)		(656)			(233)			633
Securities lending and similar arrangements		3,261			0			3,261			(3,242)		0			0			19
Total		$	5,391		$	0		$	5,391		$	(3,850)	$	(656)		$	(233)		$	652


December 31, 2021
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities			Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet			Financial Instruments			Securities Collateral		Cash Collateral Pledged			Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement
OTC - bilateral		$	1,151		$	0		$	1,151		$	(471)	$	(662)		$	(14)		$	4
OTC - cleared		54			0			54			0		0			(35)			19
Total derivative liabilities subject to a master netting agreement or offsetting arrangement		1,205			0			1,205			(471)		(662)			(49)			23
Derivative liabilities not subject to a master netting agreement or offsetting arrangement
OTC - bilateral		414						414											414

Total derivative liabilities not subject to a master netting agreement or offsetting arrangement		414						414											414
Total derivative liabilities		1,619			0			1,619			(471)		(662)			(49)			437
Securities lending and similar arrangements		2,162			0			2,162			(2,124)		0			0			38
Total		$	3,781		$	0		$	3,781		$	(2,595)	$	(662)		$	(49)		$	475

For additional information on the Company's financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

5. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

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

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


	June 30, 2022
(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		$	24,960		$	999		$	0		$	25,959
Municipalities		0			2,468			0			2,468
Mortgage- and asset-backed securities		0			1,641			311			1,952
Public utilities		0			7,420			537			7,957
Sovereign and supranational		0			877			36			913
Banks/financial institutions		0			9,534			91			9,625
Other corporate		0			29,925			632			30,557
Total fixed maturity securities		24,960			52,864			1,607			79,431
Equity securities		888			71			190			1,149
Other investments		1,695			0			0			1,695
Cash and cash equivalents		5,173			0			0			5,173
Other assets:
Foreign currency swaps		0			221			0			221
Foreign currency forwards		0			1,330			0			1,330
Foreign currency options		0			7			0			7



Total other assets		0			1,558			0			1,558
Total assets		$	32,716		$	54,493		$	1,797		$	89,006
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	457		$	0		$	457
Foreign currency forwards		0			1,331			0			1,331

Interest rate swaps		0			342			0			342


Total liabilities		$	0		$	2,130		$	0		$	2,130


	December 31, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies		$	32,532		$	1,288		$	0		$	33,820
Municipalities		0			3,036			0			3,036
Mortgage- and asset-backed securities		0			955			291			1,246
Public utilities		0			9,558			493			10,051
Sovereign and supranational		0			1,072			43			1,115
Banks/financial institutions		0			11,546			45			11,591
Other corporate		0			37,411			426			37,837
Total fixed maturity securities		32,532			64,866			1,298			98,696
Equity securities		1,340			90			173			1,603
Other investments		1,726			0			0			1,726
Cash and cash equivalents		5,051			0			0			5,051
Other assets:
Foreign currency swaps		0			137			0			137
Foreign currency forwards		0			791			0			791
Foreign currency options		0			8			0			8

Total other assets		0			936			0			936
Total assets		$	40,649		$	65,892		$	1,471		$	108,012
Liabilities:
Other liabilities:
Foreign currency swaps		$	0		$	427		$	0		$	427
Foreign currency forwards		0			1,138			0			1,138
Interest rate swaps		0			54			0			54


Total liabilities		$	0		$	1,619		$	0		$	1,619

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


	June 30, 2022
(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		$	17,740		$	20,422		$	184		$	0		$	20,606
Municipalities		280			0			346			0			346

Public utilities		37			0			43			0			43
Sovereign and supranational		432			0			514			0			514

Other corporate		18			0			23			0			23
Commercial mortgage and other loans		13,053			0			0			12,905			12,905
Other investments (1)		30			0			30			0			30
Total assets		$	31,590		$	20,422		$	1,140		$	12,905		$	34,467
Liabilities:
Other policyholders’ funds		$	5,984		$	0		$	0		$	5,885		$	5,885
Notes payable (excluding leases)		7,279			0			6,868			218			7,086
Total liabilities		$	13,263		$	0		$	6,868		$	6,103		$	12,971

(1) Excludes policy loans of $204 and equity method investments of $2,173, at carrying value


	December 31, 2021
(In millions)	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Assets:
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies		$	21,086		$	25,469		$	230		$	0		$	25,699
Municipalities		335			0			436			0			436

Public utilities		43			0			55			0			55
Sovereign and supranational		514			0			650			0			650

Other corporate		22			0			29			0			29
Commercial mortgage and other loans		11,786			0			0			11,996			11,996
Other investments (1)		22			0			22			0			22
Total assets		$	33,808		$	25,469		$	1,422		$	11,996		$	38,887
Liabilities:
Other policyholders’ funds		$	7,072		$	0		$	0		$	6,957		$	6,957
Notes payable (excluding leases)		7,839			0			8,280			259			8,539
Total liabilities		$	14,911		$	0		$	8,280		$	7,216		$	15,496

(1) Excludes policy loans of $236 and equity method investments of $1,858, at carrying value

Fair Value of Financial Instruments

Fixed maturity and equity securities

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

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

the most appropriate comparable security(ies) of the issuer
issuer-specific CDS spreads
bonds or CDS spreads of comparable issuers with similar characteristics such as rating, geography, or sector
bond indices that are comparative in rating, industry, maturity and region.

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

data. The Company has performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent reasonable estimates of fair value.

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

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


	June 30, 2022
(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		$	24,960		$	621		$	0		$	25,581
Internal		0			378			0			378

Total government and agencies		24,960			999			0			25,959
Municipalities:
Third party pricing vendor		0			2,140			0			2,140
Internal		0			328			0			328

Total municipalities		0			2,468			0			2,468
Mortgage- and asset-backed securities:
Third party pricing vendor		0			1,636			0			1,636
Internal		0			3			0			3
Broker/other		0			2			311			313
Total mortgage- and asset-backed securities		0			1,641			311			1,952
Public utilities:
Third party pricing vendor		0			4,022			0			4,022
Internal		0			3,398			0			3,398
Broker/other		0			0			537			537
Total public utilities		0			7,420			537			7,957
Sovereign and supranational:
Third party pricing vendor		0			306			0			306
Internal		0			571			0			571
Broker/other		0			0			36			36
Total sovereign and supranational		0			877			36			913
Banks/financial institutions:
Third party pricing vendor		0			4,975			0			4,975
Internal		0			4,559			16			4,575
Broker/other		0			0			75			75
Total banks/financial institutions		0			9,534			91			9,625
Other corporate:
Third party pricing vendor		0			24,306			0			24,306
Internal		0			5,546			133			5,679
Broker/other		0			73			499			572
Total other corporate		0			29,925			632			30,557
Total securities available for sale		$	24,960		$	52,864		$	1,607		$	79,431
Equity securities, carried at fair value:
Third party pricing vendor		$	888		$	71		$	0		$	959

Broker/other		0			0			190			190
Total equity securities		$	888		$	71		$	190		$	1,149


	June 30, 2022
(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		$	20,422		$	184		$	0		$	20,606

Total government and agencies		20,422			184			0			20,606
Municipalities:
Third party pricing vendor		0			346			0			346

Total municipalities		0			346			0			346




Public utilities:
Third party pricing vendor		0			43			0			43


Total public utilities		0			43			0			43
Sovereign and supranational:
Third party pricing vendor		0			248			0			248

Broker/other		0			266			0			266
Total sovereign and supranational		0			514			0			514




Other corporate:
Third party pricing vendor		0			23			0			23


Total other corporate		0			23			0			23
Total securities held to maturity		$	20,422		$	1,110		$	0		$	21,532


	December 31, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	32,532		$	808		$	0		$	33,340
Internal		0			480			0			480
Total government and agencies		32,532			1,288			0			33,820
Municipalities:
Third party pricing vendor		0			2,222			0			2,222
Internal		0			814			0			814
Total municipalities		0			3,036			0			3,036
Mortgage- and asset-backed securities:
Third party pricing vendor		0			955			0			955
Broker/other		0			0			291			291
Total mortgage- and asset-backed securities		0			955			291			1,246
Public utilities:
Third party pricing vendor		0			4,527			0			4,527
Internal		0			5,031			0			5,031
Broker/other		0			0			493			493
Total public utilities		0			9,558			493			10,051
Sovereign and supranational:
Third party pricing vendor		0			273			0			273
Internal		0			799			0			799
Broker/other		0			0			43			43
Total sovereign and supranational		0			1,072			43			1,115
Banks/financial institutions:
Third party pricing vendor		0			5,237			0			5,237
Internal		0			6,309			0			6,309
Broker/other		0			0			45			45
Total banks/financial institutions		0			11,546			45			11,591
Other corporate:
Third party pricing vendor		0			29,495			0			29,495
Internal		0			7,916			0			7,916
Broker/other		0			0			426			426
Total other corporate		0			37,411			426			37,837
Total securities available for sale		$	32,532		$	64,866		$	1,298		$	98,696
Equity securities, carried at fair value:
Third party pricing vendor		$	1,340		$	90		$	0		$	1,430
Broker/other		0			0			173			173
Total equity securities		$	1,340		$	90		$	173		$	1,603


	December 31, 2021
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Government and agencies:
Third party pricing vendor		$	25,469		$	230		$	0		$	25,699
Total government and agencies		25,469			230			0			25,699
Municipalities:
Third party pricing vendor		0			436			0			436
Total municipalities		0			436			0			436




Public utilities:
Third party pricing vendor		0			55			0			55
Total public utilities		0			55			0			55
Sovereign and supranational:
Third party pricing vendor		0			313			0			313
Broker/other		0			337			0			337
Total sovereign and supranational		0			650			0			650



Other corporate:
Third party pricing vendor		0			29			0			29

Total other corporate		0			29			0			29
Total securities held to maturity		$	25,469		$	1,400		$	0		$	26,869

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 Basic 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 Cross foreign 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

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

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

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

For derivatives associated with VIEs where the Company is the primary beneficiary, the Company is not the direct counterparty to the swap contracts. Nevertheless, the Company has full transparency into the contracts to properly value the swaps for reporting purposes. Prior to October 1, 2021, these derivatives were classified as Level 3 because certain significant inputs were determined to be unobservable, primarily due to the long duration of the swaps which required extrapolation beyond the observable limits of the curve(s). However, due to the natural aging of the swap portfolio and the continued evolution of capital market inputs, especially the availability of long-term interest rates with tenors beyond 30 years, the Company has concluded that all significant inputs are now observable. As a result, effective October 1, 2021, the Company transferred the derivatives associated with its consolidated VIEs to Level 2 of the fair value hierarchy.

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

Commercial mortgage and other loans

Commercial mortgage and other loans include TREs, CMLs and MMLs. The Company's loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U.S. Treasury or 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 have been assigned a Level 3 within the fair value hierarchy.

Other investments

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

Other policyholders' funds

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

Notes payable

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

Transfers between Hierarchy Levels and Level 3 Rollforward

Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable. Effective October 1, 2021, the foreign exchange swaps discussed above were transferred from Level 3 to Level 2 because the significant inputs used for their valuation that were previously unobservable are now observable.

The following tables present the changes in fair value of the Company's investments and derivatives carried at fair value classified as Level 3. Derivative assets and liabilities are presented as a net value.


Three Months Ended June 30, 2022
	Fixed Maturity Securities										Equity Securities		Derivatives
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	318	$	585	$	41	$	60	$	290	$	166	$	0	$	1,460
Net investment gains (losses) included in earnings	0		1		0		0		0		(6)		0		(5)
Unrealized gains (losses) included in other comprehensive income (loss)	(54)		(44)		(5)		(2)		(37)		0		0		(142)
Purchases, issuances, sales and settlements:
Purchases	90		19		0		33		122		33		0		297
Issuances	0		0		0		0		0		0		0		0
Sales	0		0		0		0		0		0		0		0
Settlements	(36)		(24)		0		0		(1)		0		0		(61)
Transfers into Level 3	0		0		0		0		258		0		0		258
Transfers out of Level 3	(7)		0		0		0		0		(3)		0		(10)
Balance, end of period	$	311	$	537	$	36	$	91	$	632	$	190	$	0	$	1,797
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	$	(6)	$	0	$	(6)


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


Six Months Ended June 30, 2022
	Fixed Maturity Securities										Equity Securities		Derivatives
(In millions)	Mortgage- and Asset- Backed Securities		Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate				Foreign Currency Swaps		Total
Balance, beginning of period	$	291	$	493	$	43	$	45	$	426	$	173	$	0	$	1,471
Net investment gains (losses) included in earnings	0		1		0		0		0		1		0		2
Unrealized gains (losses) included in other comprehensive income (loss)	(69)		(81)		(7)		(2)		(55)		0		0		(214)
Purchases, issuances, sales and settlements:
Purchases	166		28		0		33		122		43		0		392
Issuances	0		0		0		0		0		0		0		0
Sales	0		0		0		0		0		0		0		0
Settlements	(38)		(32)		0		(3)		(2)		(7)		0		(82)
Transfers into Level 3	0		128		0		18		282		0		0		428
Transfers out of Level 3	(39)		0		0		0		(141)		(20)		0		(200)
Balance, end of period	$	311	$	537	$	36	$	91	$	632	$	190	$	0	$	1,797
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in earnings	$	0	$	1	$	0	$	0	$	0	$	(2)	$	0	$	(1)


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

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


June 30, 2022
(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		$	311	Consensus pricing	Offered quotes	N/A	(a)

Public utilities		537		Discounted cash flow	Credit spreads	N/A	(a)
Sovereign and supranational		36		Discounted cash flow	Historical volatility	N/A	(a)
Banks/financial institutions		91		Consensus pricing	Offered quotes	N/A	(a)
Other corporate		632		Discounted cash flow	Credit spreads	N/A	(a)
Equity securities		190		Net asset value	Offered quotes	N/A	(a)












Total assets		$	1,797

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


December 31, 2021
(In millions)	Fair Value			Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets:
Securities available for sale, carried at fair value:
Fixed maturity securities:
Mortgage- and asset-backed securities		$	291	Consensus pricing	Offered quotes	N/A	(a)
Public utilities		493		Discounted cash flow	Credit spreads	N/A	(a)
Sovereign and supranational		43		Discounted cash flow	Historical volatility	N/A	(a)
Banks/financial institutions		45		Consensus pricing	Offered quotes	N/A	(a)
Other corporate		426		Discounted cash flow	Credit spreads	N/A	(a)
Equity securities		173		Net asset value	Offered quotes	N/A	(a)









Total assets		$	1,471

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

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

Net Asset Value

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

Offered Quotes

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

Interest Rates and CDS Spreads

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

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

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

Effective October 1, 2021, the foreign exchange swaps mentioned above were transferred from Level 3 to Level 2 because the significant inputs used for their valuation that were previously unobservable are now observable.

For additional information on the Company's investments and financial instruments, see the accompanying Notes 1, 3 and 4 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

6. POLICY LIABILITIES

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


	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)		2022		2021			2022		2021
Unpaid supplemental health claims, beginning of period		$	4,009	$	4,192		$	4,067	$	4,389
Less reinsurance recoverables		40		37			37		39
Net balance, beginning of period		3,969		4,155			4,030		4,350
Add claims incurred during the period related to:
Current year		1,583		1,710			3,322		3,570
Prior years		(155)		(198)			(365)		(518)
Total incurred		1,428		1,512			2,957		3,052
Less claims paid during the period on claims incurred during:
Current year		1,042		1,139			1,532		1,657
Prior years		398		407			1,363		1,461
Total paid		1,440		1,546			2,895		3,118
Effect of foreign exchange rate changes on unpaid claims		(216)		4			(351)		(159)
Net balance, end of period		3,741		4,125			3,741		4,125
Add reinsurance recoverables		38		37			38		37
Unpaid supplemental health claims, end of period		3,779		4,162			3,779		4,162
Unpaid life claims, end of period		674		759			674		759
Total liability for unpaid policy claims		$	4,453	$	4,921		$	4,453	$	4,921

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $365 million for the six-month period ended June 30, 2022 comprises approximately $220 million from Japan and $145 million from the U.S., representing approximately 60% and 40% of the total, respectively. Excluding the impact of foreign exchange of a loss of approximately $41 million from December 31, 2021 to June 30, 2022, the favorable claims development in Japan would have been approximately $261 million, representing approximately 72% of the total.

The Company has experienced continued favorable claim trends in 2022 for its core health products in Japan. During the first six months of 2022, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic. This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits and staying home more. This resulted in lower sickness, accident, and cancer incurred claims. Although overall experience is favorable, during the first six months of 2022, there has been an increase in medical hospitalization claims related to COVID-19, mainly due to at-home sickness benefits being utilized in Japan.

In addition, dating back to before the pandemic, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

In the first six months of 2022, as experienced in 2021 and 2020, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims trend continued for the majority of the Company's major U.S. accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability. Additionally, refinements to COVID-19 incurred estimates also contributed to the favorable development. The U.S. portion of the favorable claims development in the first six months of 2022 includes $54 million related to refinements in the estimates for COVID-19 and non-COVID-19 claims as experience emerges.

7. REINSURANCE

The Company periodically enters into fixed quota-share coinsurance agreements with other companies in the normal course of business. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards.

Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $697 million and $859 million as of June 30, 2022 and December 31, 2021, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $792 million and $937 million as of June 30, 2022 and December 31, 2021, respectively. The spot yen/dollar exchange rate weakened by approximately 15.9% and ceded reserves decreased approximately 15.5% from December 31, 2021 to June 30, 2022.

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


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2022			2021			2022			2021
Direct earned premiums		$	3,877		$	4,490		$	8,091		$	9,141
Ceded to other companies:
Ceded Aflac Japan closed blocks		(87)			(109)			(185)			(223)
Other		(17)			(15)			(36)			(34)
Assumed from other companies:
Retrocession activities		36			45			77			93
Other		40			30			81			57
Net earned premiums		$	3,849		$	4,441		$	8,028		$	9,034

Direct benefits and claims		$	2,319		$	2,687		$	4,824		$	5,463
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(82)			(94)			(173)			(193)
Eliminations		6			8			12			16
Other		(14)			(9)			(18)			(17)
Assumed from other companies:
Retrocession activities		35			42			73			84
Eliminations		(6)			(8)			(12)			(16)
Other		40			27			79			50
Benefits and claims, net		$	2,298		$	2,653		$	4,785		$	5,387

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

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥120 billion as of June 30, 2022. This reinsurance facility agreement was renewed in 2021 and is effective until December 31, 2022. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac's Standard and Poor's (S&P) rating drops below BBB-. As of June 30, 2022, the Company has not executed a reinsurance treaty under this committed reinsurance facility.

8. NOTES PAYABLE AND LEASE OBLIGATIONS

A summary of notes payable and lease obligations follows:


(In millions)	June 30, 2022			December 31, 2021
3.625% senior notes due November 2024		$	748		$	748
3.25% senior notes due March 2025		448			448
1.125% senior sustainability notes due March 2026		397			397
2.875% senior notes due October 2026		298			298
3.60% senior notes due April 2030		992			991
6.90% senior notes due December 2039		221			221
6.45% senior notes due August 2040		255			255
4.00% senior notes due October 2046		394			394
4.750% senior notes due January 2049		541			541
Yen-denominated senior notes and subordinated debentures:
.300% senior notes due September 2025 (principal amount ¥12.4 billion)		91			107
.932% senior notes due January 2027 (principal amount ¥60.0 billion)		437			520
.500% senior notes due December 2029 (principal amount ¥12.6 billion)		92			109
.550% senior notes due March 2030 (principal amount ¥13.3 billion)		97			115
1.159% senior notes due October 2030 (principal amount ¥29.3 billion)		213			254
.633% senior notes due April 2031 (principal amount ¥30.0 billion)		219			259
.843% senior notes due December 2031 (principal amount ¥9.3 billion)		68			81
.750% senior notes due March 2032 (principal amount ¥20.7 billion)		150			179
.844% senior notes due April 2033 (principal amount ¥12.0 billion)		87			104
1.488% senior notes due October 2033 (principal amount ¥15.2 billion)		110			131
.934% senior notes due December 2034 (principal amount ¥9.8 billion)		71			85
.830% senior notes due March 2035 (principal amount ¥10.6 billion)		77			91
1.039% senior notes due April 2036 (principal amount ¥10.0 billion)		73			86
1.750% senior notes due October 2038 (principal amount ¥8.9 billion)		65			77
1.122% senior notes due December 2039 (principal amount ¥6.3 billion)		46			54
1.264% senior notes due April 2041 (principal amount ¥10.0 billion)		72			86
2.108% subordinated debentures due October 2047 (principal amount ¥60.0 billion)		435			517
.963% subordinated bonds due April 2049 (principal amount ¥30.0 billion)		219			260
1.560% senior notes due April 2051 (principal amount ¥20.0 billion)		145			172
Yen-denominated loans:
Variable interest rate loan due September 2026 (.42% in 2022 and .41% in 2021, principal amount ¥5.0 billion)		36			43
Variable interest rate loan due September 2029 (.57% in 2022 and .56% in 2021, principal amount ¥25.0 billion)		182			216
Finance lease obligations payable through 2028		9			12
Operating lease obligations payable through 2049		128			105
Total notes payable and lease obligations		$	7,416		$	7,956

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.

A summary of the Company's lines of credit as of June 30, 2022 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 30, 2022	$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 18, 2024, or the date commitments are terminated pursuant to an event of default	$1.0 billion	$0.0 billion	A rate per annum equal to, at the Company's option, either, (a) USD London Interbank Offered Rate (LIBOR) 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 Mizuho Bank, Ltd. as its prime rate, or (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin	No later than November 18, 2024	.085% to .225%, depending on the Parent Company's debt ratings as of the date of determination	General corporate purposes, including a capital contingency plan for the operations of the Parent Company
Aflac Incorporated and Aflac	uncommitted bilateral	None specified	None specified	$50 million	$0 million	A rate per annum equal to, at the Parent Company's option, either (a) a rate determined by reference to USD LIBOR for the interest period relevant to such borrowing or (b) the base rate determined by reference to the highest of (a) the lender's U.S. dollar short-term commercial loan rate, (b) the federal funds rate plus 1/2 of 1% and (c) USD one-month LIBOR plus 1%. USD LIBOR is subject to replacement with Secured Overnight Financing Rate (SOFR) under certain circumstances	Up to 3 months	None	General corporate purposes
Aflac(1)	uncommitted revolving	364 days	November 30, 2022	$250 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	3 months	None	General corporate purposes
Aflac Incorporated(1) (Tranche 1)	uncommitted revolving	364 days	November 25, 2022	¥50.0 billion	¥0.0 billion	Three-month TIBOR plus 70 basis points per annum	3 months	None	General corporate purposes
Aflac Incorporated(1) (Tranche 2)	uncommitted revolving	364 days	November 25, 2022	¥50.0 billion	¥0.0 billion	Three-month TIBOR plus 70 basis points per annum	3 months	None	General corporate purposes
Aflac New York(1)	uncommitted revolving	364 days	April 10, 2023	$25 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	No later than April 11, 2023	None	General corporate purposes
CAIC(1)	uncommitted revolving	364 days	March 21, 2023	$15 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	No later than March 22, 2023	None	General corporate purposes

(1) Intercompany credit agreement

(continued)


Borrower(s)	Type	Term	Expiration Date	Capacity	Amount Outstanding	Interest Rate on Borrowed Amount	Maturity Period	Commitment Fee	Business Purpose
Tier One Insurance Company(1)	uncommitted revolving	364 days	March 21, 2023	$0.3 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	No later than March 22, 2023	None	General corporate purposes
Aflac Ventures Japan K.K.(1)	uncommitted revolving	364 days	May 2, 2023	¥500 million	¥350 million	A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period	No later than May 3, 2023	None	General corporate purposes
Hatch Healthcare K.K.(1)	uncommitted revolving	364 days	January 3, 2023	¥900 million	¥0 million	A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period	No later than January 4, 2023	None	General corporate purposes
Hatch Insight K.K.(1)	uncommitted revolving	364 days	January 3, 2023	¥600 million	¥0 million	A rate per annum equal to the short-term prime lending rates of banks appearing on the website for the Bank of Japan on the first day of the applicable period	No later than January 4, 2023	None	General corporate purposes
Aflac GI Holdings LLC(1)	uncommitted revolving	364 days	July 18, 2022(2)	$30 million	$0 million	USD three-month LIBOR plus 75 basis points per annum	No later than July 18, 2022	None	General corporate purposes

(1) Intercompany credit agreement

(2) Renewed in July 2022 with an expiration date of July 17, 2023

The Company was in compliance with all of the covenants of its notes payable and lines of credit at June 30, 2022. No events of default or defaults occurred during the six-month period ended June 30, 2022.

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

9. SHAREHOLDERS’ EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the six-month periods ended June 30.


(In thousands of shares)	2022	2021
Common stock - issued:
Balance, beginning of period	1,352,739	1,351,018
Exercise of stock options and issuance of restricted shares	1,132	1,374
Balance, end of period	1,353,871	1,352,392
Treasury stock:
Balance, beginning of period	700,607	658,564
Purchases of treasury stock:
Share repurchase program	19,192	22,614
Other	351	381
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(528)	(717)
Exercise of stock options	(62)	(223)
Other	(215)	(217)
Balance, end of period	719,345	680,402
Shares outstanding, end of period	634,526	671,990

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


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2022		2021		2022		2021
Anti-dilutive share-based awards		171		0		210		1

Share Repurchase Program

During the first six months of 2022, the Company repurchased 19.2 million shares of its common stock for $1.2 billion as part of its share repurchase program. During the first six months of 2021, the Company repurchased 22.6 million shares of its common stock for $1.2 billion as part of its share repurchase program. As of June 30, 2022, a remaining balance of 36.6 million shares of the Company's common stock was available for purchase under share repurchase authorizations by its board of directors.

Reclassifications from Accumulated Other Comprehensive Income

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

Changes in Accumulated Other Comprehensive Income


Three Months Ended June 30, 2022
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at March 31, 2022		$	(2,482)		$	5,787		$	(29)		$	(163)		$	3,113
Other comprehensive income (loss) before reclassification		(807)			(2,767)			(1)			(1)			(3,576)
Amounts reclassified from accumulated other comprehensive income (loss)		0			(90)			1			4			(85)
Net current-period other comprehensive income (loss)		(807)			(2,857)			0			3			(3,661)
Balance at June 30, 2022		$	(3,289)		$	2,930		$	(29)		$	(160)		$	(548)

All amounts in the table above are net of tax.


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

All amounts in the table above are net of tax.


Six Months Ended June 30, 2022
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)			Unrealized Gains (Losses) on Fixed Maturity Securities			Unrealized Gains (Losses) on Derivatives			Pension Liability Adjustment			Total
Balance at December 31, 2021		$	(2,013)		$	9,602		$	(30)		$	(166)		$	7,393


Other comprehensive income (loss) before reclassification		(1,276)			(6,520)			0			(3)			(7,799)
Amounts reclassified from accumulated other comprehensive income (loss)		0			(152)			1			9			(142)
Net current-period other comprehensive income (loss)		(1,276)			(6,672)			1			6			(7,941)
Balance at June 30, 2022		$	(3,289)		$	2,930		$	(29)		$	(160)		$	(548)

All amounts in the table above are net of tax.


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


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

All amounts in the table above are net of tax.

The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income into net earnings for the following periods.

Reclassifications Out of Accumulated Other Comprehensive Income


(In millions)	Three Months Ended June 30, 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		$	114	Net investment gains (losses)
		(24)		Tax (expense) or benefit(1)
		$	90	Net of tax
Unrealized gains (losses) on derivatives		$	(1)	Net investment gains (losses)
		0		Tax (expense) or benefit(1)
		$	(1)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(5)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		1		Tax (expense) or benefit(1)
		$	(4)	Net of tax
Total reclassifications for the period		$	85	Net of tax

(1) Based on 21% tax rate

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


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

(1) Based on 21% tax rate

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


(In millions)	Six Months Ended June 30, 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		$	192	Net investment gains (losses)
		(40)		Tax (expense) or benefit(1)
		$	152	Net of tax
Unrealized gains (losses) on derivatives		$	(1)	Net investment gains (losses)
		0		Tax (expense) or benefit(1)
		$	(1)	Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(11)	Acquisition and operating expenses(2)
Prior service (cost) credit		0		Acquisition and operating expenses(2)
		2		Tax (expense) or benefit(1)
		$	(9)	Net of tax
Total reclassifications for the period		$	142	Net of tax

(1) Based on 21% tax rate

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


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

(1) Based on 21% tax rate

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

10. SHARE-BASED COMPENSATION

As of June 30, 2022, the Company has outstanding share-based awards under the Aflac Incorporated Long-Term Incentive Plan (the Plan). Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors.

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

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

The Plan allows awards to Company employees for incentive stock options (ISOs), non-qualifying stock options (NQSOs), restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of NQSOs, restricted stock, and stock appreciation rights. As of June 30, 2022, approximately 35.7 million shares were available for future grants under this plan. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of June 30, 2022, the only performance-based awards issued and outstanding were restricted stock awards and units.

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

The following table provides information on stock options outstanding and exercisable at June 30, 2022.


	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		1,792		3.1		$	43		$	31.61
Exercisable		1,792		3.1		43			31.61

The Company received cash from the exercise of stock options in the amount of $9 million during the first six months of 2022, compared with $18 million in the first six months of 2021. The tax benefit realized as a result of stock option exercises and restricted stock releases was $17 million in the first six months of 2022, compared with $15 million in the first six months of 2021.

As of June 30, 2022, total compensation cost not yet recognized in the Company's consolidated financial statements related to restricted stock awards and units was $62 million, of which $34 million (1.8 million shares) was related to restricted stock awards and units with a performance-based vesting condition. The Company expects to recognize these amounts over a weighted-average period of approximately 1.7 years. There are no other contractual terms covering restricted stock awards once vested.

The following table summarizes restricted stock activity during the six-month period ended June 30, 2022.


(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	1,045		67.07
Canceled in 2022	(48)		53.77
Vested in 2022	(1,117)		49.66
Restricted stock at June 30, 2022	2,437		$	56.00

In February 2022, the Company granted 390 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 and units with market-based conditions using a Monte Carlo simulation model. The model discounts the value of the stock at the assumed vesting date based on the risk-free interest rate. Based on estimates of actual performance versus the vesting thresholds, the calculated fair value percentage pay-out estimate will be updated each quarter.

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

For additional information on the Company's long-term share-based compensation plans and the types of share-based awards, see Note 12 of the Notes to the Consolidated Financial Statements included in the 2021 Annual Report.

11. BENEFIT PLANS

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

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.

Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings, which includes other components of net periodic pension cost and postretirement costs (other than service costs) of $2 million and $7 million for the three-month periods and $6 million and $14 million for the six-month periods ended June 30, 2022 and 2021, respectively. Total net periodic benefit cost includes the following components:


	Three Months Ended June 30,
	Pension Benefits												Other
	Japan						U.S.						Postretirement Benefits
(In millions)	2022			2021			2022			2021			2022			2021
Components of net periodic benefit cost:
Service cost		$	5		$	6		$	7		$	7		$	0		$	0
Interest cost		1			1			8			8			0			1
Expected return on plan assets		(2)			(2)			(10)			(10)			0			0
Amortization of net actuarial loss		0			0			5			8			0			1

Net periodic (benefit) cost		$	4		$	5		$	10		$	13		$	0		$	2


	Six Months Ended June 30,
	Pension Benefits												Other
	Japan						U.S.						Postretirement Benefits
(In millions)	2022			2021			2022			2021			2022			2021
Components of net periodic benefit cost:
Service cost		$	10		$	12		$	13		$	14		$	0		$	0
Interest cost		3			2			17			16			0			1
Expected return on plan assets		(4)			(4)			(21)			(20)			0			0
Amortization of net actuarial loss		0			1			10			16			1			2

Net periodic (benefit) cost		$	9		$	11		$	19		$	26		$	1		$	3

During the six months ended June 30, 2022, Aflac Japan contributed approximately $17 million (using the weighted-average yen/dollar exchange rate for the six-month period ended June 30, 2022) to the Japanese funded defined benefit plan, and Aflac U.S. did not make a contribution to the U.S. funded defined benefit plan.

For additional information regarding the Company's Japanese and U.S. benefit plans, see Note 14 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report.

12. COMMITMENTS AND CONTINGENT LIABILITIES

Effective April 1, 2022, the Company renewed an outsourcing agreement with an information technology and data services company to provide application maintenance and development services for Aflac Japan. As of June 30, 2022, the agreement has a remaining term of four years and an aggregate remaining cost of ¥7.3 billion ($54 million using the June 30, 2022 exchange rate).

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

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

Guaranty Fund Assessments

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

In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company (collectively referred to as Penn Treaty), neither of which is affiliated with Aflac, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. A final order of liquidation was granted by a recognized judicial authority on March 1, 2017, and as a result, Penn Treaty is in the process of liquidation. The Company estimated and recognized the impact of its share of guaranty fund assessments resulting from the liquidation using a discounted rate of 4.25%. The Company recognized a discounted liability for the assessments of $62 million (undiscounted $94 million), offset by discounted premium tax credits of $48 million (undiscounted $74 million), for a net $14 million impact to net income in the quarter ended March 31, 2017. The Company paid a majority of these assessments by June 30, 2022. The Company used the cost estimate provided as of the liquidation date by the National Organization of Life and Health Guaranty Associations (NOLHGA) to calculate its estimated assessments and tax credits.

Guaranty fund assessments for the six-month periods ended June 30, 2022 and 2021 were immaterial.

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