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Excrept from filing document 2024-12-31

The Private Securities Litigation Reform Act of 1995 provides a safe harbor to encourage companies to provide prospective information so long as those informational statements are identified as forward looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward looking statements Aflac Incorporated and its subsidiaries the Company desire to take advantage of these provisions This report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein and in any other statements made by Company officials in communications with the financial community and contained in documents filed with the Securities and Exchange Commission SEC Forward looking statements are not based on historical information and relate to future operations strategies financial results or other developments Furthermore forward looking information is subject to numerous assumptions risks and uncertainties In particular statements containing words such as the ones listed below or similar words as well as specific projections of future results generally qualify as forward looking The Company undertakes no obligation to update such forward looking statements
The Company cautions readers that the following factors in addition to other factors mentioned from time to time could cause actual results to differ materially from those contemplated by the forward looking statements
interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality integrity or privacy of sensitive data residing on such systems
catastrophic events including but not limited to as a result of climate change epidemics pandemics tornadoes hurricanes earthquakes tsunamis war or other military action major public health issues terrorism or other acts of violence and damage incidental to such events
Aflac Incorporated the Parent Company was incorporated in 1973 under the laws of the state of Georgia The Parent Company and its subsidiaries collectively the Company provide financial protection to millions of policyholders and customers in Japan and the United States U S The Company s principal business is supplemental health and life insurance products with the goal to provide customers the best value in supplemental insurance products in Japan and the U S When a policyholder or insured gets sick or hurt the Company pays cash benefits fairly and promptly for eligible claims Throughout its 69 year history the Company s supplemental insurance policies have given policyholders the opportunity to focus on recovery not financial stress
The Company has continued to develop and expand its product offerings over time In Japan the Company is cultivating an innovation driven culture to meet the rapidly changing customer and societal needs In the U S the Company continues to make broad based investments in digital enhancements and innovation within the U S platform In recent years the Company invested in distribution opportunities through acquisitions and partnerships and pivoted to digital sales methods For information on the reporting segments see the Result of Operations by Segment section of Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations MD A
The Company is authorized to conduct insurance business in all 50 states the District of Columbia several U S territories and Japan The Company s website is www aflac com Information included on the Company s website is not incorporated by reference into this filing The Company makes available free of charge through its website its annual report on Form 10 K its quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports as soon as reasonably practicable after they have been electronically filed with or furnished to the Securities and Exchange Commission SEC
The Company s strategy for growth in the U S and Japan has remained straightforward and consistent for many years The Company develops relevant supplemental health insurance products offering financial protection from the rising out of pocket expenses associated with medical events that are not covered by the insureds primary coverage The Company also offers a complement of other voluntary health and life insurance products to fit the needs of its customers Additionally the Company aims to obtain more customers by selling where the customer prefers to purchase protection whether through an agent or broker a distribution partner or directly from the Company To help promote its insurance products the Company s marketing campaigns feature the Aflac Duck
In 1999 the Company had been running commercials for nearly a decade but its brand awareness was hovering at about 10 An innovative marketing campaign with something unique and memorable that would build brand awareness was needed The Aflac Duck s first commercial in the U S Park Bench aired on January 1 2000 and taught consumers how to pronounce Aflac The Aflac Duck made its international debut in Japan in 2003 In the time since its U S debut the Aflac Duck has become one of the most familiar advertising icons in the world appearing in many commercials and countless print ads in both the U S and Japan Today the Aflac Duck is a helpmate who increases brand knowledge and connection
The Company s insurance business consists of two reporting segments Aflac Japan and Aflac U S The primary insurance subsidiary in the Aflac Japan segment is Aflac Life Insurance Japan Ltd ALIJ Aflac U S includes the insurance subsidiaries American Family Life Assurance Company of Columbus Aflac Continental American Insurance Company CAIC branded as Aflac Group Insurance AGI American Family Life Assurance Company of New York Aflac New York Tier One Insurance Company TOIC and Aflac Benefits Solutions Inc ABS which provides a platform for Aflac Dental and Vision in the U S
Aflac Japan is the principal contributor to the Parent Company s consolidated earnings and the largest insurer in Japan in terms of cancer and medical third sector insurance products policies in force For information on Aflac Japan s operating results see the Aflac Japan Segment section of Item 7 MD A
Aflac Japan s third sector insurance products are supplemental products designed to help consumers pay for medical and nonmedical costs that are not reimbursed under Japan s national health insurance system Changes in Japan s economy and an aging population have put increasing pressure on Japan s national health care system As a result more costs have been shifted to Japanese consumers who in turn have become increasingly interested in insurance products that help them manage those costs Aflac Japan has responded to this consumer need by enhancing existing products and developing new products The focus at Aflac Japan remains on maintaining leadership in third sector insurance products that are less interest rate sensitive and have strong and stable margins At the same time Aflac Japan complements this core business with similarly profitable first sector products as outlined below
Aflac Japan pioneered the cancer insurance market in Japan in 1974 and remains the number one provider of cancer insurance in Japan today Aflac Japan s cancer insurance products provide a lump sum benefit upon initial diagnosis of cancer and fixed daily benefits for subsequent hospitalization and outpatient treatments due to cancer as well as cancer related surgical and convalescent care benefits In August 2022 Aflac Japan launched a new cancer insurance product WINGS which provides coverage for the latest cancer treatments and support for early detection Additionally in January 2023 Aflac Japan further strengthened its products and services by launching Aflac Yorisou Cancer Consultation Support a new service that provides comprehensive support from the moment a policyholder suspects cancer through treatment and recovery
Aflac Japan s medical insurance products provide benefits for hospitalization surgeries and outpatient treatment of various illnesses as well as lump sum benefits related to three critical illnesses cancer heart attack and stroke In September 2023 Aflac Japan launched a new medical insurance product designed to appeal to younger policyholders with basic needs and existing policyholders who desire additional or updated coverage
Aflac Japan launched Prepare Smart Whole Life Insurance in 2018 a whole life insurance product with low cash surrender value which offers non smoking policyholders further discounted premiums and it provides beneficiaries typically a designated family member with a pre determined benefit payment upon the death of the insured
WAYS is an insurance product which has features that allow policyholders to convert a portion of their life insurance to medical nursing care or fixed annuity benefits at a predetermined age Aflac Japan s child endowment insurance product offers a death benefit until a child reaches age 18 This product also pays a lump sum at the time of the child s entry into high school as well as an educational annuity for each of the four years during his or her college education
This distribution channel includes individual agencies independent corporate agencies and affiliated corporate agencies Aflac Japan was represented by approximately 6 600 sales agencies at the end of 2024 with approximately 114 000 licensed sales associates employed by those agencies including individual agencies
Aflac Japan s alliance with Dai ichi Life was launched in 2001 and approximately 37 000 Dai ichi Life representatives offer Aflac s cancer products Dai ichi Life is included in Aflac Japan s affiliated corporate agencies distribution channel
Aflac Japan s alliance with Japan Post Group which is included in Aflac Japan s affiliated corporate agencies distribution channel was launched in 2008 After the alliance strengthened in 2013 the number of postal outlets of Japan Post Co Ltd Japan Post Co selling Aflac Japan s cancer product increased to more than 20 000 Japan Post Insurance Co Ltd Japan Post Insurance offers Aflac Japan cancer products through its 76 directly managed offices responsible for corporate sales and 623 service departments in charge of individual sales
In 2013 Aflac Japan and Daido Life Insurance entered into an agreement for Daido to sell Aflac Japan s cancer insurance products specifically to the Hojinkai market which is an association of small businesses Currently Daido also sells Aflac Japan s cancer insurance products to the market in the tax payment association which is a not for profit association for small businesses to support tax related matters Daido Life is included in Aflac Japan s affiliated corporate agencies distribution channel
Consumers in Japan rely on banks to provide not only traditional bank services but also as one key source to provide insurance solutions and other services At December 31 2024 Aflac Japan had agreements with approximately 90 of the total number of banks in Japan to sell its products
The Company competes with other insurance carriers through policyholder service price product design and sales efforts as the number of insurance companies offering stand alone cancer and medical insurance has more than doubled since the deregulation of the Japan market in 2001 However based on Aflac Japan s size of annualized premiums in force and diversified distribution network the Company believes it is well positioned to continue to adapt to increased competition Furthermore the Company believes the continued development and maintenance of operating efficiencies will allow Aflac Japan to offer affordable products that appeal to consumers The Company believes Aflac Japan will remain a leading provider of third sector products such as cancer and medical insurance coverage in Japan principally due to its experience in the market well known brand low cost operations expansive marketing system and product expertise
The financial and business affairs of Aflac Japan are subject to examination by Japan s FSA Aflac Japan files annual and interim reports and financial statements for the Japanese insurance operations based on a March 31 fiscal year end prepared in accordance with Japanese regulatory accounting practices prescribed or permitted by the FSA Japanese regulatory basis earnings are determined using accounting principles that differ materially from U S generally accepted accounting principles U S GAAP For additional information see Note 13 of the Notes to the Consolidated Financial Statements
With regard to personal information obtained from policyholders the insured or others Aflac Japan is regulated in Japan by the Act on the Protection of Personal Information APPI and guidelines issued by FSA and other governmental authorities
The FSA maintains a solvency standard the solvency margin ratio SMR which is used by Japanese regulators to monitor the financial strength of insurance companies Aflac Japan s SMR is sensitive to interest rate credit spread and foreign exchange rate changes See the Liquidity and Capital Resources section of Item 7 MD A for additional information on SMR including a discussion of measures the Company has taken to mitigate the sensitivity of Aflac Japan s SMR and the introduction of an economic value based solvency regime based on the Insurance Capital Standards ICS for insurance companies effective for Aflac Japan s 2025 fiscal year
The Japanese insurance industry has a policyholder protection corporation that provides funds for the policyholders of insolvent insurers For additional information see the Policyholder Protection section of Item 7 MD A
For additional information regarding Aflac Japan s operations and regulations see the Aflac Japan Segment subsection of Item 7 MD A and Notes 2 and 13 of the Notes to the Consolidated Financial Statements
The Company designs its U S insurance products to provide supplemental coverage for people who already have major medical or primary insurance coverage as Aflac U S insurance policies pay benefits regardless of other insurance Aflac U S products are distributed in the individual and group supplemental insurance markets Aflac s individual policies are portable meaning that individuals may retain their full insurance coverage upon separation from employment or affiliation with a group generally at the same premium Individual policies are typically guaranteed renewable for the lifetime of the policyholder to age 75 for short term disability policies
Aflac U S offers accident coverage on both an individual and group basis These policies pay cash benefits in the event of a covered injury The accident portion of the policy includes lump sum benefits for accidental death dismemberment and specific injuries as well as fixed benefits for hospital confinement Additional benefits are also available for home modifications wellness and increased benefits for injuries related to participation in an organized sporting activity
Aflac U S offers short term disability benefits on both an individual and group basis and long term disability benefits on a group basis These plans provide coverage for covered injury illness or mental health conditions
Aflac U S s cancer insurance products provide a lump sum benefit upon initial diagnosis of cancer and subsequent benefits for treatment received due to cancer Aflac U S offers cancer insurance on an individual basis
Aflac U S offers coverage for critical illness plans on both an individual and group basis These policies are designed to pay cash benefits in the event of critical illnesses such as heart attack stroke or cancer
Aflac U S offers hospital indemnity coverage on both an individual and group basis Hospital indemnity products provide policyholders fixed dollar benefits triggered by hospitalization due to accident or sickness Indemnity benefits for inpatient and outpatient surgeries as well as various other diagnostic events are also available Aflac U S also offers a lump sum rider for a range of critical illness events that can be added to its individual accident short term disability and hospital indemnity products
In recent years new annualized premium sales are generally higher in the fourth quarter for Aflac U S group business due to the timing of open enrollment for many employers As a result approximately half of total new annualized premium sales for Aflac U S group business are generated in the fourth quarter which typically results in over one third of total Aflac U S total sales being generated in the fourth quarter
The career agent channel in Aflac U S focuses on marketing Aflac to the small business market defined as employers of between three and 99 employees Sales associates in the U S are independent contractors and are paid commissions and other variable compensation based on first year and renewal premiums from their sales of insurance products
The broker channel of Aflac U S focuses on selling to the mid and large case market which is comprised of employers with 100 or more employees and typically an average size of 1 000 employees or more Brokers in the U S are independent contractors and are paid commissions based on first year and renewal premiums from their sales of insurance products
In 2024 the Aflac U S sales force included an average of approximately 6 000 U S agents including brokers who were actively producing business on a weekly basis For additional information see the Aflac U S Segment subsection of Item 7 MD A
While Aflac U S primarily markets its insurance products at the worksite Aflac U S is also expanding its distribution strategy to directly reach consumers outside of the traditional worksite through digital lead generation
Aflac U S competes against several supplemental insurance carriers on a national and regional basis Aflac U S believes its policies premium rates platforms value added services and sales commissions are competitive by product type Moreover Aflac U S believes that its products are distinct from competitive offerings given its product focus including features benefits and claims service model distribution capabilities and brand awareness
Since Aflac products provide an additional level of financial protection for policyholders the Company believes the increased financial exposure some employees may face creates a favorable opportunity for Aflac U S products However given the profitability erosion some major medical carriers are facing in their core lines of business the Company has seen a more competitive landscape as these carriers seek entry into Aflac s supplemental product segments and leverage their core benefit offerings by bundling and discounting products in order to gain market share
The Parent Company and its U S insurance subsidiaries Aflac CAIC TOIC Nebraska domiciled insurance companies Aflac New York a New York domiciled insurance company and ABS a licensed third party administrator in most U S jurisdictions and a pre paid limited health service organization in Florida are subject to state regulations in the U S as an insurance holding company system Such regulations generally provide that certain transactions between companies within the holding company system must be fair and equitable In addition transfers of assets among such affiliated companies certain dividend payments from insurance subsidiaries and certain transactions between companies within the system including management fees loans and advances are subject to prior notice to or approval by state regulatory authorities These laws generally require among other things the insurance holding company and each insurance company directly owned by the holding company to register with the insurance departments of their respective domiciliary states and to furnish annually financial and other information about the operations of companies within the holding company system
Like all U S insurance companies Aflac CAIC TOIC and Aflac New York are subject to regulation and supervision in the jurisdictions in which they do business In general the insurance laws of the various jurisdictions establish supervisory agencies with broad administrative powers relating to among other things
The insurance laws of Nebraska that govern the Company s activities provide that the acquisition or change of control of a domestic insurer or of any person that controls a domestic insurer cannot be consummated without the prior approval of the Nebraska Department of Insurance NDOI A person seeking to acquire control directly or indirectly of a domestic insurance company or of any person controlling a domestic insurance company in the case of Aflac CAIC and TOIC the
Parent Company must generally file with the NDOI an application for change of control containing certain information required by statute and published regulations and provide a copy to the Company In Nebraska control is generally presumed to exist if any person directly or indirectly acquires 10 or more of an insurance company or of any other person or entity controlling the insurance company The 10 presumption is not conclusive and control may be found to exist at less than 10 Similar laws apply in New York the domiciliary jurisdiction of Aflac s New York insurance subsidiary
State insurance departments conduct periodic examinations of the books and records financial reporting policy filings and market conduct of insurance companies domiciled in their states generally once every three to five years Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the National Association of Insurance Commissioners NAIC In 2024 the NDOI and the New York State Department of Financial Services NYSDFS commenced full scope risk focused financial examinations on their respective state domiciled insurance entities covering the reporting period January 1 2020 December 31 2023 that are currently ongoing Additionally in 2023 the NYSDFS commenced a routine market conduct examination on Aflac New York covering the five year period ended on December 31 2022 that is currently ongoing
The NAIC continually reviews regulatory matters such as risk based capital RBC modernization group capital calculations and liquidity risk assessment The NAIC uses an RBC formula relating to insurance risk business risk asset risk and interest rate risk to facilitate identification by insurance regulators of inadequately capitalized insurance companies based upon the types and mix of risk inherent in the insurer s operations The formulas for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk Regulatory compliance is determined by a ratio of a company s regulatory total adjusted capital to its authorized control level RBC as defined by the NAIC Companies below specific trigger points or ratios are classified within certain levels each of which requires specified corrective action The levels are company action regulatory action authorized control and mandatory control See Note 13 of the Notes to the Consolidated Financial Statements and the Liquidity and Capital Resources section of Item 7 MD A for additional information on RBC
Under state insurance guaranty association laws and similar laws in international jurisdictions the Company is subject to assessments based on the share of business the Company writes in the relevant jurisdiction for certain obligations of insolvent insurance companies to policyholders and claimants In the U S some states permit member insurers to recover assessments paid through full or partial premium tax offsets The Company s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile s statutory definition of insolvency the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written In most states the definition is met with a declaration of financial insolvency by a court of competent jurisdiction
Federal legislation and administrative policies in several areas including health care reform legislation financial services reform legislation securities regulation pension regulation privacy tort reform legislation and taxation can significantly and adversely affect insurance companies Certain federal regulations applicable to Aflac U S are outlined below
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 collectively the ACA federal health care reform legislation gave the U S federal government direct regulatory authority over the business of health insurance The ACA as enacted does not require material changes in the design of the Company s insurance products However indirect consequences of or changes to the legislation and regulations could present challenges that could potentially have an impact on the Company s sales model financial condition and results of operations Certain provisions of the ACA have been and may continue to be subject to challenge through litigation the ultimate effects of which on the ACA are uncertain See Item 1A Risk Factors for the risk factor entitled Extensive regulation and changes in legislation can impact profitability and growth for additional information
Title VII of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 Dodd Frank and regulations issued thereunder in particular rules to require central clearing for certain types of derivatives may have an impact on the Company s derivative activity including activity on behalf of Aflac Japan
The Dodd Frank Act also established a Federal Insurance Office FIO under the U S Department of the Treasury to monitor all aspects of the insurance industry and of lines of business other than certain health insurance certain long term care insurance and crop insurance
In the absence of a comprehensive federal privacy law states are making a push towards privacy legislation Personally identifiable information is used in support of many of the Company s business processes For many years the standard for protection and treatment of that data was benchmarked by privacy and security provisions of the federal Gramm Leach Bliley Act of 1999 GLBA and in the Health Insurance Portability and Accountability Act of 1996 HIPAA As consumers have grown more concerned about the protection of their data as well as how their data is used by organizations jurisdictions within and outside of the U S have created legislation and issued regulations that apply or may in the future apply to aspects of Aflac U S operations and allow consumers the right to access correct delete or opt out of the sale share or use of their data Although not all apply to Aflac U S operations examples of these types of legislation include the California Consumer Privacy Act CCPA California Privacy Rights Act CPRA UK General Data Protection Regulation UK GDPR UK Data Protection Act of 2018 UK DPA Connecticut Data Privacy Act CDPA Utah Consumer Privacy Act UCPA Virginia Consumer Data Protection Act VCDPA Colorado Privacy Act CPA Oregon Consumer Privacy Act OCPA Montana Consumer Data Privacy Act MCDPA and Nebraska Data Privacy Act NDPA
Cybersecurity continues to be an area of evolving focus for legislation and regulatory activity In addition to the information required by Item 1C Cybersecurity of this report industry regulators as well as the federal government have updated existing standards and increased their focus on enforcement For example the National Institute of Standards and Technology NIST issued an updated version of the Cybersecurity Framework as well as guidelines on managing risks associated with the use of artificial intelligence and the Cybersecurity Infrastructure Security Agency CISA published additional security guidelines related to ransomware and software security Additionally certain states are adopting the NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers
The Company has a cross functional team that tracks and monitors new and emerging legislation and regulations to ensure privacy and cybersecurity programs are evaluated and comply with regulatory requirements This includes a robust third party risk management and assessment program Over the last several years processes have developed to support the data subject request process required by CCPA privacy impact assessments have been implemented as required by CPRA and a dedicated privacy and security center has been added to the Company website to provide consumers with information about the use of and protection of their data
The Company s other operations include the Parent Company Aflac Global Ventures LLC and its subsidiaries asset management subsidiaries results of reinsurance activities including Aflac Re Bermuda Ltd Aflac Re and a printing subsidiary
Investments of Aflac U S as well as certain sub advised assets of Aflac Japan are managed by the Company s U S asset management subsidiary Aflac Asset Management LLC AAM and investments of Aflac Japan are managed pursuant to an investment advisory agreement between Aflac Japan and the Company s asset management subsidiary in Japan Aflac Asset Management Japan Ltd AAMJ AAMJ is licensed as a discretionary asset manager under the Japan Financial Instruments and Exchange Act and is subject to rules of the Japan Investment Advisors Association a self regulatory organization with mandatory membership for Japan investment managers AAM is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 AAM and AAMJ are reported in Corporate and other however the assets that they manage are reported in the respective Aflac Japan and Aflac U S segments
Aflac Re is a Bermuda domiciled insurer that reinsures certain policies issued by ALIJ Aflac Re is subject to regulation in Bermuda where the Bermuda Monetary Authority BMA has broad administrative powers relating to granting and revoking licenses to transact reinsurance business approval of specific reinsurance transactions capital requirements and solvency standards limitations on dividends to shareholders the nature of and limitations on investments and the filing of financial statements in accordance with prescribed or permitted accounting practices
The Company s overarching human capital philosophy is If you take care of your employees your employees will take care of the business The Company s compensation and benefit expense totaled approximately 2 0 billion in 2024 and 1 9 billion in 2023 The Company believes its employee relations are generally satisfactory
Aflac Japan seeks top tier talent through annual recruitment of new university graduates as well as mid career recruitment of those with specialty skills or expertise For its employees Aflac Japan implements standard and unified training and development programs focusing on a range of business skills For example Aflac Japan s Leadership Program allows select managers to participate in a comprehensive training program to learn about innovation and the global business environment In 2024 Aflac Japan launched Aflac Leadership Academy a corporate learning initiative specializing in the development of Aflac Japan s next generation management Aflac Japan implemented a human capital management system beginning in January 2021 with managers and more senior leadership positions and in January 2022 with all other employees Under the system employees have access to descriptions and necessary skills for all job positions across the Company and are able to more proactively design their careers
Aflac U S recruiting efforts include partnerships with colleges and universities and civic organizations to attract top tier talent Aflac U S also offers a variety of internships co operative opportunities and transitional programs to allow emerging talent to develop Educational opportunities are available for self development and growth to help employees further enhance their technical and professional skills
The Aflac Japan and Aflac U S Human Resources divisions operate as centralized internal compensation functions to provide oversight and input to the respective management teams with the objective of providing compensation that is consistent with job scope duties and responsibilities The compensation function evaluates new hire job offers promotions and compensation adjustments with the goal of consistent and equitable compensation Defined salary structures are reviewed regularly and updated utilizing market data Job levels and associated compensation are determined based on annually updated market data job scope duties and responsibilities Employee performance reviews are conducted annually and are factored into employee bonuses and salaries
In 2024 Aflac Japan was certified for the seventh consecutive year as one of the top 500 Leading Companies in Health and Productivity Management under the Certified Health Productivity Management Outstanding Organizations Recognition Program with Japan s Ministry of Economy Trade and Industry This certification is awarded for best practices in employee health management strategically focused work style and development of a socially appreciative work environment Aflac Japan s current certification was in recognition of regular monitoring of key health indicators by members of Aflac Japan s management strategic implementation of health management initiatives and disclosure of information and efforts to promote and maintain employee health
Aflac U S Health and Wellness a training and service program works to enhance organizational health encourage healthy lifestyles among all U S employees provide a variety of wellness programs to meet a wide range of personal health needs recognize employees for participating in healthier lifestyles activities and support a positive corporate culture that is focused on celebrating and improving the quality of life for all U S employees
As of December 31 2024 48 of Aflac U S and the Parent Company employees located in the U S were people of color and 66 were women Women also occupied 52 of leadership roles located in the U S and 36 of senior management roles In 2024 60 of new hires located in the U S were people of color and 69 were women
Established in 2009 Aflac Heartful Services Co Ltd Aflac Heartful Services a subsidiary of Aflac Japan promotes the hiring of employees with disabilities Aflac Heartful Services has established a barrier free work environment and provides among other things specialized training specially trained supervisors and development opportunities to support those with disabilities Of Aflac Heartful Services 153 employees as of December 31 2024 119 have a disability Aflac Heartful Services supports these employees with the assistance of advisors for long term career support
The Company strives to have an engaged employee culture by developing programs including career development support and programs emphasizing work life balance Each year Aflac Japan conducts an employee engagement survey in which all employees answer questions about the company and their organization to measure engagement across the company and detect organizational issues The results of the survey are reported to Aflac Japan s Human Capital Management Policy Committee to identify issues formulate enhancement improvement measures and implement them Aflac U S provides an employee engagement survey every other year to employees to gather their views on company culture and satisfaction and works with its leadership to monitor continuous improvements and enhance the employee experience
Executive Vice President Chief Financial Officer Aflac Japan since 2024 First Senior Vice President Deputy Chief Financial Officer Aflac Japan from 2023 until 2024 Senior Vice President Chief Financial Officer Aflac U S from 2019 until 2023
Chief Accounting Officer Aflac Incorporated since 2024 Senior Vice President Financial Services Aflac Incorporated since 2024 Vice President Deputy Chief Accounting Officer Aflac Incorporated from 2023 until 2024 Vice President Corporate Financial Planning and Analysis Aflac Incorporated from 2019 until 2023
Senior Executive Vice President Aflac Incorporated and Aflac since 2025 Chief Financial Officer Aflac Incorporated since 2020 Executive Vice President Aflac Incorporated and Aflac from 2020 until 2025 Treasurer Aflac from 2017 until 2024 Treasurer Aflac Incorporated from 2017 until 2021 Senior Vice President Aflac Incorporated and Aflac from 2017 until 2020
Executive Vice President Global Chief Investment Officer Aflac since 2023 President Aflac Asset Management LLC since 2023 Deputy Global Chief Investment Officer Aflac from 2021 until 2023 Senior Managing Director Global Head of Credit and Strategic Investment Opportunities Aflac from 2017 until 2021
President Aflac Incorporated since 2025 President Aflac U S since 2023 Deputy President Aflac U S from 2022 until 2023 Executive Vice President President of Group and Individual Benefits Division Aflac U S from 2021 until 2022 Executive Vice President Chief Operating Officer Aflac U S from 2018 until 2021
Executive Vice President Aflac U S since 2025 Chief Operating Officer Aflac U S since 2025 Chief Financial Officer Aflac U S since 2023 Senior Vice President Aflac U S from 2023 until 2025 Consultant Gerson Lehrman Group a financial services company in 2023 Chief Financial Officer North American Life and Health Division General Electric Company an industrial and financial services company in 2022 Chief Financial Officer and Chief Actuary Employee Benefits The Guardian Life Insurance Company of America a life insurance company from 2018 until 2022
Senior Executive Vice President Aflac Incorporated and Aflac since 2025 General Counsel Aflac Incorporated and Aflac since 2014 Executive Vice President Aflac Incorporated and Aflac from 2014 until 2025
Unless specifically noted the respective executive officer has held the occupation s set forth in the table for at least the last five years Each executive officer is appointed annually by the board of directors and serves until his or her successor is chosen and qualified or until his or her death resignation or removal
The Company faces a wide range of risks and its continued success depends on its ability to identify prioritize and appropriately manage enterprise risk exposures Readers should carefully consider each of the following risks and all of the other information set forth in this Form 10 K These risks and other factors may affect forward looking statements including those in this document or made by the Company elsewhere such as in earnings release webcasts investor conference presentations or press releases The risks and uncertainties described herein may not be the only ones facing the Company Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be immaterial may also adversely affect its business If any of the following risks and uncertainties develops into actual events there could be a material impact on the Company
Difficult conditions in global capital markets and the economy could have a material adverse effect on the Company s investments capital position revenue profitability and liquidity and harm the Company s business
The Company s results of operations are materially affected by conditions in the global capital markets and the global economy generally including in its two primary operating markets of the U S and Japan High rates of inflation globally from 2022 continued to be reduced due to monetary tightening in many countries and normalization of certain trends after COVID 19 including supply chain recovery and phasing out of extraordinary fiscal support In the U S and other regions inflation rates reduced to a level that supported monetary loosening by central banks but the risk of a return to increasing inflation remains alongside risks of weakening economic conditions The Bank of Japan remains an exception to the major central bank loosening trends ending a prolonged period of negative interest rates on bank reserves in March 2024 Continuing armed conflicts in Ukraine and the Middle East exacerbate uncertainty and have contributed to volatility in energy and other commodity prices Economic uncertainty is also driven by potential policy changes from a new presidential administration in the U S including proposals to impose trade tariffs and the potential for retaliatory tariffs from other countries as well as increasing trade restrictions driven by security concerns Continuing higher interest rates and softer economic conditions could impact the creditworthiness and value of the Company s existing investment portfolio influence opportunities for new investments and have a negative impact on the Company s results of operations and financial positions
The Company s investments are vulnerable to adverse market developments such as asset price volatility lack of market liquidity credit rating downgrades payment defaults asset restructurings increased losses and other risks The Company has evaluated its holdings and identified investments in areas such as commercial real estate and highly leveraged companies as the most exposed to continued high interest rates and an economic downturn These investments are experiencing and may continue to experience higher credit losses credit rating downgrades and or defaults and a deterioration in the value of collateral in the case of secured investments The Company has examined in each case whether a reduction in size of the holdings is appropriate The Company has identified assets impacted or expected to be impacted by continued high interest rates and economic contraction but other investments not identified to date may also be impacted The availability of new investments in certain private market asset classes has been and may continue to be limited The Company may need to adjust its investment strategy and or be forced to liquidate investments to pay claims In addition the continuing difference between interest rates in the U S and Japan contributed to a weakening of the yen over 2024 which had the effect of suppressing the Company s current period results in relation to the comparable prior period The continuing difference between U S dollar and yen interest rates also contributes to costs of hedging currency risk of U S dollar denominated investments held by Aflac Japan The Company is not able to predict the ultimate impact of inflation interest rate changes interest rate differences and other changing market conditions on the Company s investments and hedging programs See the risk factor below entitled The Company is exposed to significant interest rate risk which may adversely affect its results of operations financial condition and liquidity for additional information See the Investments and Results of Operations by Segment sections of Item 7 MD A for additional information
As the Company holds a significant amount of fixed maturity securities issued by borrowers located in many different parts of the world its financial results are directly influenced by global financial markets Recent weakness in global capital markets could adversely affect the Company s financial condition including its capital position and overall profitability Market volatility and recessionary pressures could result in significant realized or unrealized losses due to severe price declines driven by high interest rates or increases in credit spreads defaults in payment of principal or interest or credit rating downgrades
Japan is the largest market for the Company s insurance products and the Company owns substantial holdings in Japan Government Bonds JGBs Government actions to stimulate the economy affect the value of the Company s existing
holdings its reinvestment rate on new investments in JGBs or other yen denominated assets and consumer behavior relative to the Company s suite of insurance products The additional government debt from fiscal stimulus actions could adversely impact the Japan sovereign credit profile which could in turn lead to volatility in Japanese capital and currency markets The Bank of Japan ended its policy of negative interest rates in March 2024 and uncertainty about future Japan interest rate changes and the impact of increased rates on the Japanese economy could also contribute to volatility in Japanese markets
Should investors become concerned with any of the Company s investment holdings including the concentration in JGBs its access to market sources of funding could be negatively impacted It is possible that lenders or debt investors may also become concerned if the Company incurs large investment losses or if the level of the Company s business activity decreases due to a market downturn or there are further adverse economic trends in the U S or Japan specifically or generally in developed markets
The Company needs liquidity to pay its operating expenses dividends on its common stock interest on its debt and liabilities See the Liquidity and Capital Resources section of Item 7 MD A for additional information In the event the Company s current resources do not meet its needs the Company may need to seek additional financing The Company s access to additional financing will depend on a variety of factors such as market conditions the general availability of credit within the financial services industry and its credit rating See the risk factor below entitled Any decrease in the Company s financial strength or debt ratings may have an adverse effect on its competitive position and access to liquidity and capital for additional information
Broad economic factors such as consumer spending business investment government spending the volatility and strength of the capital markets and inflation as well as ongoing central bank responses to these factors all affect the business and economic environment and indirectly the amount and profitability of the Company s business In an economic downturn characterized by higher unemployment lower family income lower corporate earnings lower business investment and lower consumer spending the demand for financial and insurance products could be adversely affected This adverse effect could be particularly significant for companies such as Aflac that distribute supplemental discretionary insurance products primarily through the worksite in the event that economic conditions result in a decrease in the number of new hires and total employees Adverse changes in the economy could potentially lead the Company s customers to be less inclined to purchase supplemental insurance coverage or to decide to cancel or modify existing insurance coverage Further Aflac U S may experience higher rates of policy lapses during periods of increased job turnover and workforce mobility within the U S economy The above factors could adversely affect the Company s net earned premiums results of operations and financial condition The Company is unable to predict the course of the global financial markets or the recurrence duration or severity of disruptions in such markets
Defaults downgrades widening credit spreads or other events impairing the value of the fixed maturity securities and loan receivables in the Company s investment portfolio may reduce the Company s earnings and capital position
The Company is subject to the risk that the issuers and or guarantors of fixed maturity securities and loan receivables the Company owns may default on principal or interest A significant portion of the Company s portfolio represents an unsecured obligation of the issuer including some that may be subordinated to other debt in the issuer s capital structure In these cases many factors can influence the overall creditworthiness of the issuer and ultimately its ability to service and repay the Company s holdings This can include changes in the global economy the issuer s assets strategy or management shifts in the dynamics of the industries in which the issuer competes the issuer s access to additional funding government trade policies and the overall health of the credit markets Factors unique to the Company s securities including contractual protections such as financial covenants or relative position in the issuer s capital structure also influence the value of the Company s holdings In addition for investments representing secured obligations of an issuer such as mortgage loan receivables the underlying value of the collateral may not be sufficient to fully recover the amount of principal and interest owed to the Company if a default occurs
Most of the Company s investments carry a rating by one or more of the Nationally Recognized Statistical Rating Organizations NRSROs or rating agencies Any change in the rating agencies approach to evaluating credit and assigning an opinion could negatively impact the fair value of the Company s portfolio Any expected or sustained credit deterioration of the Company s investments will negatively impact the Company s net income and capital position through credit impairment and other credit related losses Credit related losses that are not temporary in nature would also affect the Company s solvency ratios in the U S Japan and Bermuda Aflac Japan has certain regulatory accounting requirements for realizing impairments that could be triggered by credit related losses which may be different from U S GAAP and statutory requirements These impairment losses could negatively impact Aflac Japan s earnings and the
The Company is also exposed to the general movement in credit market spreads A widening of credit spreads could reduce the value of the Company s existing portfolio create unrealized losses on its investment portfolio and reduce the Company s adjusted capital position and or the dividend capacity of the Company s insurance subsidiaries A tightening of credit spreads could reduce the net investment income available to the Company on new credit investments Increased market volatility also makes it difficult to value certain of the Company s investment holdings For additional information see the Critical Accounting Estimates section of Item 7 MD A and the Credit Risk subsection of Item 7A Quantitative and Qualitative Disclosures about Market Risk
The Company has substantial investment portfolios that support its policy liabilities Interest rate risk is an inherent portfolio business and capital risk for the Company and significant changes in interest rates could have a material adverse effect on the Company s consolidated results of operations financial condition or cash flows through realized losses impairments changes in unrealized positions and liquidity Changes in interest rates could also result in the Company having to recognize gains or losses because the Company disposes of some or all of its investments prior to their maturity
The Company s exposure to interest rate risk relates primarily to the ability to invest future cash flows to support the interest rate assumption made at the time of the establishment of the Company s product pricing and reserving Low levels of interest rates on investments experienced in Japan and the U S over the last decade have also reduced the level of investment income earned by the Company In spite of recent decreases in interest rates in the U S and other regions and interest rate increases in Japan interest rates in Japan remain lower than in the U S and the Company s overall level of investment income will continue to be negatively impacted from Japan s low interest rates from investments made in prior periods at lower rates and from decreasing rates in the U S While the Company generally seeks to maintain a diversified portfolio of fixed income investments that reflects the cash flow and duration characteristics of the liabilities it supports the Company may not be able to fully mitigate the interest rate risk of its assets relative to its liabilities Prolonged periods of low interest rates also heighten the risk associated with future increases in interest rates because an increasing proportion of the Company s investment portfolio include investments that bear lower rates of return than the embedded book yield of the investment portfolio The Company s current interest rate hedging programs are primarily focused on addressing risks of floating rate investments and are not designed to fully protect against the impact of interest rate changes on the Company
A sustained decline in interest rates could hinder the Company s ability to earn the returns assumed in the pricing and the reserving for its insurance products at the time of sale and issue and may also influence the Company s ability to develop and price attractive new products and could impact its overall sales levels The Company s first sector products are more interest rate sensitive than third sector products While the Bank of Japan ended its negative interest rate policy in March of 2024 low interest rates in Japan could continue to have a negative impact on the distribution and pricing of these products Additionally a decrease in interest rates increases the fair value of the Company s fixed maturity investments which could result in increases to the Company s overall equity However the decrease in interest rates increases the liability for future policy benefits LFPB which could result in reductions to the Company s overall equity
Conversely and concurrently a rise in interest rates would improve the Company s ability to earn higher rates of return on future investments as well as floating rate investments held in its investment portfolio A rise in interest rates also decreases the LFPB which could result in increases to the Company s overall equity However rising interest rates negatively impact the fair values of the Company s fixed maturity investments which could result in reductions to the Company s overall equity Portfolio management considerations the availability of investments as well as declines in fair value may constrain the ability of the Company to transition its investments to higher rate securities Significant increases in interest rates could cause declines in the values of the Company s investment portfolio which have a secondary impact on the Company s overall evaluation of its deferred tax asset position An increase in the differential of short term U S and Japan interest rates would also increase the cost of hedging a portion of the U S dollar denominated assets in the Aflac Japan segment into yen which could have a material adverse effect on the Company s business results of operations or financial condition Further some of the insurance products that Aflac sells in the U S and Japan provide cash surrender values and a rise in interest rates could trigger significant policy surrenders which might require the Company to sell investment assets and recognize unrealized losses Rising interest rates also negatively impact capital ratios in certain jurisdictions because unrealized losses on the available for sale investment portfolio factor into the ratio In addition to the unrealized losses negatively impacting capital ratios significant unrealized losses could impact the amount of dividends
that could be paid under local regulations including in Japan For Aflac Japan rising interest rates and widening credit spreads which reduce the fair value of Aflac Japan s fixed maturity investments when combined with a strengthening yen and the resulting decrease in the yen value of Aflac Japan s U S dollar denominated fixed maturity investments have a negative impact on Aflac Japan s regulatory capital For regulatory accounting purposes for Aflac Japan there are also certain requirements for realizing impairments that could be triggered by rising interest rates negatively impacting Aflac Japan s regulatory earnings and corresponding dividends and capital deployment
Aflac Japan s adjusted revenues accounted for 55 of the Company s total adjusted revenues in 2024 compared with 60 in 2023 and 64 in 2022 The percentage of the Company s total assets attributable to Aflac Japan was 77 at December 31 2024 compared with 80 at December 31 2023 See Note 2 of the Notes to the Consolidated Financial Statements for additional information
Any potential deterioration in Japan s credit quality or access to markets the overall economy of Japan or an increase in Japanese market volatility could adversely impact Aflac Japan s operations and its financial condition and thereby Aflac s overall financial performance Further because of the concentration of the Company s business in Japan and its need for long dated yen denominated assets the Company has a substantial concentration of JGBs in its investment portfolio exposing the Company to credit deterioration and potential downgrades of JGBs See the risk factor entitled Any decrease in the Company s financial strength or debt ratings may have an adverse effect on its competitive position and access to liquidity and capital for additional information
The Company seeks to match investment currency and interest rate risk to its yen liabilities The low interest rates on yen denominated securities has a negative effect on overall net investment income A large portion of the cash available for reinvestment each year is deployed in yen denominated instruments and subject to the low level of yen interest rates
The Company aims to match both the duration and currency of its assets with its liabilities This is very difficult for Aflac Japan and Aflac Re due to the lack of available long dated yen denominated fixed income instruments beyond JGBs
Aflac Japan s investment strategy includes U S dollar denominated investments This program includes public investment grade bonds as well as U S dollar denominated investment grade commercial mortgage loans middle market loans infrastructure debt collateralized loan obligations and other loan types high yield bond and public and private equities The Company plans to continue adding other instruments denominated in U S dollars including floating rate investments to improve the portfolio diversification and or return profile Some of the U S dollar denominated asset classes that the Company has added and anticipates continuing to add have less liquidity than investment grade corporate bonds Aflac Re s investment strategy also includes U S dollar denominated investments that are presently comprised exclusively of public investment grade bonds
Investing in U S dollar denominated investments in Aflac Japan and Aflac Re creates an unmatched foreign currency exposure and related capital ratio volatility as both Aflac Japan and Aflac Re insurance liabilities are yen denominated Although the Company engages in certain foreign exchange hedging activities to partially mitigate this risk and such hedged assets may be used to satisfy yen denominated insurance liabilities and other business obligations important risks remain
In recent years the Company has reduced the proportion of U S dollar denominated investments that are subject to a currency hedge and this proportion continues to be subject to change at the Company s discretion The Company has increased U S dollar risk exposure as the comprehensive hedging program may not always correlate to the underlying U S dollar denominated assets thereby increasing earnings volatility These risks can significantly impact the Company s consolidated results of operations financial position or liquidity
Further foreign exchange derivatives used for hedging are periodically settled which results in cash receipt or payment at maturity or early termination Cumulative net cash settlements on derivatives hedging currency exposure of Aflac Japan s U S dollar denominated investments are associated with existing U S dollar denominated investments that continue to be hedged previously hedged investments that continue to be held but are no longer hedged and investments previously
hedged that have since been sold matured or redeemed and may or may not have not been converted to yen The Company s foreign exchange derivatives are typically shorter dated than the underlying U S dollar denominated investments being hedged which creates roll over risks within the hedging program that could increase the cost of such derivatives If the Company reduces the notional amount of foreign exchange derivatives prior to the maturity of the hedged U S dollar denominated investments the foreign exchange gains or losses on the U S dollar denominated investments remain economically unrealized These foreign currency gains or losses on the investments are only economically realized or monetized through sale maturity or redemption of the investments and concurrent conversion to yen However the Company may not realize the benefit of offsetting adverse cash settlements on hedging derivatives with cash receipts on the U S dollar denominated investments if the currency exchange rates move in an adverse direction before the investments are converted to yen or if the investments are never converted to yen As an example of the latter if the Company s actual insurance risk experience in Japan is as expected or more favorable than expected the need for yen to pay expenses and claims would correspondingly remain at or below expected levels thereby diminishing operational requirements to convert U S dollar denominated investments to yen The settlement of the foreign exchange derivatives is reported in the investing activities section of the Company s consolidated statements of cash flows in the line item settlement of derivatives net
See the risk factor entitled The Company is exposed to foreign currency fluctuations in the yen dollar exchange rate the Hedging Activities subsection of Item 7 MD A and the Currency Risk subsection of Item 7A Quantitative and Qualitative Disclosures about Market Risk for additional information
Due to the size of Aflac Japan where functional currency is the Japanese yen fluctuations in the exchange rate between the yen and the U S dollar can have a significant effect on the Company s reported financial position and results of operations Aflac Japan s premiums and a significant portion of its investment income are received in yen and its claims and almost all expenses are paid in yen Aflac Japan purchases yen denominated assets and U S dollar denominated assets which may be hedged to yen to support yen denominated policy liabilities Certain unhedged U S dollar denominated assets and liabilities held by Aflac Japan are re measured to yen with the volatility reported in earnings Furthermore the yen denominated balance sheet of Aflac Japan is translated into U S dollars for financial reporting purposes with foreign exchange impact reflected in equity Accordingly fluctuations in the yen dollar exchange rate can have a significant effect on the Company s reported financial position and results of operations Yen weakening has the effect of suppressing current year results in relation to the prior year while yen strengthening has the effect of magnifying current year results in relation to the prior year In addition the weakening of the yen relative to the U S dollar will generally adversely affect the value of the Company s yen denominated investments in U S dollar terms When the yen strengthens in relation to the U S dollar the yen value of Aflac Japan s unhedged U S dollar denominated investments decreases resulting in a decrease in Aflac Japan regulatory capital Further unhedged U S dollar denominated securities held by Aflac Japan are exposed to foreign exchange fluctuations which also impact Aflac Japan regulatory capital As a result periods of unusually volatile currency exchange rates could result in limitations on dividends available to the Parent Company
The Company engages in certain foreign currency hedging activities to hedge the exposure to yen from its net investment in Japanese operations These hedging activities are limited in scope and the Company cannot provide assurance that these activities will be effective In addition an increase in the difference between short term U S and Japan interest rates would increase the cost of hedging a portion of the U S dollar denominated assets in the Aflac Japan segment into yen which could have a material adverse effect on the Company s business results of operations or financial condition As indicated in MD A the Company has determined that the unhedged U S dollar denominated investment portfolio acts as a natural economic currency hedge of a portion of the Company s investment in Aflac Japan against erosion of economic value At the same time the unhedged U S dollar denominated investment portfolio creates an unmatched foreign currency exposure and subjects Aflac Japan to volatility in regulatory capital and earnings which may adversely impact Aflac Japan s ability to pay dividends to the Parent Company The Company has historically maintained and currently maintains the size of the unhedged portfolio at levels below the economic equity surplus in Aflac Japan but there can be no assurance that this strategy will be successful
For regulatory accounting purposes there are certain requirements for realizing impairments that could be triggered by changes in the rate of exchange between the yen and U S dollar and could negatively impact Aflac Japan s earnings and the corresponding dividends and capital deployment
Additionally the Company is exposed to currency risk when yen cash flows are converted into U S dollars resulting in changes in the Company s U S dollar denominated cash flows and earnings when exchange gains or losses respectively are realized This primarily occurs when Aflac Japan pays dividends in yen to the Parent Company but it also
has an impact when cash in the form of yen is converted to U S dollars for investment into U S dollar denominated assets The exchange rates prevailing at the time of dividend payment may differ from the exchange rates prevailing at the time the yen profits were earned The Parent Company utilizes forward contracts to accomplish a dual objective of hedging foreign currency exchange rate risk related to dividend payments by Aflac Japan and reducing enterprise wide hedge costs However if the markets experience a significant strengthening of yen this could cause cash strain at the Parent Company as a result of cash collateral and potentially cash settlement requirements Based on the timing and severity of exchange rate fluctuations combined with the level of outstanding activity in this program the cash strain at the Parent Company could be significant
For additional information regarding unhedged U S dollar denominated securities see the risk factor above entitled Lack of availability of acceptable yen denominated investments could adversely affect the Company s results of operations financial position or liquidity See the Currency Risk subsection of Item 7A Quantitative and Qualitative Disclosures about Market Risk for additional information
The valuation of the Company s investments and derivatives includes methodologies estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may adversely affect the Company s results of operations or financial condition
The Company reports a significant amount of its fixed maturity securities and other investments at fair value As such valuations may include inputs and assumptions that are less observable or require greater estimation and valuation methods that are more sophisticated thereby resulting in values that may be greater or less than the value at which the investments may be ultimately sold Rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company s consolidated financial statements and the period to period changes in value could vary significantly
Valuations of the Company s derivatives fluctuate with changes in underlying market variables such as interest rates and foreign currency exchange rates During periods of market turbulence created by political instability economic uncertainty government interventions or other factors the Company may experience significant changes in the volatility of its derivative valuations Extreme market conditions can also affect the liquidity of such instruments creating marked differences in transaction levels and counterparty valuations Depending on the severity and direction of the movements in its derivative valuations the Company will face increases in the amount of collateral required to be posted with its counterparties Liquidity stresses to the Company may also occur if the required collateral amounts increase significantly over a very short period of time Conversely the Company may be exposed to an increase in counterparty credit risk for short periods of time while calling collateral from its counterparties
The determination of the amount of expected credit losses recorded on the Company s investments is based on significant valuation judgments and could materially impact its results of operations or financial position
The Company estimates an expected lifetime credit loss on investments measured at amortized cost including held to maturity fixed maturity securities loan receivables and loan commitments For collateral dependent financial assets including loans where foreclosure is probable expected credit losses are based on the fair value of the underlying collateral For the Company s available for sale fixed maturity securities the Company evaluates estimated credit losses only when the fair value of the available for sale fixed maturity security is below its amortized cost basis
The Company s approach to estimating credit losses is complex and incorporates significant judgments In addition to a security or an asset class or issuer specific credit fundamentals it considers relevant historical information e g loss statistics current market conditions and reasonable and supportable micro and macroeconomic forecasts The Company s management updates its expected credit loss assumptions regularly as conditions change and as new information becomes available and reflects expected credit losses in the Company s earnings when considered necessary Furthermore additional credit losses may need to be taken in the future Historical trends may not be indicative of future expectations of credit losses See Note 3 of the Notes to the Consolidated Financial Statements for additional information
The Company cannot provide assurance that these evaluations will be accurate and effective If the Company s estimates of credit losses are not accurate and actual credit losses are higher than the Company s estimates the Company s net income and capital position will be negatively impacted These higher losses would also negatively affect the Company s solvency ratios in the U S Japan and Bermuda
For regulatory accounting purposes for Aflac Japan there are certain requirements for realizing impairments that could be triggered by rising interest rates credit related losses or changes in foreign exchange negatively impacting Aflac Japan s earnings and corresponding dividend and capital deployment
NRSROs may change their ratings or outlook on an insurer s ratings due to a variety of factors including but not limited to competitive position profitability cash generation and other sources of liquidity capital levels quality of the investment portfolio and perception of management capabilities The ratings assigned to the Company by the NRSROs are important factors in the Company s ability to access liquidity and capital from the bank market debt capital markets or other available sources such as reinsurance transactions Downgrades of the Company s credit ratings could give its derivative counterparties the right to require early termination of derivatives transactions or delivery of additional collateral thereby adversely affecting the Company s liquidity
Downgrades of the Company s ratings could also have a material adverse effect on agent recruiting and retention sales competitiveness and the marketability of its products all of which could negatively impact the Company s liquidity operating results and financial condition Additionally sales through the bank channel in Japan could be adversely affected as a result of their reliance on and sensitivity to ratings levels
The Company cannot predict what actions rating agencies may take or what actions the Company may take in response to the actions of rating agencies As with other companies in the financial services industry the Company s ratings could be downgraded at any time and without any notice by any NRSRO
The Company has exposure to and routinely executes transactions with counterparties in the financial services industry including broker dealers derivative counterparties commercial banks and other institutions The Company uses derivative instruments to mitigate various risks associated with its investment portfolio notes payable and subsidiary dividends The Company s use of derivatives results in financial exposure to derivative counterparties If the Company s counterparties fail or refuse to honor their obligations under derivative instruments the Company s hedges of the risks will be ineffective and the Company s financial condition and results of operations could be adversely affected
The Company engages in derivative transactions directly with affiliates and 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 which generally provide for two way collateral postings at the first dollar of exposure In addition a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of Aflac s financial strength rating The actual amount of payments that the Company could be required to make depends on market conditions the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade If the Company is required to post collateral to support derivative contracts and or pay cash to settle the contracts at maturity the Company s liquidity could be strained In addition the Company s cleared swaps result in counterparty exposure to clearing brokers and central clearinghouses while this exposure is mitigated in part by clearinghouse and clearing broker capital and regulation no assurance can be provided that these counterparties will fulfill their obligations The Company also has exposure to counterparties to securities lending transactions in the event they fail to return loaned securities The Company is also exposed to the risk that there may be a decline in value of securities posted as collateral for securities lending programs or a decline in value of investments made with cash posted as collateral for such programs
Further the Company has agreements with various Japanese financial institutions for the distribution of its insurance products For example at December 31 2024 the Company had agreements with 360 banks to market Aflac s products in Japan Sales through these banks represented 3 of Aflac Japan s new annualized premium sales in 2024 Any material adverse effect on these or other financial institutions could also have an adverse effect on the Company s sales
The Company has entered into significant reinsurance transactions with large highly rated counterparties as well as among the Company s subsidiaries In addition Aflac Japan has entered into reinsurance transactions with Aflac Re which has less capital than external counterparties with which the Company has conducted reinsurance transactions in the past Negative events or developments affecting any one of these counterparties could have an adverse effect on the Company s financial position or results of operations
Sales of the Company s products and services are dependent on its ability to attract retain and support a network of qualified sales associates brokers and employees in the U S and sales associates and other distribution partners in Japan
The Company s sales results of operations and financial condition could be materially adversely affected if its sales networks deteriorate or if the Company does not adequately provide support training and education for its existing network of sales associates brokers other distribution partners and employees In the U S competition exists for sales associates and brokers with demonstrated ability Further low rates of unemployment such as those currently reflected in the U S employment market tend to make it more difficult for Aflac U S to maintain its network of sales associates In Japan the Company s sales results are dependent upon its relationship with sales associates and other distribution partners including Japan Post Group which in recent periods has accounted for a significant portion of Aflac Japan s total sales
The Company competes with other insurers and financial institutions primarily on the basis of its products compensation support services and financial rating The Company s sales associates brokers and other distribution partners are independent contractors and may sell products of its competitors If the Company s competitors offer products that are more attractive or pay higher commissions than the Company does any or all of these distribution partners may concentrate their efforts on selling the Company s competitors products instead of the Company s In addition to the Company s commissioned sales force in the U S Aflac has expanded its sales leadership team to include a salaried sales force of over 200 market directors and broker sales professionals The Company s inability to attract and retain qualified sales associates brokers and other distribution partners including its alliance partners in Japan could have a material adverse effect on the Company s sales results of operations and financial condition
Additionally as the Japan and U S employment markets continue to evolve there is risk that the Company s practices regarding attracting developing and retaining employees may not be fully effective Employees may leave the Company or choose other employers over the Company due to various factors including a competitive labor market Although Aflac U S has not experienced any material labor shortage to date it has experienced elevated levels of workforce turnover and there has been an overall tightening of and increased competition within the U S labor market These conditions together with higher levels of inflation may result in increased operating expenses A sustained labor shortage or continuing increased turnover rates within the Aflac U S workforce due to labor market factors or the state of the U S economy could lead to increased costs of the day to day operation of the Aflac U S business the inability to hire and retain employees or the outsourcing of certain operations Failure to successfully meet and maintain sufficient levels of employees may diminish the Company s ability to achieve its financial and compliance objectives both of which are time consuming and personnel intensive
The assumptions and estimates that the Company uses in establishing premiums and reserves depend on the Company s judgment regarding the likelihood of future events and are inherently uncertain Many factors can cause actual outcomes to deviate from these assumptions and estimates such as changes in incidence rates economic conditions changes in government healthcare policy advances in medical technology changes in treatment patterns and changes in average lifespan Accordingly the Company cannot determine with precision the ultimate amounts that it will pay for or the timing of payment of actual benefits and claims or whether the assets supporting the policy liabilities will grow to the level the Company assumes prior to payment of benefits or claims If the Company s actual experience is different from its assumptions or estimates the Company s premiums and reserves may prove inadequate Reserve assumptions are regularly reviewed by the Company and may be revised if future expectations change These experience deviations and assumption updates could have a material adverse effect on the Company s business results of operations and financial condition
The success of the Company s business depends in part on effective information technology systems on continuing to develop and implement improvements in technology and on successful execution of revenue growth and expense management initiatives
The Company s business depends in large part on its technology systems for interacting with employers policyholders sales associates and brokers and the Company s business strategy involves providing customers with easy to use products to meet their needs and ensuring employees have the technology in place to support those needs Some of the Company s information technology systems and software are older legacy type systems that are less efficient and require an ongoing commitment of significant resources to maintain or upgrade to current standards including adequate business continuity procedures As such the Company is investing in technology and other capabilities to continuously enhance its customer experience while also seeking to increase efficiencies The Company is also developing new and innovative products and enhancing existing products The Company will continue to incur expenses related to among other things investments in digital capabilities and product innovation including the development and use of artificial intelligence AI The Company s development of new technology including the use of AI by the Company and third party vendors could lead to an increased risk of a business interruption or a cybersecurity breach Further the Company s long term strategy depends on successful operational execution and its ability to execute on its transformational initiatives including investments in technology and other initiatives intended to grow revenue and control expenses combined with its ability to achieve efficiencies and attract and retain personnel If the Company does not maintain the effectiveness of its systems and continue to develop and enhance information systems that support its business processes in a cost efficient manner the Company s sales business retention operations and reputation could be adversely affected and it could be exposed to litigation regulatory proceedings and fines or penalties
Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality integrity or privacy of sensitive data residing on such systems could harm the Company s business
The Company stores confidential policyholder employee agent broker and other proprietary information on its information technology systems The Company also depends heavily on its telecommunication information technology and other operational systems and on the integrity and timeliness of data it uses to run its businesses and service its customers The Company s information technology and other systems as well as those of third party providers and participants in the Company s distribution channels have been and will likely continue to be subject to physical or electronic break ins unauthorized tampering security breaches social engineering phishing web application attacks computer viruses or other malicious codes or other cyber related attacks that may result in the failure to adequately maintain the security confidentiality integrity or privacy of sensitive data including personal information relating to customers and prospective customers or in the misappropriation of the Company s intellectual property or proprietary information The risk of a cyber incident impacting business operations has grown as third parties continue to develop new and highly sophisticated methods of attack The Company and its third parties or vendors have and may continue to experience outages or cyberattacks that disrupt the operations or impact the confidentiality availability or integrity of information which may result in operational legal regulatory or financial harm Furthermore depending upon the type of attack it could impact the confidentiality integrity and or availability of IT systems and data disrupting business operations and resulting in the loss of consumer confidence Although the Company attempts to manage its exposure to such events through the purchase of cyber liability insurance such events are inherently unpredictable and insurance may not be sufficient to protect the Company against all losses As a result events such as these could adversely affect the Company s financial condition or results of operation Although the minor data leakage issues the Company has experienced to date have not had a material effect on its business there is no assurance that the Company s security systems or processes will prevent or mitigate future break ins tampering security breaches or other cyber related attacks As the Company pursues IT transformation and increased cloud adoption it inherently exposes the Company to potential cyber related attacks
Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality or privacy of sensitive data residing on such systems whether due to actions by the Company or others including third party providers and participants in the company s distribution channels could delay or disrupt the Company s ability to do business and service its customers seriously harm the Company s brand reputation and ability to compete effectively subject it to regulatory sanctions and other claims lead to a loss of customers and revenues and otherwise adversely affect the Company s business In addition the costs to address or remediate system interruptions or security threats and vulnerabilities whether before or after an incident could be significant
The Parent Company is a holding company and has no direct operations and its most significant assets are the stock of its subsidiaries Because the Parent Company conducts its operations through its operating subsidiaries the Parent Company depends on those entities for dividends and other payments to generate the funds necessary to meet its debt service and other obligations to pay dividends on and conduct repurchases of its common stock and to make investments into its subsidiaries or external opportunities
Aflac is domiciled in Nebraska and is subject to insurance regulations that impose certain limitations and restrictions on payments of dividends management fees loans and advances by Aflac to the Parent Company The Nebraska insurance statutes require prior approval for dividend distributions that exceed the greater of the net income from operations which excludes net realized investment gains for the previous year determined under statutory accounting principles or 10 of statutory capital and surplus as of the previous year end The Nebraska insurance department also must approve service arrangements and other transactions within the affiliated group of companies After the Japan branch conversion the Nebraska insurance department and the FSA approved their respective domiciled insurance company service arrangements and transactions The FSA does not allow dividends or other payments from Aflac Japan unless it meets certain financial criteria as governed by Japanese corporate law Under these criteria dividend capacity at the Japan subsidiary will be defined as retained earnings plus other capital reserve less net after tax net unrealized losses on available for sale securities
The ability of Aflac and Aflac Japan to pay dividends or make other payments to the Parent Company could also be constrained by the Company s dependency on financial strength ratings from independent rating agencies The Company s ratings from these agencies depend to a large extent on Aflac s capitalization level Any inability of Aflac to pay dividends or make other payments to the Parent Company could have a material adverse effect on the Company s financial condition and results of operations
For the foregoing reasons there is no assurance that the earnings from or other available assets of the Parent Company s operating subsidiaries will be sufficient to make distributions to enable the Company to operate
The Company s risk management policies and procedures may prove to be ineffective and leave the Company exposed to unidentified or unanticipated risk which could adversely affect the Company s businesses or result in losses
The Company has developed an enterprise wide risk management and governance framework to mitigate risk and loss to the Company The Company maintains policies procedures and controls intended to identify measure monitor report and analyze the risks to which the Company is exposed However there are inherent limitations to risk management strategies because risk may exist or emerge in the future that the Company has not appropriately anticipated or identified If the Company s risk management framework proves ineffective the Company may suffer unexpected losses and could be materially adversely affected As the Company s businesses change and the markets in which it operates evolve the Company s risk management framework may not evolve at the same pace as those changes and risks may not be appropriately identified monitored or managed In times of market stress unanticipated market movements or unanticipated claims experience resulting from greater than expected morbidity mortality longevity or persistency the effectiveness of the Company s risk management strategies may be limited resulting in losses to the Company Under difficult or less liquid market conditions the Company s risk management strategies may be ineffective or more difficult or expensive to execute because other market participants may be using the same or similar strategies to manage risk
Many of the Company s risk management strategies or techniques are based upon historical customer and market behavior and all such strategies and techniques are based to some degree on management s subjective judgment The Company cannot provide assurance that its risk management framework including the underlying assumptions or strategies will be accurate and effective
Management of operational legal and regulatory risks requires among other things policies procedures and controls to record properly and verify a large number of transactions and events and these policies procedures and controls may not be fully effective The Company s businesses and corporate areas primarily use models to project future cash flows associated with pricing products calculating reserves and valuing assets and evaluating risk and determining capital requirements among other uses These models are utilized under a risk management policy approved by the Company s executive risk management committees however the models may not operate properly and rely on assumptions and projections that are inherently uncertain As the Company s businesses continue to grow and evolve the number and
Past or future misconduct by the Company s employees or employees of third parties suppliers which are cost based relationships and alliance partners which are revenue generating relationships could result in violations of law by the Company regulatory sanctions and or serious reputational or financial harm and the precautions the Company takes to prevent and detect this activity may not be effective in all cases Despite the Company s published Supplier Code of Conduct due diligence of the Company s alliance partners and rigorous contracting procedures including financial legal IT security AI and risk reviews there can be no assurance that controls and procedures that the Company employs will be effective Additionally the use of third parties also poses operational risks that could result in financial loss operational disruption brand damage or compliance issues Inadequate oversight of the Company s third party suppliers due to the lack of policies procedures training and governance may lead to financial loss or damage to the Aflac brand
The use of third party vendors to support the Company s operations makes the Company susceptible to the operational risk of those third parties which could lower revenues increase costs reduce profits disrupt business or damage the Company s reputation
The Company utilizes third party vendors to provide certain business support services and functions which exposes the Company to risks outside the control of the Company that may lead to business disruptions The reliance on these third party vendors creates a number of business risks such as the risk that the Company may not maintain service quality control or effective management of the outsourced business operations and that the Company cannot control the information systems facilities or networks of such third party vendors Additionally the Company is at risk of being unable to meet legal regulatory financial or customer obligations if the information systems facilities or networks of a third party vendor are disrupted damaged or fail whether due to physical disruptions such as fire natural disaster pandemic or power outage or due to cybersecurity incidents ransomware or other impacts to vendors including labor strikes political unrest and terrorist attacks Since certain third party vendors conduct operations for the Company outside the U S the political and military events in foreign jurisdictions could have an adverse impact on the Company s outsourced operations The Company may be adversely affected by a third party vendor who operates in a poorly controlled manner or fails to deliver contracted services which could lower revenues increase costs reduce profits disrupt business or damage the Company s reputation
The Company is subject to taxation in Japan and in the U S under federal and numerous state and local tax jurisdictions In preparing the Company s financial statements the Company estimates the amount of tax that will become payable but the Company s effective tax rate may be different than estimates due to numerous factors including accounting for income taxes the mix of earnings from Japan and the U S the results of tax audits adjustments to the value of uncertain tax positions changes to estimates and other factors Further changes in U S or Japan tax laws or interpretations of such laws could increase the Company s corporate taxes and reduce earnings
In addition it remains difficult to predict the timing and effect that future tax law changes could have on the Company s earnings both in the U S and in foreign jurisdictions Any of these factors could cause the Company to experience an effective tax rate significantly different from previous periods or the Company s current estimates If the Company s effective tax rate were to increase the Company s financial condition and results of operations could be adversely affected
If the Company fails to comply with restrictions on customer privacy and information security including taking steps to ensure that its third party service providers and business associates who access store process or transmit sensitive customer information maintain its security integrity confidentiality and availability the Company s reputation and business operations could be materially adversely affected
The collection maintenance use protection disclosure and disposal of individually identifiable data by the Company s businesses are regulated at the international federal and state levels These laws and rules are subject to change by legislation or administrative or judicial interpretation With regard to personal information obtained from policyholders the insured or others Aflac Japan is regulated in Japan by the APPI and guidelines issued by FSA and other governmental authorities
Various state laws in the U S address the unauthorized access and acquisition of personal information and the use and disclosure of individually identifiable health data HIPAA requires the Company to impose privacy and security requirements on its business associates as such term is defined in the HIPAA regulations Several states including California and New York have made changes to their privacy or cybersecurity laws or regulations in recent years Additionally the U S Congress and many states are considering new privacy and security requirements that would apply to the Company s business Compliance with new privacy and security laws requirements and new regulations may result in cost increases due to necessary systems changes new limitations or constraints on the Company s business models the development of new administrative processes and the effects of potential noncompliance by the Company s business associates They also may impose further restrictions on the Company s collection disclosure and use of customer identifiable data that are housed in one or more of the Company s administrative databases Noncompliance with any privacy laws or any security breach involving the misappropriation loss theft or other unauthorized disclosure of sensitive or confidential customer information whether by the Company or by one of its third parties could have a material adverse effect on the Company s business reputation brand and results of operations including material fines and penalties compensatory special punitive and statutory damages consent orders regarding the Company s privacy and security practices adverse actions against the Company s licenses to do business and injunctive relief
Under Japanese laws and regulations including the APPI if a leak or loss of personal information by Aflac Japan or its business associates should occur depending on factors such as the volume of personal data involved and the likelihood of other secondary damage Aflac Japan may be required to file reports to the FSA issue public releases explaining such incident to the public or become subject to an FSA business improvement order which could pose a risk to the Company s reputation
Although the Company provides for appropriate protections through its contracts and performs information security risk assessments of its third party service providers and business associates the Company still has limited control over their actions and practices In addition despite the security measures the Company has in place to ensure compliance with applicable laws and rules the Company s facilities and systems and those of the Company s third party providers and participants in its distribution channels may be vulnerable to security breaches acts of vandalism or theft computer viruses misplaced or lost data programming and or human errors or other similar events From time to time the Company its third party providers and participants in the Company s distribution channels have experienced and will likely continue to experience such events In such cases notification to affected individuals state and federal regulators state attorneys general and media may be required depending upon the number of affected individuals and whether personal information including health or financial data was subject to unauthorized access
The Company and its insurance subsidiaries are subject to complex laws and regulations that are administered and enforced by a number of governmental authorities that exercise a degree of interpretive latitude including the FSA and Ministry of Finance MOF in Japan state insurance regulators the BMA in Bermuda the SEC the NAIC the FIO the U S Department of Justice state attorneys general
the U S Department of the Treasury including the Internal Revenue Service IRS in the U S The Company is subject to the risk that compliance with any particular regulator s or enforcement authority s interpretation of a legal or regulatory issue may result in non compliance with another regulator s or enforcement authority s interpretation of the same issue particularly when compliance is judged in hindsight Further regulatory authorities periodically re examine existing laws and regulations applicable to insurance companies and their products Changes in these laws and regulations or in interpretations thereof could have a material adverse effect on the Company s financial condition and results of operations
Additionally changes in the overall legal or regulatory environment may even absent any particular regulator s or enforcement authority s interpretation of an issue changing cause the Company to change its views regarding the actions it needs to take from a legal or regulatory risk management perspective This may necessitate changes to the Company s practices that may in some cases limit its ability to grow or otherwise negatively impact the profitability of the Company s business
If the Company s subsidiaries fail to meet the minimum capital or operational requirements established by its respective regulators they could be subject to examination or corrective action or the Company s financial strength ratings could be downgraded or both Compliance with applicable laws and regulations is time consuming and personnel intensive and changes in these laws and regulations may materially increase the Company s direct and indirect compliance and other expenses of doing business thus having a material adverse effect on the Company s financial condition and results of operations For additional information see the Government Regulation subsections of Item 1 Business
The Company operates in a competitive environment and in an industry that is subject to ongoing changes from market pressures brought about by customer demands legislative reform marketing practices and changes to health care and health insurance delivery These factors require the Company to anticipate market trends and make changes to differentiate the Company s products and services from those of its competitors The Company also faces potential competition from existing or new companies in the U S and Japan that have not historically been active in the supplemental health insurance industry but some of which have greater financial marketing and management resources than the Company Further some of these potential competitors could introduce new means of product development and delivery that disrupt the Company s business model Failure to anticipate market trends and or to differentiate the Company s products and services can affect the Company s ability to retain or grow profitable lines of business Further as employers and brokers are increasingly requesting a full suite of products from one insurance provider a failure to react and adapt to these demands could result in decreased sales or market share
The Company s future success will depend in part on its ability to keep pace with rapid technological changes and to use technology to satisfy and grow customer demand for the Company s products and services and to create additional efficiencies in its operations The Company may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to its customers A failure to meet evolving customer demands through innovative product development effective distribution channels and continuous investment in the Company s technology could adversely affect the Company s operating results Further the evolving fragmentation of media and marketing channels that has developed over recent years could weaken the impact of the Company s advertising efforts over time As a result the Company s ability to effectively compete to retain or acquire new business may be impaired and its business financial condition or results of operations may be adversely affected
Catastrophic events including those as a result of climate change or major public health issues could adversely affect the Company s financial condition and results of operations as well as the availability of the Company s infrastructure and systems
The Company s insurance operations are exposed to the risk of catastrophic events including but not necessarily limited to epidemics pandemics tornadoes hurricanes earthquakes tsunamis war or other military action major public health issues and terrorism or other acts of violence Claims resulting from natural or man made catastrophic events could cause substantial volatility in the Company s financial results for any fiscal quarter or year and could materially reduce its profitability or harm the Company s financial condition as well as affect its ability to write new business In addition such events may lead to periods of voluntary or required premium grace periods which may lead to volatility in lapse rates and related premiums Any resulting or coincidental economic effects could impact the Company s business financial condition results of operations capital position liquidity or prospects in a number of ways These catastrophic events may cause changes to estimates of future earnings capital deployment and other guidance the Company has provided to the markets in the 2025 Outlook section of Item 7 MD A
Additionally the Company s operations as well as those of its vendors service providers and counterparties may be adversely affected by such catastrophic events to the extent they disrupt the Company s physical infrastructure human resources or systems that support its businesses and customers Although the Company has a global crisis management framework to minimize the business disruption from a catastrophic event such framework may not be effective to avoid an adverse impact to the Company from such an event While the assessment of risks related to climate change are part of the Company s credit review process climate change related risks may adversely impact the value of the securities that the Company holds Climate change may increase the frequency and severity of natural disasters such as hurricanes tornadoes floods and forest fires Further the Company cannot predict the effects that any legal or regulatory changes made in response to climate change concerns or major public health issues would have on the Company s business
The Company has made significant investments in the Aflac brand over a long period of time Because insurance products are intangible the Company s ability to compete for and maintain policyholders relies to a large extent on consumer trust in the Company s business including its alliance partners sales associates and other distribution partners The perception of unfavorable business practices or financial weakness with respect to the Company its alliance partners sales associates or other distribution partners could create doubt regarding the Company s ability to honor the commitments it has made to its policyholders Such perceptions could also negatively impact the Company s ability to attract and retain qualified sales associates brokers and other distribution partners including its alliance partners in Japan and could have a material adverse effect on the Company s sales results of operations and financial condition These effects could also result from a perception of a lack of commitment to sustainability efforts and attention to societal impacts unfavorable positions on items of public policy or from failure to make progress toward the Company s sustainability goals Maintaining the Company s stature as a trustworthy insurer and responsible corporate citizen which helps support the strength of the Company s brand is critical to the Company s reputation and the failure or perceived failure to do so could adversely affect the Company s brand value financial condition and results of operations
The Company s success depends to a significant extent on the efforts and abilities of its key management personnel The loss of the services of one or more of the Company s senior executives could significantly undermine its management expertise and the Company s business could be adversely affected
The Company s financial statements are subject to the application of U S GAAP which is periodically revised and or expanded Accordingly from time to time the Company is required to adopt new or revised accounting standards issued by recognized authoritative bodies including the FASB Changes to accounting standards could have a material adverse effect on the Company s results of operations and financial condition For additional information see Note 1 of the Notes to the Consolidated Financial Statements
The Company is a defendant in various lawsuits considered to be in the normal course of business The final results of any litigation cannot be predicted with certainty and plaintiffs may seek very large amounts in class actions or other litigation 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 However a substantial legal liability or a significant federal state or other regulatory action against the Company as well as regulatory inquiries or investigations could harm the Company s reputation result in changes in operations result in material fines or penalties result in significant costs due to legal fees settlements or judgments against the Company or otherwise have a material adverse effect on the Company s business financial condition and results of operations Without limiting the foregoing the litigation and regulatory matters the Company is has been or may become subject to include matters related to sales agent recruiting policy sales practices claim payments and procedures including denial or delay of benefits the low level of Aflac U S benefit ratios in recent financial periods material misstatements or omissions in the Company s financial reports or other public statements and or corporate governance corporate culture or business ethics matters Further the Company may be subject to claims of or litigation regarding sexual or other forms of misconduct or harassment or discrimination on the basis of race color national origin religion gender or other bases notwithstanding that the Company s Code of Business Conduct and Ethics prohibits such harassment and discrimination by its employees the Company has ongoing training programs and provides opportunities to report claims of noncompliant conduct and it investigates and may take disciplinary action regarding alleged harassment or discrimination Any violations of or deviation from laws regulations internal or external codes or standards of normative behavior or perceptions of such violations or deviations by the Company s employees or by independent sales agents could adversely impact the Company s reputation and brand value financial condition and results of operations
A majority of the Company s U S sales force is and has historically been comprised of independent agents While the Company believes that it has properly classified such agents as independent contractors the Company may be subject to claims regulatory action by state or federal departments of labor or tax authorities changes in state or federal law or litigation asserting that such agents are employees The laws and regulations governing the classification of workers in the U S may be changed or interpreted differently compared to past interpretations including in states where the Company generates significant sales through independent agents An allegation or determination that independent agents in the Company s U S sales force have been misclassified as independent contractors could result in changes in the Company s operations and U S business model result in material fines or penalties result in significant costs due to legal fees settlements or judgments against the Company or otherwise have a material adverse effect on the Company s business results of operation financial condition and liquidity
The Company s board of directors maintains an information security policy directing management to establish and operate a global information security program with the goals of identifying assessing and monitoring existing and emerging cybersecurity threats and ensuring that the Company s information assets and data and the data of its customers are appropriately protected from loss or theft The Board has delegated oversight of the Company s information security program to the Audit and Risk Committee
The Company s senior officers including its Global Security and Chief Information Security Officer GSCISO are responsible for the operation of the global information security program and communicate quarterly with the Audit and Risk Committee on the program including with respect to the state of the program compliance with applicable regulations risks associated with current and evolving threats and recommendations for changes in the information security program The global information security program includes a cybersecurity incident response plan that is designed to provide a management framework across Company functions for a coordinated assessment and response to potential security incidents This framework establishes a protocol to report certain incidents to the GSCISO and other senior officers with the goal of timely assessing such incidents determining applicable disclosure requirements and communicating with the Board of Directors The incident response plan directs the executive officers to report certain incidents immediately and directly to the Lead Non Management Director and or the Chair of the Audit and Risk Committee The above framework tracks and allows team members to monitor each incident throughout its lifecycle to ensure the Company is informed about and following cybersecurity incidents as they are mitigated and remediated Post incident reviews are also performed to determine if there are any additional controls that may feasibly be implemented to prevent recurrence
As a part of the global information security program an enterprise cybersecurity risk assessment is performed annually in coordination with the GSCISO to identify and assess material cybersecurity risks and mitigating controls The assessment results are incorporated into a risk register managed by the Company s overall enterprise risk management group to integrate the risks into the overall risk management processes The Company engages with independent firms to conduct operational control assessments which cover information protection Every three years the Company engages independent consultants specifically for cyber matters Additionally the Company performs third party risk assessments to evaluate security controls and identify inherent and residual risks associated with third party engagements Issues identified during third party risk assessments are documented and escalated to Company management through an established committee structure based on the risk ratings associated with each issue
The Company also utilizes professionals from the Company s legal team and GSCISO s leadership team a majority of whom have specialized skills and knowledge in cybersecurity risk management based on their prior work experience and relevant industry certifications such as Certified Information Systems Security Professional and Certified Information Security Manager to assist in employee awareness and training as well as assessing cybersecurity risks materiality of cybersecurity incidents and disclosures of the same Specifically the GSCISO has security experience in the public sector and private sector financial services industry holding positions in areas such as business continuity information assurance and technology risk management as well as being a Certified Information Systems Security Professional Certified Information Security Manager and Certified Project Manager as well as being certified in Risk and Information
As of the date of this Form 10 K the Company is not aware of any cybersecurity incidents that occurred during the year ended December 31 2024 that have materially affected or are reasonably likely to materially affect the Company including its business strategy results of operations or financial condition and that are required to be reported in this Form 10 K For further discussion of the risks associated with cybersecurity incidents see Item 1A Risk Factors for the risk factor titled Interruption in telecommunication information technology and other operational systems or a failure to maintain the security confidentiality integrity or privacy of sensitive data residing on such systems could harm the Company s business for additional information regarding how the Company s business strategy results of operations and financial condition could be adversely affected by risks from cybersecurity threats
In Tokyo Japan the Company has two primary campuses The first campus includes a building owned by the Company for the customer call center the claims department the information technology departments and training facility This campus also includes a leased property which houses Aflac Japan s policy administration and customer service departments The second campus comprises leased office space which serves as Aflac Japan s headquarters and houses administrative and investment support functions The Company also leases additional office space in Tokyo along with regional offices located throughout the country
In the U S the Company owns land and buildings that comprise two primary campuses located in Columbus Georgia These campuses include buildings that serve as the Company s worldwide headquarters and house administrative support and information technology functions for U S operations The Company leases office space in Columbia South Carolina which houses the Company s CAIC subsidiary branded as Aflac Group Insurance in New York New York which houses the Company s Global Investment division in Tampa Florida which houses the Company s ABS subsidiary and in Farmington Connecticut Windsor Connecticut and Plantation Florida which houses the operations of the Company s group life disability and absence management business The Company leases other administrative office space throughout the U S the United Kingdom and Bermuda
The Company is a defendant in various lawsuits and receives various regulatory inquiries considered to be in the normal course of business Members of the Company s senior legal and financial management teams review litigation and regulatory inquiries on a quarterly and annual basis The final results of any litigation or regulatory inquiries cannot be predicted with certainty Although some of this litigation is pending in states where large punitive damages bearing little relation to the actual damages sustained by plaintiffs have been awarded in recent years the Company believes the outcome of pending litigation will not have a material adverse effect on its financial position results of operations or cash flows
For a summary of dividends paid to shareholders in 2024 and 2023 and potential restrictions on the Company s ability to pay future dividends see the Liquidity and Capital Resources section of Item 7 MD A
The following graph compares the five year performance of the Company s common stock to the Standard Poor s 500 S P 500 Index and the Standard Poor s 500 Life and Health Insurance S P 500 Life and Health Insurance Index The S P 500 Life and Health Insurance Index includes Aflac Incorporated Globe Life Inc MetLife Inc Principal Financial Group Inc and Prudential Financial Inc
Certain statements included in this section constitute forward looking statements within the meaning of the U S Private Securities Litigation Reform Act of 1995 Forward looking statements are made based on management s current expectations and beliefs concerning future developments and their potential effects upon the Company The Company s actual results may differ possibly materially from expectations or estimates reflected in such forward looking statements Certain important factors that could cause actual results to differ possibly materially from expectations or estimates reflected in such forward looking statements can be found in the Risk Factors and Forward Looking Information sections herein
The following financial review provides a discussion of the Company s results of operations and financial condition as well as a summary of the Company s critical accounting estimates This section should be read in conjunction with Part I Item 1 Business and the audited consolidated financial statements and accompanying notes included in Part II Item 8 Financial Statements and Supplementary Data of this report This MD A is divided into the following sections
The Company has elected to omit discussion on the earliest of the three years covered by the consolidated financial statements presented in Item 8 Financial Statements and Supplementary Data Readers should refer to Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations located in the Company s
For the full year of 2024 total revenues were up 1 2 to 18 9 billion compared with 18 7 billion for the full year of 2023 Net earnings were 5 4 billion or 9 63 per diluted share for the full year of 2024 compared with 4 7 billion or 7 78 per diluted share for the full year of 2023
Net earnings in 2024 included net investment gains of 1 3 billion compared with net investment gains of 590 million in 2023 Net investment gains in 2024 included an increase in credit loss allowances of 256 million 1 1 billion of net gains from certain derivative and foreign currency gains or losses 140 million of net gains on equity securities and 259 million of net gains from sales and redemptions
for the full year of 2024 were 4 1 billion or 7 21 per diluted share compared with 3 7 billion or 6 23 per diluted share in 2023 The weaker yen dollar exchange rate negatively impacted adjusted earnings per diluted share by 18
Shareholders equity was 26 1 billion or 47 45 per share at December 31 2024 compared with 22 0 billion or 38 00 per share at December 31 2023 Shareholders equity at December 31 2024 included a cumulative increase of 2 0 billion from the effect of changes in discount rate assumptions on insurance contracts compared with a corresponding cumulative decrease of 2 6 billion at December 31 2023 and a net unrealized gain on investment securities and derivatives of 4 million compared with a net unrealized gain of 1 1 billion at December 31 2023 Shareholders equity at December 31 2024 also included an unrealized foreign currency translation loss of 5 0 billion compared with an unrealized foreign currency translation loss of 4 1 billion at December 31 2023 The annualized return on average shareholders equity in 2024 was 22 6
adjusted book value was 29 1 billion or 52 87 per share at December 31 2024 compared with 27 5 billion or 47 55 per share at December 31 2023 Adjusted book value excluding foreign currency remeasurement
was 23 4 billion or 42 46 per share at December 31 2024 compared with 23 8 billion or 41 15 per share at December 31 2023 The annualized adjusted return on equity excluding foreign currency remeasurement
The Company s business and results of operations are materially affected by conditions in the global capital markets and the economy generally Stressed conditions volatility and disruptions in global capital markets particular markets or financial asset classes can have an adverse effect on the Company in part because the Company has a large investment portfolio and its insurance liabilities and derivatives are sensitive to changing market factors See Item 1A Risk Factors for the risk factor entitled Difficult conditions in global capital markets and the economy could have a material adverse effect on the Company s investments capital position revenue profitability and liquidity and harm the Company s business
With Japan s aging population and the rise in healthcare costs supplemental health care insurance products remain attractive Additionally as Japan enters an era of 100 year lifespans customers needs for asset formation and retirement coverage including nursing care are increasing Japan s existing customers and potential customers seek products that are easily understood cost effective and can be accessed through technology enabled devices
Customer demographics continue to evolve and new opportunities present themselves in different customer segments such as the millennial and multicultural markets Customer expectations and preferences are changing Trends indicate existing customers and potential customers seek cost effective solutions that are easily understood and can be accessed through technology enabled devices Additionally income protection and the health needs of retiring baby boomers are continuing to shape the insurance industry
See Item 1 Business Aflac Japan Competitive Markets and Aflac U S Competitive Markets for a discussion of the competitive environment and the basis on which the Company competes in each of its segments
The Company s strategy to drive long term shareholder value is to pursue growth and strong profit margins and to exercise tactical capital deployment The Company s approach to pursue growth is through product development and distribution expansion and to achieve efficiencies by modernizing its technology and streamlining its operations
The Company s objectives in 2025 include maintaining strong pretax margins with increased sales production through product refreshments and growth initiatives in both its Aflac Japan and Aflac U S segments For Aflac Japan this includes continuing to focus on third sector products as well as introducing policies to new and younger customers For Aflac U S this includes continuing to focus on realizing benefits from its buy to build initiatives and other platform investments maintaining strong expense management discipline and strengthening the number of career agents for Aflac U S The Company believes that its strategy of positioning itself for future growth and efficiency while defending and leveraging its market leading position powerful brand recognition and varied distribution in Japan and the U S will provide support toward these objectives
In December 2024 the board of directors announced a 16 0 increase in the quarterly cash dividend effective with the first quarter of 2025 The Company intends to maintain strong capital ratios in Aflac Japan and Aflac U S in support of its commitment to shareholder dividends while remaining tactical in its deployment of capital in the form of share repurchases and opportunistic investments The Company s economic solvency ratio ESR target range is 170 to 230 for Aflac Japan and a target combined RBC range of 350 to 450 over time for Aflac U S which is consistent with the Company s risk management practices
For Aflac Japan the Company anticipates that favorable morbidity experience and the shift in premiums over the last several years from first sector savings products to third sector cancer and medical products and first sector protection products will result in stable benefit ratios in the Aflac Japan segment with a slightly higher expense ratio reflecting growth and strategic initiatives The Company also expects that benefit and expense ratios will continue to experience some level of revenue pressure due to the impact of paid up policies and internal reinsurance transactions For the 2025 through 2027 period the Company expects Aflac Japan to generate a benefit ratio in the range of 64 to 66 and an expense ratio in the range of 20 to 23 For 2025 the Company expects the benefit ratio to be toward the higher end of the 64 to 66 range and the expense ratio to be on the lower end of the 20 to 23 range
For Aflac U S the Company expects growth in life and disability to increase benefit ratios This growth as well as realized benefits from the buy to build initiatives are expected to decrease expense ratios over time For the 2025 through 2027 period the Company expects Aflac U S to generate a benefit ratio in the range of 48 to 52 and an expense ratio in the range of 36 to 39 For 2025 the Company expects the benefit ratio to be at the lower end of the 48 to 52 range and the expense ratio to be at the higher end of the 36 to 39 range
The Company s objectives for Corporate and other in 2025 include maintaining strong pretax adjusted earnings as compared with 2024 assuming that U S interest rates remain stable and excluding the impact of tax credit investments as tax benefits are recognized in a corresponding lower income tax expense
For important disclosures applicable to statements made in this 2025 Outlook please see the statement on Forward Looking Information at the beginning of Item 1 Business the Risk Factors identified in Item 1A and this Item 7 MD A
The Company earns its revenues principally from insurance premiums and investments The Company s operating expenses primarily consist of insurance benefits provided and reserves established for anticipated future insurance benefits general business expenses commissions and other costs of selling and servicing its products Profitability for the Company depends principally on its ability to price its insurance products at a level that enables the Company to earn a margin over the costs associated with providing benefits and administering those products Profitability also depends on among other items actuarial and policyholder behavior experience on insurance products and the Company s ability to attract and retain customer assets generate and maintain favorable investment results effectively deploy capital and utilize tax capacity and manage expenses
This document includes references to the Company s financial performance measures which are not calculated in accordance with United States generally accepted accounting principles U S GAAP non U S GAAP The financial measures exclude items that the Company believes may obscure the underlying fundamentals and trends in insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with insurance operations
Due to the size of Aflac Japan where the functional currency is the Japanese yen fluctuations in the yen dollar exchange rate can have a significant effect on reported results In periods when the yen weakens translating yen into dollars results in fewer dollars being reported When the yen strengthens translating yen into dollars results in more dollars being reported Consequently yen weakening has the effect of suppressing current period results in relation to the comparable prior period while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period A significant portion of the Company s business is conducted in yen and never converted into dollars but translated into dollars for U S GAAP reporting purposes which results in foreign currency impact to earnings cash flows and book value on a U S GAAP basis Management evaluates the Company s financial performance both including and excluding the impact of foreign currency translation to monitor respectively cumulative currency impacts and the currency neutral operating performance over time The average yen dollar exchange rate is based on the published MUFG Bank Ltd telegraphic transfer middle rate TTM
are adjusted revenues less benefits and adjusted expenses Adjusted earnings per share basic or diluted are the adjusted earnings for the period divided by the weighted average outstanding shares basic or diluted for the period presented The adjustments to both revenues and expenses account for certain items that are outside of management s control because they tend to be driven by general economic conditions and events or are related to infrequent activities not directly associated with insurance operations Adjusted revenues are U S GAAP total revenues excluding adjusted net investment gains and losses Adjusted expenses are U S GAAP total acquisition and operating expenses including the impact of interest from derivatives associated with notes payable but excluding any non recurring or other items not associated with the normal course of the Company s insurance operations and that do not reflect the Company s underlying business performance Management uses adjusted earnings and adjusted earnings per diluted share to evaluate the financial performance of the Company s insurance operations on a consolidated basis and believes that a presentation of these financial measures is vitally important to an understanding of the underlying profitability drivers and trends of the Company s insurance business The most comparable U S GAAP financial measures for adjusted earnings and adjusted earnings per share basic or diluted are net earnings and net earnings per share respectively
are net investment gains and losses adjusted for i amortized hedge cost income related to foreign currency exposure management strategies and certain derivative activity ii net interest income expense from foreign currency and interest rate derivatives associated with certain investment strategies which are both reclassified to net investment income and iii the impact of interest from derivatives associated with notes payable which is reclassified to interest expense as a component of total adjusted expenses The Company considers adjusted net investment gains and losses important as it represents the remainder amount that is considered outside management s control while excluding the components that are within management s control and are accordingly reclassified to net investment income and interest expense The most comparable U S GAAP financial measure for adjusted net investment gains and losses is net investment gains and losses
represent costs income incurred or recognized as a result of using foreign currency derivatives to hedge certain foreign exchange risks in the Company s Japan segment or in Corporate and other These amortized hedge costs income are estimated at the inception of the derivatives based on the specific terms of each contract and are recognized on a straight line basis over the contractual term of the derivative The Company believes that amortized hedge costs income measure the periodic currency risk management costs income related to hedging certain foreign currency exchange risks and are an important component of net investment income There is no comparable U S GAAP financial measure for amortized hedge costs income
are computed using the average foreign currency exchange rate for the comparable prior year period which eliminates fluctuations driven solely by foreign currency exchange rate changes Adjusted earnings per diluted share excluding current period foreign currency impact is adjusted earnings excluding current period foreign currency impact divided by the weighted average outstanding diluted shares for the period presented The Company considers adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact important because a significant portion of the Company s business is conducted in Japan and foreign exchange rates are outside management s control therefore the Company believes it is important to understand the impact of translating foreign currency primarily Japanese yen into U S dollars The most comparable U S GAAP financial measures for adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact are net earnings and net earnings per share respectively
is the U S GAAP book value representing total shareholders equity less AOCI as recorded on the U S GAAP balance sheet Adjusted book value per common share is adjusted book value at the period end divided by the ending outstanding common shares for the period presented The Company considers adjusted book value and adjusted book value per common share important as they exclude AOCI which fluctuates due to market movements that are outside management s control The most comparable U S GAAP financial measures for adjusted book value and adjusted book value per common share are total book value and total book value per common share respectively
is the U S GAAP book value representing total shareholders equity less AOCI as recorded on the U S GAAP balance sheet and excluding the cumulative beginning January 1 2021 foreign currency gains losses associated with i foreign currency remeasurement and ii sales and redemptions of invested assets Adjusted book value excluding foreign currency remeasurement per common share is adjusted book value excluding foreign currency remeasurement at the period end divided by the ending outstanding common shares for the period presented The Company considers adjusted book value excluding foreign currency remeasurement and adjusted book value excluding foreign currency remeasurement per common share important as they exclude both AOCI and the cumulative foreign currency remeasurement gains losses which fluctuate due to market movements that are outside management s control The most comparable U S GAAP financial measures for adjusted book value excluding foreign currency remeasurement and adjusted book value excluding foreign currency remeasurement per common share are total book value and total book value per common share respectively
is annualized adjusted earnings divided by average shareholders equity excluding AOCI Management uses adjusted return on equity to evaluate the financial performance of the Company s insurance operations on a consolidated basis and believes that a presentation of this financial measure is vitally important to an understanding of the underlying profitability drivers and trends of the Company s insurance business The Company considers adjusted return on equity important as it excludes components of AOCI which fluctuate due to market movements that are outside management s control The most comparable U S GAAP financial measure for adjusted return on equity is return on average equity ROE as determined using annualized net earnings and average total shareholders equity
is annualized adjusted earnings divided by average shareholders equity excluding both AOCI and the cumulative beginning January 1 2021 foreign currency gains losses associated with i foreign currency remeasurement and ii sales and redemptions of invested assets The Company considers adjusted return on equity excluding foreign currency remeasurement important because it excludes both AOCI and the cumulative foreign currency remeasurement gains losses which fluctuate due to market movements that are outside management s control The most comparable U S GAAP financial measure for adjusted return on equity excluding foreign currency remeasurement is ROE as determined using annualized net earnings and average total shareholders equity
represents amounts excluding foreign currency impact on U S dollar denominated investment income using the average foreign currency exchange rate for the comparable prior year period The Company considers U S dollar denominated investment income excluding foreign currency impact important as it eliminates the impact of foreign currency changes on the Aflac Japan segment results which are outside management s control The most comparable U S GAAP financial measure for U S dollar denominated investment income excluding foreign currency impact is the corresponding net investment income amount from the U S dollar denominated investments translated to yen
The following table is a reconciliation of items impacting adjusted earnings and adjusted earnings per diluted share to the most directly comparable U S GAAP financial measures of net earnings and net earnings per diluted share respectively for the years ended December 31
The following table is a reconciliation of items impacting adjusted net investment gains losses to the most directly comparable U S GAAP financial measures of net investment gains losses for the years ended December 31
The Company s investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income which is one of the drivers of the Company s profitability This investment strategy incorporates asset liability matching ALM to align the expected cash flows of the portfolio to the needs of the Company s liability structure The Company does not purchase securities with the intent of generating investment gains or losses However investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers tax planning strategies and or general portfolio management and rebalancing The realization of investment gains and losses is independent of the underwriting and administration of the Company s insurance products
Securities transactions include gains and losses from sales and redemptions of investments where the amount received is different from the amortized cost of the investment Credit losses include losses for held to maturity fixed maturity securities available for sale fixed maturity securities loan receivables loan commitments and reinsurance recoverables Changes in the fair value of equity securities are the result of gains or losses driven by fluctuations in market prices
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 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
For additional information regarding net investment gains and losses including details of reported amounts for the periods presented see Notes 3 and 4 of the Notes to the Consolidated Financial Statements
The U S insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers The system can result in periodic charges to the Company as a result of insolvencies bankruptcies that occur with other companies in the life insurance industry Some states permit member insurers to recover assessments paid through full or partial premium tax offsets These charges neither relate to the ordinary course of the Company s business nor reflect the Company s underlying business performance but result from external situations not controlled by the Company The Company excludes any charges associated with U S guaranty fund assessments and the corresponding tax benefit or expense from adjusted earnings
In Japan the government also requires the insurance industry to contribute to a policyholder protection corporation that provides funds for the policyholders of insolvent insurers however these costs are calculated and administered differently than in the U S In Japan these costs are not directly related to specific insolvencies or bankruptcies but are rather a regular operational cost for an insurance company Based on this structure the Company does not remove the Japan policyholder protection expenses from adjusted earnings
The Company considers the costs associated with the early redemption of its debt to be unrelated to the underlying fundamentals and trends in its insurance operations Additionally these costs are driven by changes in interest rates subsequent to the issuance of the debt and the Company considers these interest rate changes to represent economic conditions not directly associated with its insurance operations
In 2024 as part of the U S defined benefit plan freeze the Company offered lump sum payments to certain participants The lump sum payments were distributed in the fourth quarter of 2024 and resulted in a settlement charge of 18 million in 2024 due to the payments being greater than the settlement threshold The settlement charge was both unusual and non recurring and unrelated to other recurring benefit costs associated with the plan therefore the Company excluded the settlement charge from adjusted earnings
In June 2023 the Company amended the U S defined benefit plan to freeze future benefits under the plan for all participants effective January 1 2024 which resulted in the Company recognizing a curtailment gain of approximately 49 million in 2023 The curtailment gain was both unusual and non recurring and unrelated to other recurring benefit costs associated with the plan therefore the Company excluded the curtailment gain from adjusted earnings
In 2023 other items excluded from adjusted earnings included an impairment for certain finite lived intangible assets of approximately 11 million as a result of the Company exiting the third party administration business acquired in connection with the purchase of Aflac Benefits Solutions Inc in 2019 The impairment of these intangible assets was not related to the ongoing operations of the business and occurs infrequently therefore the Company excluded the impairment from adjusted earnings
Aflac Japan s premiums and a significant portion of its investment income are received in yen and its claims and most expenses are paid in yen Aflac Japan purchases yen denominated assets and U S dollar denominated assets which may be hedged to yen to support yen denominated policy liabilities Yen denominated income statement accounts are translated to U S dollars using the weighted average Japanese yen U S dollar foreign exchange rate for the reporting period except realized gains and losses on securities transactions which are translated at the exchange rate on the trade date of each transaction Yen denominated balance sheet accounts are translated to U S dollars using the spot Japanese yen U S dollar foreign exchange rate at the end of the reporting period
In recent periods the Japanese yen has weakened against the U S dollar Although the Company is unable to predict the timing or extent of future movements of the Japanese yen U S dollar foreign exchange rate the Company maintains hedging strategies see the Hedging Activities section of this MD A that are intended to mitigate the impacts of yen fluctuation on the Company s financial position and results of operations See the risk factor entitled The Company is exposed to foreign currency fluctuations in the yen dollar exchange rate in Part I Item 1A Risk Factors for more information
The Company s combined U S and Japanese effective income tax rate on pretax earnings was 15 2 in 2024 and 11 5 in 2023 The combined effective tax rate differs from the U S statutory rate primarily due to historic and solar tax credits and the exclusion of foreign currency translation gains and losses on certain Aflac Japan U S dollar denominated assets held in the Delaware Statutory Trust DST Total income taxes were 974 million in 2024 and 603 million in 2023 Japanese income taxes on Aflac Japan s results account for most of the Company s consolidated income tax expense
For additional information see Note 10 of the Notes to the Consolidated Financial Statements and the Critical Accounting Estimates Income Taxes section of this MD A The effective tax rate continues to be subject to future tax law changes both in the U S and in foreign jurisdictions See the risk factor entitled Tax rates applicable to the Company may change in Part I Item 1A Risk Factors for additional information
The following table is a reconciliation of items impacting adjusted book value and adjusted book value per diluted share excluding foreign currency remeasurement to the most directly comparable U S GAAP financial measures of book value and book value per diluted share respectively for the years ended December 31
The following table is a reconciliation of items impacting adjusted return on equity excluding foreign currency remeasurement to the most directly comparable U S GAAP financial measure of return on equity for the years ended December 31
Impact of gains losses associated with foreign currency remeasurement is calculated by excluding the cumulative beginning January 1 2021 foreign currency gains losses associated with i foreign currency remeasurement and ii sales and redemptions of invested assets The impact is the difference of adjusted return on equity reported compared with adjusted return on equity excluding from shareholders equity gains losses associated with foreign currency remeasurement
U S GAAP financial reporting requires that a company report financial and descriptive information about operating segments in its annual and interim period financial statements Furthermore the Company is required to report a measure of segment profit or loss certain revenue and expense items and segment assets The Company s insurance business consists of two segments Aflac Japan and Aflac U S Aflac Japan is the principal contributor to consolidated earnings In addition the Parent Company other business units that are not individually reportable and business activities including reinsurance activities not included in Aflac Japan or Aflac U S are included in Corporate and other See Item 1 Business for a summary of each segment s products and distribution channels
Consistent with U S GAAP guidance for segment reporting pretax adjusted earnings is the Company s U S GAAP measure of segment performance The Company believes that a presentation of this measure is vitally important to an understanding of the underlying profitability drivers and trends of its business Additional performance measures used to evaluate the financial condition and performance of the Company s segments are listed below
For additional information on the Company s performance measures included in this MD A see the Glossary of Selected Terms found directly following Part IV See Note 2 of the Notes to the Consolidated Financial Statements for the reconciliation of segment results to the Company s consolidated U S GAAP results and additional information
Changes in Aflac Japan s pretax adjusted earnings and profit margins are primarily affected by morbidity mortality expenses persistency and investment yields The following table presents a summary of operating results for Aflac Japan for the years ended December 31
Net interest income expense from derivatives associated with certain investment strategies of 305 and 294 in 2024 and 2023 respectively have been reclassified from net investment gains losses and included in adjusted earnings as a component of net investment income
Net earned premiums decreased primarily due to approximately 29 billion related to the internal cancer reinsurance transactions with Aflac Re established in the fourth quarter of 2024 and 2023 approximately 20 billion from limited pay products reaching premium paid up status and approximately 11 billion related to the remeasurement of the deferred profit liability for limited pay contracts in the third quarter of 2024
Adjusted net investment income increased primarily due to higher variable net investment income of 18 billion the weakening of the yen on U S dollar investments of 17 billion and lower amortized hedge cost of 16 billion
Annualized premiums in force decreased 3 0 to 1 21 trillion as of December 31 2024 compared with 1 25 trillion in 2023 The decrease in annualized premiums in force in yen of 3 0 in 2024 was driven primarily by limited pay products reaching premium paid up status Annualized premiums in force translated into dollars at respective year end exchange rates were 7 6 billion in 2024 compared with 8 8 billion in 2023 As of December 31 2024 Aflac Japan exceeded 22 million individual policies in force in Japan with more than 14 million cancer policies in force in Japan
Aflac Japan s investment portfolios include U S dollar denominated securities and reverse dual currency securities yen denominated debt securities with dollar coupon payments In years when the yen strengthens in relation to the dollar translating Aflac Japan s U S dollar denominated investment income into yen lowers growth rates for net investment income total adjusted revenues and pretax adjusted earnings in yen terms In years when the yen weakens translating U S dollar denominated investment income into yen magnifies growth rates for net investment income total adjusted revenues and pretax adjusted earnings in yen terms
The following table illustrates the effect of translating Aflac Japan s U S dollar denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had foreign currency exchange rates remained unchanged from the prior year Amounts excluding foreign currency impact on U S dollar denominated investment income were determined using the average foreign currency exchange rate for the comparable prior year period See non U S GAAP financial measures defined above
The following table presents a summary of operating ratios in yen terms for Aflac Japan for the years ended December 31 followed by a discussion of the significant drivers of changes in operating ratios in yen compared to the previous year
In 2024 the total benefits and claims to total premiums ratio decreased primarily due to a decrease in total benefits and claims resulting from reserve remeasurement gains related to assumption updates in the third quarter of 2024 partially offset by the decline in net earned premiums resulting from reinsurance activity limited pay products reaching premium paid up status and a deferred profit liability remeasurement loss
The foundation of Aflac Japan s product portfolio has been and continues to be third sector products which include cancer medical and other products With continued cost pressure on Japan s health care system the Company expects the need for third sector products will continue to rise in the future and that the medical and cancer insurance products Aflac Japan provides will continue to be an important part of its product portfolio Additionally the Company believes that sales of first sector products including
WAYS and Child Endowment position Aflac Japan for potential future long term sales opportunities by marketing these products to a younger demographic as well as potential cross selling opportunities of Aflac Japan s third sector products
Aflac Japan continues to promote digital and web based sales to groups and use of its system that enables smart device based insurance application by allowing the customer and an Aflac Japan operator to see the same screen through their smart devices Further Aflac Japan continues to utilize its virtual sales tool that enables online consultations and policy applications to be completed entirely online
In 2024 Aflac Japan recruited 50 new sales agencies At December 31 2024 Aflac Japan was represented by approximately 6 600 sales agencies with approximately 114 000 licensed sales associates employed by those agencies The number of sales agencies has declined in recent years due to Aflac Japan s focus on supporting agencies with strong management frameworks high productivity and more producing agents
On May 10 2024 the Parent Company reported that the shares owned by the J A Alliance Trust Trust represented in aggregate 20 of the voting power of the Parent Company s common stock The Shareholders Agreement entered into on February 28 2019 by the Parent Company Japan Post Holdings Co Ltd J A Alliance Holdings Corporation solely in its capacity as trustee of the Trust and General Incorporated Association J A Alliance provides voting restrictions that require the Trust to vote i all shares representing voting rights in excess of 20 of the voting rights in the Parent Company and ii all of its shares in connection with a change in control transaction in each case in a manner proportionally equal to votes of shares not beneficially owned by the Trust Japan Post Holdings Co Ltd does not have a board seat on the Parent Company s board of directors and does not have rights to control manage or intervene in the management of the Parent Company According to a Form 13F filed by Japan Post Holdings with the SEC on January 16 2025 Japan Post Holdings owned 52 3 million Aflac Incorporated common shares as of December 31 2024
As previously reported on December 19 2018 the Parent Company and Aflac Japan entered into a Basic Agreement with Japan Post Holdings Co Ltd a Japanese corporation Japan Post Holdings Pursuant to the terms of the Basic Agreement among other items Japan Post Holdings and Aflac Japan agreed to reconfirm existing initiatives regarding cancer insurance and to consider new joint initiatives In June 2021 the Parent Company Aflac Japan and Japan Post Group agreed to pursue several specific initiatives toward building a Co creation Platform to support customers and local communities consistent with Japan Post Group s medium term management plan announced in May 2021 The initiatives are directed at among other items the promotion of Aflac Japan cancer insurance digital transformation within the Japan Post Group and certain diversity efforts
On May 1 2023 the Parent Company filed a registration statement on Form S 3 that registered the sale of its common stock from time to time by J A Alliance Holdings Corporation in its capacity as trustee of the Trust The filing was made pursuant to a contractual requirement contained in the Shareholders Agreement The Trust has agreed not to own more than the greater of 10 of the Parent Company s outstanding shares or such shares representing 22 5 of the voting rights in the Parent Company
The foregoing is subject to and qualified in its entirety by reference to the full text of the Basic Agreement a copy of which is attached as Exhibit 10 1 to the Company s Current Report on Form 8 K filed December 19 2018 and the Shareholders Agreement a copy of which is attached as Exhibit 10 50 to the Company s Quarterly Report on Form 10 Q filed April 26 2019 the terms of which exhibits are incorporated herein by reference
The level of investment income in yen is affected by available cash flow from operations the timing of investing the cash flow yields on new investments the effect of yen dollar exchange rates on U S dollar denominated investment income and other factors
As part of the Company s portfolio management and asset allocation process Aflac Japan invests in yen and U S dollar denominated investments Yen denominated investments primarily consist of JGBs public and private fixed maturity
securities and public equity securities Aflac Japan s U S dollar denominated investments include fixed maturity investments loan receivables and growth assets including alternative investments in limited partnerships or similar investment vehicles Aflac Japan invests in both publicly traded and privately originated U S dollar denominated investment grade and below investment grade fixed maturity securities and loan receivables and has entered into foreign currency forwards and options to hedge the currency risk on the fair value of a portion of the U S dollar investments
See the Investments section of this MD A for further discussion of these investment programs and see Notes 1 3 and 4 of the Notes to the Consolidated Financial Statements for additional information regarding loans and loan receivables
Funds available for investment include cash flows from operations investment income and funds generated from maturities redemptions securities lending and other securities transactions Securities lending is also used from time to time to accelerate the availability of funds for investment Purchases of securities from period to period are determined based on multiple objectives including appropriate portfolio diversification the relative value of a potential investment and availability of investment opportunities liquidity credit and other risk factors while adhering to the Company s investment policy guidelines
See Notes 3 4 and 5 of the Notes to the Consolidated Financial Statements and the Investments and Hedging Activities sections of this MD A for additional information on the Company s investments and hedging strategies
Changes in Aflac U S pretax adjusted earnings and profit margins are primarily affected by morbidity mortality expenses persistency and investment yields The following table presents a summary of operating results for Aflac U S for the years ended December 31
Net interest income expense from derivatives associated with certain investment strategies of 36 and 34 in 2024 and 2023 respectively have been reclassified from net investment gains losses and included in adjusted earnings as a component of net investment income
Total benefits and claims increased primarily due to a decrease of approximately 139 million in reserve remeasurement gains related to assumption updates in the third quarter of 2024 and higher incurred claims
The following table presents a summary of operating ratios for Aflac U S for the years ended December 31 followed by a discussion of the significant drivers of changes in operating ratios compared to the previous year
In 2024 the total benefits and claims to total premiums ratio increased primarily due to the decrease in reserve remeasurement gains related to assumption updates in the third quarter of 2024 as well as higher incurred claims
In total the pretax adjusted profit margin decreased in 2024 primarily due to the increase in total benefits and claims partially offset by higher total adjusted revenues and lower total adjusted expenses
The decrease in new annualized premium sales for Aflac U S in 2024 primarily reflects lower sales of group voluntary benefit products impacted by a continued focus on profitable growth as well as softer sales of network dental
In 2024 the Aflac U S sales force included an average of approximately 6 000 U S agents including brokers who were actively producing business on a weekly basis The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and needs as well as serve as a leading indicator of future production capacity
As part of the Company s portfolio management and asset allocation process Aflac U S invests in fixed maturity investments loan receivables and growth assets including public equity securities and alternative investments in limited partnerships Aflac U S invests in both publicly traded and privately originated investment grade and below investment grade fixed maturity securities and loan receivables
Funds available for investment include cash flows from operations investment income and funds generated from maturities redemptions and other securities transactions Purchases of securities from period to period are determined based on multiple objectives including appropriate portfolio diversification the relative value of a potential investment and availability of investment opportunities liquidity credit and other risk factors while adhering to the Company s investment policy guidelines
The decrease in the Aflac U S new money yield in 2024 was primarily due to higher allocations to lower yielding asset classes See Note 3 of the Notes to the Consolidated Financial Statements and the Market Risks of Financial Instruments Credit Risk subsection of Item 7A for additional information regarding the sector concentrations of the Company s investments
Changes in the pretax adjusted earnings of Corporate and other are primarily affected by internal reinsurance activity and net investment income The following table presents a summary of operating results for Corporate and other for the years ended December 31
The change in value of federal historic rehabilitation and solar investments in partnerships of 165 and 343 in 2024 and 2023 respectively is included as a reduction to net investment income Tax credits on these investments of 164 and 334 in 2024 and 2023 respectively have been recorded as an income tax benefit in the consolidated statements of earnings See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments
Adjusted net investment income increased primarily due to 178 million from a lower volume of federal historic rehabilitation and solar tax credit investments with offsetting tax benefits recognized as a corresponding lower income tax expense and higher Aflac Re consolidated investment income of 68 million primarily due to a higher volume of assets as part of the reinsurance agreements established in the fourth quarter of 2024 and 2023
Total benefits and claims decreased primarily due to the impact of 163 million in the fourth quarter of 2023 related to a novation agreement under which Aflac Re assumed the duties obligations and liabilities through a reinsurance of business ALIJ previously ceded to an external reinsurer which was partially offset by higher benefits from the reinsurance agreements established in the fourth quarter of 2024 and 2023
The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits These investments are classified as limited partnerships and included in other investments in the consolidated balance sheets The change in value of each investment is recorded as a reduction to net investment income Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statements of earnings
The Company s investment strategy utilizes disciplined asset and liability management while seeking long term risk adjusted investment returns and the delivery of stable income within regulatory and capital objectives and preserving shareholder value In attempting to optimally balance these objectives the Company seeks to maintain on behalf of Aflac Japan a diversified portfolio of yen denominated investment assets a U S dollar denominated investment portfolio hedged back to yen and a portfolio of unhedged U S dollar denominated assets As part of the Company s portfolio management and asset allocation process Aflac U S invests in fixed maturity investments and growth assets including public equity securities and alternative investments in limited partnerships Aflac U S invests in both publicly traded and privately originated investment grade and below investment grade fixed maturity securities and loans
The Company has invested in a variety of commercial mortgage loans CMLs and other loans including transitional real estate loans TREs The Company s TRE and CML investments are collateralized by commercial real estate including some office properties The Company considers these investments to be well diversified by geography and among property types Further the Company believes that the portfolio is generally well positioned with exposures concentrated in high quality underlying properties with institutional investors who are experienced in managing their assets during periods of market volatility
While generally resilient the Company s investments in TREs and CMLs have been affected by conditions in the commercial real estate market with a greater impact on mortgages secured by office properties The Company invested in certain TREs and CMLs that are currently in default of interest or maturity payments The Company works with the affected borrowers to resolve specific situations through loan continuance with potential modifications through loan sales or through the process of foreclosure or deed in lieu of foreclosure Since the third quarter of 2023 the Company has taken possession through foreclosure or deed in lieu of foreclosure of certain commercial real estate properties which secured defaulted loans Properties acquired by the Company through foreclosure and deed in lieu of foreclosure are reported as real estate owned REO in other investments in the Company s consolidated balance sheets
In 2024 the Company completed foreclosure or deed in lieu of foreclosure on TREs collateralized with commercial real estate properties with an amortized cost of 502 million As a result of the amortized cost of the TREs exceeding the estimated fair value of the collateral upon consummating the foreclosures or deed in lieu of foreclosure transactions the Company recognized a net loss of 34 million in net investment gains losses for the year ended December 31 2024 In 2023 the Company completed foreclosure or deed in lieu of foreclosure on TREs collateralized with commercial real estate properties with an amortized cost of 284 million As a result of the amortized cost of the TREs exceeding the estimated fair value of the collateral upon consummating the foreclosures or deed in lieu of foreclosure transactions the Company recognized a net loss of 66 million in net investment gains losses for the year ended December 31 2023
The Company utilizes third party asset managers to source underwrite and manage each loan as well as any resulting REO The Company closely monitors the activities of these managers In the event that a loan workout is necessary the Company believes these external managers have the experience and resources to manage the process to maximize recovery
The Company also monitors its commercial mortgage and other loan investments internally on an ongoing basis including a review of loans credit quality indicators and payment status as current past due restructured or under foreclosure See Note 3 of the Notes to the Consolidated Financial Statements for further information concerning credit quality indicators information on loans that are on nonaccrual status and REO obtained through foreclosure or deed in lieu of foreclosure See also Part I Item 1A Risk Factors for a discussion of risk factors associated with the Company s investments
The ratings of the Company s securities referenced in the table below are based on the ratings designations provided by major rating organizations such as Moody s Standard Poor s and Fitch or if not rated are determined based on the Company s internal analysis of such securities When the ratings issued by the rating agencies differ the Company utilizes the second lowest rating when three or more rating agency ratings are available or the lowest rating when only two rating agency ratings are available
Generally declines in fair values can be a result of changes in interest rates yen dollar exchange rate and changes in net spreads driven by a broad market move or a change in the issuer s underlying credit quality The Company believes these issuers have the ability to continue making timely payments of principal and interest See the Unrealized Investment Gains and Losses section in Note 3 of the Notes to the Consolidated Financial Statements for further discussions of unrealized losses related to financial institutions and other corporate investments
The Company s portfolio of below investment grade securities includes debt securities purchased while the issuer was rated investment grade plus other loans and bonds invested in as part of an allocation to that segment of the market The following is the Company s below investment grade exposure at December 31
The Company maintains an allocation to higher yielding corporate bonds within the Aflac Japan and Aflac U S portfolios Most of these securities were rated below investment grade at the time of purchase but the Company also purchased several that were rated investment grade which because of market pricing offer yields commensurate with below investment grade risk profiles The objective of this allocation was to enhance the Company s yield on invested assets and further diversify credit risk All investments in this program must have a minimum rating at purchase of low BB using the Company s above described rating methodology and are managed by the Company s internal credit portfolio management team
The Company invests in middle market loans primarily to U S corporate borrowers most of which have below investment grade ratings The objectives of this program include enhancing the yield on invested assets achieving further diversification of credit risk and mitigating the risk of rising interest rates and hedge costs through the acquisition of floating rate assets
The Company maintains diversification in investments by sector to avoid concentrations to any one sector thus managing exposure risk The following table shows the distribution of fixed maturities by sector classification as of December 31
The Company has investments in both publicly and privately issued securities The Company s ability to sell either type of security is a function of overall market liquidity which is impacted by among other things the amount of outstanding securities of a particular issuer or issuance trading history of the issue or issuer overall market conditions and idiosyncratic events affecting the specific issue or issuer
Aflac Japan has a portfolio of privately issued securities to better match liability characteristics and secure higher yields than those available on Japanese government or other public corporate bonds
Aflac Japan s investments in yen denominated privately issued securities consist primarily of non Japanese issuers are rated investment grade at purchase and have longer maturities thereby allowing the Company to improve asset liability matching and overall investment returns These securities are generally either privately negotiated arrangements or issued under medium term note programs and have standard documentation commensurate with credit ratings of the issuer except when internal credit analysis indicates that additional protective and or event risk covenants were required Many of these investments have protective covenants appropriate to the specific investment These may include a prohibition of certain activities by the borrower maintenance of certain financial measures and specific conditions impacting the payment of the Company s notes
The Company uses derivative contracts to hedge foreign currency exchange rate risk and interest rate risk The Company uses various strategies including derivatives to manage these risks See Item 7A Quantitative and Qualitative Disclosures About Market Risk for additional information about market risk and the Company s use of derivatives
Derivatives are designed to reduce risk on an economic basis while minimizing the impact on financial results The Company s derivatives programs vary depending on the type of risk being hedged See Note 4 of the Notes to the Consolidated Financial Statements for
Aflac Japan maintains certain unhedged U S dollar denominated securities which serve as an economic currency hedge of a portion of the Company s investment in Aflac Japan while utilizing foreign currency options to mitigate against significant movements in the yen U S dollar exchange rate see
The Parent Company designates yen denominated liabilities notes payable and loans as non derivative hedging instruments and designates certain foreign currency forwards and options as derivative hedges of the Company s net investment in Aflac Japan
The Parent Company enters into forward and option contracts to accomplish a dual objective of hedging foreign currency exchange rate risk related to dividend payments by its subsidiary ALIJ and reducing enterprise wide hedge costs
The following table presents metrics related to Aflac Japan s U S dollar denominated hedge program and the Parent Company s enterprise corporate hedging program including associated amortized hedge costs income for the years ended December 31 See the Results of Operations section of this MD A for the Company s definition of amortized hedge costs income
Amortized hedge costs income can fluctuate based upon many factors including the derivative notional amount the length of time of the derivative contract changes in both U S and Japan interest rates and supply and demand for dollar funding Amortized hedge costs income have fluctuated in recent periods due to changes in the previously mentioned factors
Aflac Japan buys U S dollar denominated investments typically corporate bonds and hedges them back to yen with foreign currency forwards and options to hedge foreign currency exchange rate risk This economically creates yen assets that match yen liabilities during the life of the derivative and provides favorable capital treatment under the Japan SMR calculations The currency risk being hedged is generally based on fair value of hedged investments The following table summarizes the U S dollar denominated investments held by Aflac Japan as of December 31
The U S Dollar Program includes all U S dollar denominated investments in Aflac Japan other than the investments in certain consolidated VIEs where the instrument is economically converted to yen as a result of a derivative in the consolidated VIE The Company 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 maintains a collar program on a portion of its U S Dollar Program to mitigate against more extreme moves in foreign exchange and therefore support SMR As of December 31 2024 none of the Company s foreign currency options hedging Aflac Japan s U S dollar denominated assets were in the money
Foreign exchange derivatives used for hedging are periodically settled which results in cash receipt or payment at maturity or early termination The following table presents the settlements associated with the Company s currency derivatives used for hedging Aflac Japan s U S dollar denominated investments for the years ended December 31
The Company has designated certain yen denominated liabilities and foreign currency forwards and options of the Parent Company as accounting hedges of its net investment in Aflac Japan The Company s consolidated yen denominated net asset position was partially hedged at 5 9 billion as of December 31 2024 with hedging instruments comprised of 4 1 billion of yen denominated debt and 1 8 billion of foreign currency forwards compared with 6 8 billion as of December 31 2023 with hedging instruments comprised of 3 7 billion of yen denominated debt and 3 1 billion of foreign currency forwards and options
The Company makes its accounting designation of net investment hedge at the beginning of each quarter If the total of the designated Parent Company non derivative and derivative notional is equal to or less than the Company s net investment in Aflac Japan the hedge is deemed to be effective and the currency exchange effect on the yen denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income The Company s net investment hedge was effective during the years ended December 31 2024 and 2023 respectively For additional information on the Company s net investment hedging strategy see Note 4 of the Notes to the Consolidated Financial Statements
In order to economically mitigate risks associated with the enterprise wide exposure to the yen and the level and volatility of hedge costs the Parent Company enters into foreign currency forward and option contracts By buying U S dollars and selling yen the Parent Company is effectively lowering its overall economic exposure to the yen In addition to reducing yen exposure from dividend payments by Aflac Japan to the Parent Company this strategy also reduces enterprise wide hedge costs This activity is reported in Corporate and other The Company continually evaluates the program s efficacy
As part of the Company s internal reinsurance platform Aflac Re enters into foreign currency forwards with the Parent Company and may enter into such forwards with third parties to economically manage the currency mismatch between Aflac Re s assets which are mostly denominated in U S dollars and liabilities which are mostly denominated in yen in order to support and optimize BMA capital requirements For additional information on the Company s internal reinsurance platform see Note 8 of the Notes to the Consolidated Financial Statements and the Liquidity and Capital Resources section of this MD A
Aflac Japan and Aflac U S use interest rate swaps from time to time to mitigate the risk of investment income volatility for certain variable rate investments Additionally to manage interest rate risk associated with its U S dollar denominated investments held by Aflac Japan from time to time the Company utilizes interest rate swaptions
For additional discussion of the risks associated with the foreign currency exposure refer to the Currency Risk section in Item 7A Quantitative and Qualitative Disclosures about Market Risk and Item 1A specifically to the Risk Factors titled The Company is exposed to foreign currency fluctuations in the yen dollar exchange rate and Lack of availability of acceptable yen denominated investments could adversely affect the Company s results of operations financial position or liquidity
The Japanese insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers Legislation enacted regarding the framework of the Life Insurance Policyholder Protection Corporation LIPPC included government fiscal measures supporting the LIPPC In March 2022 Japan s Diet passed legislation that extended the government s fiscal support of the LIPPC through March 2027 In March 2022 the LIPPC reached the required balance for the total life industry of 400 billion as specified by its Articles of Incorporation As a result additional contributions are not expected to be required unless the balance is reduced due to payments made by the LIPPC to the policyholders of insolvent insurers Accordingly Aflac Japan did not recognize an expense for LIPPC assessments for the years ended December 31 2024 and 2023
Under U S state guaranty association laws certain insurance companies can be assessed up to prescribed limits for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business The amount of the guaranty fund assessment that an insurer is assessed is based on its proportionate share of premiums in that state See Note 15 of the Notes to the Consolidated Financial Statements for further information on guaranty fund assessments Guaranty fund assessments for the years ended December 31 2024 and 2023 were immaterial
Liquidity refers to the ability to generate sufficient cash resources to meet the payment obligations of the Company Capital refers to the long term financial resources available to support the operations of the businesses fund business growth and provide for an ability to withstand adverse circumstances Financial leverage leverage refers to a strategy of utilizing debt in managing the Company s capital structure and cost of capital The Company targets and actively manages liquidity capital and leverage in the context of a number of considerations including
The Company s cash and cash equivalents include unrestricted cash on hand money market instruments and other debt instruments with a maturity of 90 days or less when purchased all of which have minimal market settlement or other risk exposure The target minimum amount for the Parent Company s cash and cash equivalents is approximately 1 8 billion to provide a capital buffer and liquidity support at the holding company The Company remains committed to prudent liquidity and capital management At December 31 2024 the Company held 6 2 billion in cash and cash equivalents for stress conditions which includes the Parent Company s target minimum amount of 1 8 billion
Aflac Japan and Aflac U S generate cash flows from their operations and provide the primary sources of liquidity to the Parent Company through management fees and dividends with Aflac Japan being the largest contributor The primary uses of cash by the Parent Company are shareholder dividends the repurchase of its common stock interest on its outstanding indebtedness and operating expenses
The Company intends to maintain higher than historical levels of liquidity and capital at the Parent Company for stress conditions and with the goals of addressing the Company s hedge costs and related potential need for collateral and mitigating against long term weakening of the Japanese yen Further the Company plans to continue to maintain a population of unhedged U S dollar denominated investments at Aflac Japan and to consider whether the amount of such investments should be increased or decreased relative to the Company s view of economic equity surplus in Aflac Japan in light of potentially rising hedge costs and other factors See the Hedging Activities subsection of this MD A for additional information
The Company believes that its balance of cash and cash equivalents and cash generated by operations will be sufficient to satisfy both its short term and long term cash requirements and plans for cash including material cash requirements from known contractual obligations and returning capital to shareholders through share repurchases and dividends
In addition to cash and cash equivalents the Company also maintains credit facilities both intercompany and with external partners and a number of other available tools to support liquidity needs on a global basis In September 2024 the Parent Company filed a shelf registration statement with the SEC that allows the Company to issue an indefinite amount of debt securities in one or more series from time to time until September 2027 The Company believes outside sources for additional debt and equity capital if needed will continue to be available The Company was in compliance with all of the covenants of its notes payable and lines of credit at December 31 2024 For additional information see Note 9 of the Notes to the Consolidated Financial Statements
As part of enterprise wide capital management and optimization the Company also utilizes the intercompany reinsurance platform to execute internal reinsurance transactions with Aflac Re For additional information see Note 8 of the Notes to the Consolidated Financial Statements
The following table presents the estimated payments of the Company s material cash requirements from known contractual obligations as of December 31 2024 The Company translated its yen denominated obligations using the December 31 2024 exchange rate Actual future payments as reported in dollars will fluctuate with changes in the yen dollar exchange rate
The estimated payments reflect future estimated cash payments to be made to policyholders and others for future policy benefits and certain related expenses using assumptions aligned with the Company s experience on policy persistency mortality morbidity and other assumptions These cash outflows are undiscounted with respect to interest and future premium payments received from policyholders are not included Therefore the sum of the cash outflows exceeds the corresponding liability amount Due to the significance of the assumptions used actual cash outflow amounts and timing will differ possibly materially from these estimates
For additional information on the Company s major contractual obligations see the applicable Note in the Notes to the Consolidated Financial Statements as indicated in the line items in the table above
The Company s consolidated financial statements convey its financing arrangements during the periods presented The Company has not engaged in material intra period short term financings during the periods presented that are not otherwise reported in its balance sheet or disclosed therein As of December 31 2024 the Company had no material letters of credit standby letters of credit guarantees or standby repurchase obligations The Company has not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards including securities lending transactions See Notes 1 3 and 4 of the Notes to the Consolidated Financial Statements for additional information on the Company s securities lending and derivative activities With the exception of disclosed activities in those referenced footnotes and the Risk Factors entitled The Company is exposed to foreign currency fluctuations in the yen dollar exchange rate and Lack of availability of acceptable yen denominated investments could adversely affect the Company s results of operations financial position or liquidity the Company is not aware of any trend demand commitment event or uncertainty that would reasonably result in its liquidity increasing or decreasing by a material amount
The Company consistently generates positive cash flows from operations and has the ability to adjust cash flow management from other sources of liquidity including reinvestment cash flows and selling investments in order to meet short term cash needs
The Company translates cash flows for Aflac Japan s yen denominated items into U S dollars using weighted average exchange rates In years when the yen weakens translating yen into dollars causes fewer dollars to be reported When the yen strengthens translating yen into dollars causes more dollars to be reported
The principal cash inflows for the Company s insurance activities come from insurance premiums and investment income The principal cash outflows are the result of policy claims operating expenses income tax as well as interest expense As a result of policyholder aging claims payments are expected to gradually increase over the life of a policy Therefore future policy benefit reserves are accumulated in the early years of a policy and are designed to help fund future claims payments
The Company expects its future cash flows from premiums and investment portfolios to be sufficient to meet its cash needs for benefits and expenses Consolidated cash flow from operations decreased 15 1 in 2024 compared with 2023
The Company s investment objectives provide for liquidity primarily through the purchase of publicly traded investment grade debt securities Prudent portfolio management dictates that the Company attempts to match the duration of its assets with the duration of its liabilities Currently when the Company s fixed maturity securities mature the proceeds may be reinvested at a yield below that required for the accretion of policy benefit liabilities on policies issued in earlier years However the long term nature of the Company s business and its strong cash flows provide the Company with the ability to minimize the effect of mismatched durations and or yields identified by various asset adequacy analyses From time to time or when market opportunities arise the Company disposes of selected fixed maturity securities that are available for sale to improve the duration matching of assets and liabilities improve future investment yields and or rebalance its portfolio As a result dispositions before maturity can vary significantly from year to year
As part of its overall corporate strategy the Company has committed up to 400 million to Aflac Ventures LLC Aflac Ventures as opportunities emerge As of December 31 2024 of the 400 million committed approximately 285 million has been deployed Aflac Ventures is a subsidiary of Aflac Global Ventures LLC Aflac Global Ventures which is reported in Corporate and other The central mission of Aflac Global Ventures is to support the organic growth and business development needs of Aflac Japan and Aflac U S with an emphasis on digital applications designed to improve the customer experience gain efficiencies and develop new markets in an effort to enhance and defend long term shareholder value Investments are included in equity securities or the other investments line in the consolidated balance sheets
As part of an arrangement with Federal Home Loan Bank of Atlanta FHLB Aflac U S obtains low cost investment funding from FHLB supported by acceptable forms of collateral pledged by Aflac U S In 2024 Aflac U S borrowed and repaid 466 million under this program As of December 31 2024 Aflac U S had outstanding borrowings of 589 million reported in its balance sheet
In March 2024 the Parent Company issued five series of senior notes totaling 75 0 billion through a private placement The first series which totaled 18 3 billion bears interest at a fixed rate of 1 600 per annum payable semi annually and will mature in March 2034 The second series which totaled 15 0 billion bears interest at a fixed rate of 1 740 per annum payable semi annually and will mature in March 2036 The third series which totaled 16 5 billion bears interest at a fixed rate of 1 920 per annum payable semi annually and will mature in March 2039 The fourth series which totaled 5 7 billion bears interest at a fixed rate of 2 160 per annum payable semi annually and will mature in March 2044 The fifth series which totaled 19 5 billion bears interest at a fixed rate of 2 400 per annum payable semi annually and will mature in March 2054 These notes are redeemable at the Parent Company s option i in whole at any time or ii in part from time to time in an amount not less than 5 of the aggregate principal amount then outstanding of the notes to be redeemed
In March 2024 the Parent Company issued three series of senior notes totaling 48 6 billion through a public debt offering under its U S shelf registration statement The first series which totaled 13 0 billion bears interest at a fixed rate of 1 048 per annum payable semi annually and will mature in March 2029 The second series which totaled 27 9 billion bears interest at a fixed rate of 1 412 per annum payable semi annually and will mature in March 2031 The third series which totaled 7 7 billion bears interest at a fixed rate of 1 682 per annum payable semi annually and will mature in March 2034 These notes are redeemable at the Parent Company s option at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance In addition the notes maturing in March 2029 March 2031 and March 2034 are redeemable at the Parent Company s option in whole or in part from time to time on or after December 21 2028 December 31 2030 and September 21 2033 respectively at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
In December 2023 ALIJ issued 30 0 billion par value of subordinated bonds that will mature in December 2053 The bonds bear interest at an initial rate of 1 958 per annum until December 5 2028 Thereafter the rate of interest of the bonds will be reset every five years to a rate of interest equal to the then current five year JGB rate plus i 1 650 per annum on and after the day immediately following December 5 2028 to December 5 2033 and ii 2 650 per annum on and after the day immediately following December 5 2033 to December 5 2053 The bonds are redeemable in whole but not in part i at any time upon the occurrence of certain regulatory or tax events as specified in the indenture governing the terms of the bonds or ii on each interest rate reset date on or after December 5 2028
As of December 31 2024 a remaining balance of 47 3 million shares of the Company s common stock was available for purchase under share repurchase authorizations by its board of directors See Note 11 of the Notes to the Consolidated Financial Statements for additional information
In December 2024 the board of directors announced a 16 0 increase in the quarterly cash dividend effective with the first quarter of 2025 The first quarter 2025 cash dividend of 58 per share is payable on March 3 2025 to shareholders of record at the close of business on February 19 2025
Aflac Japan is required to meet certain financial criteria as governed by the Companies Act of Japan in order to provide dividends to the Parent Company Under these criteria dividend capacity at Aflac Japan is defined as total equity excluding common stock and capital reserves representing statutorily required amounts in Japan but reduced for net after tax unrealized losses on available for sale securities These dividend capacity requirements are generally aligned with the SMR Japan s FSA maintains its own solvency standard which is quantified through the SMR Aflac Japan s SMR is sensitive to interest rate credit spread and foreign exchange rate changes therefore the Company continues to evaluate alternatives for reducing this sensitivity including the reduction of subsidiary dividends paid to the Parent Company and Parent Company capital contributions In the event of a rapid change in market risk conditions causing SMR to decline the Company has a senior unsecured revolving credit facility in the amount of 100 billion as a capital contingency plan Additionally subject to market conditions the Company expects that it could take action to enter into derivatives on unhedged U S dollar denominated investments with foreign currency options or forwards or execute additional reinsurance transactions See Notes 8 and 9 of the Notes to the Consolidated Financial Statements for additional information
The Company has already undertaken various measures to mitigate the sensitivity of Aflac Japan s SMR For example the Company employs policy reserve matching PRM investment strategies which is a Japan specific accounting treatment that reduces SMR interest rate sensitivity since PRM designated investments are carried at amortized cost consistent with corresponding liabilities In order for a PRM designated asset to be held at amortized cost there are certain criteria that must be maintained The primary criterion relates to maintaining the duration of designated assets and liabilities within a specified tolerance range If the duration difference is not maintained within the specified range without rebalancing then a certain portion of the assets must be reclassified as available for sale and held at fair value with any associated unrealized gain or loss recorded in surplus To rebalance assets may need to be sold in order to maintain the duration with the specified range resulting in realizing a gain or loss from the sale For U S GAAP PRM investments are categorized as available for sale The Company also uses foreign currency derivatives to hedge a portion of its U S dollar denominated investments
Aflac Japan s SMR remains high and reflects a strong capital and surplus position As of December 31 2024 Aflac Japan s SMR was 1 221 compared with 1 219 at December 31 2023 The Company is committed to maintaining strong capital levels consistent with maintaining current insurance financial strength and credit ratings
The FSA will introduce an economic value based solvency regime based on the Insurance Capital Standards ICS for insurance companies in Japan The final specifications were published in May 2024 with the new capital regime and initial ESR report becoming effective for Aflac Japan s 2025 fiscal year As of December 31 2024 Aflac Japan s estimated ESR was above 270
A life insurance company s statutory capital and surplus is determined according to rules prescribed by the NAIC as modified by the insurance department in the insurance company s state of domicile Statutory accounting rules are different from U S GAAP and are intended to emphasize policyholder protection and company solvency The continued long term growth of the Company s business may require increases in the statutory capital and surplus of its insurance operations The Company s insurance operations may secure additional statutory capital through various sources such as internally generated statutory earnings reduced dividends paid to the Parent Company capital contributions by the Parent Company from funds generated through debt or equity offerings or reinsurance transactions The NAIC s RBC formula is used by insurance regulators to help identify inadequately capitalized insurance companies The RBC formula quantifies insurance risk business risk asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer s operations
The combined RBC ratio for Aflac U S as of December 31 2024 was 677 compared with 710 as of December 31 2023 The Company calculates its combined RBC ratio to include all U S regulated life insurance entities as if a single combined U S RBC entity net of intercompany items related to capital resources and risk
The NAIC completed its Solvency Modernization Initiative SMI process relating to updating the U S insurance solvency regulation framework The SMI focused on key issues such as capital requirements governance and risk management group supervision reinsurance statutory accounting and financial reporting matters The NAIC still has some ongoing initiatives related to SMI such as monitoring the international efforts on group capital requirements as well as RBC The NAIC utilizes a group capital calculation GCC that conceptually uses an RBC aggregation methodology for all entities within the insurance company holding system The GCC is intended to be a regulatory tool used by regulators as a means to standardize group capital requirements
Aflac CAIC and TOIC are domiciled in Nebraska and are subject to its regulations The NDOI imposes certain limitations and restrictions on payments of dividends management fees loans and advances to the Parent Company Under Nebraska insurance law prior approval of the NDOI is required for dividend distributions that exceed the greater of the net income from operations which excludes net investment gains for the previous year determined under statutory accounting principles or 10 of statutory capital and surplus as of the previous year end Dividends declared by Aflac during 2025 in excess of 912 million would be considered extraordinary and require such approval Similar laws apply in New York the domiciliary jurisdiction of Aflac New York
Aflac Re is licensed by the BMA as a long term insurer and is subject to the Bermuda Insurance Act of 1978 Bermuda Insurance Act Aflac Re is required to file an annual return for its Bermuda Solvency Capital Requirement BSCR which utilizes an Economic Balance Sheet EBS framework to determine Aflac Re s Enhanced Capital Requirement ECR Aflac Re is also subject to a Minimum Margin of Solvency MMS related to its statutory financial statements The MMS is equal to the greater of 500 000 1 5 of the total statutory assets or 25 of ECR
Under the EBS framework Aflac Re is required to value assets equal to U S GAAP fair values and insurance reserves are valued using technical provisions which consist of a best estimate liability plus a risk margin The best estimate liability can be calculated by applying the standard approach or with regulatory approval the scenario based approach The standard approach uses discount rates for insurance reserves as prescribed by the BMA The scenario based approach uses a discount rate based on the yield of eligible assets owned by the insurer as determined using a series of prescribed stress scenarios At December 31 2024 and 2023 Aflac Re was in compliance with the ECR and MMS requirements
Under the Bermuda Insurance Act Aflac Re is prohibited from paying dividends in an amount that exceeds 25 of the prior year s statutory capital and surplus without an affidavit stating that Aflac Re will continue to meet its solvency margin Further Aflac Re may not reduce its total statutory capital by 15 or more without prior regulatory approval Additionally Aflac Re is not permitted to pay any dividends that would cause Aflac Re to fail to meet its minimum capital requirements
Investors should note that the Company announces material financial information in its SEC filings press releases and public conference calls In accordance with SEC guidance the Company may also use the Investor Relations section of the Company s website http investors aflac com to communicate with investors about the Company It is possible that the financial and other information the Company posts there could be deemed to be material information The information on the Company s website is not part of this document Further the Company s references to website URLs are intended to be inactive textual references only
The Company prepares its financial statements in accordance with U S GAAP These principles are established primarily by the FASB In this MD A references to U S GAAP issued by the FASB are derived from the FASB Accounting Standards Codification ASC The preparation of financial statements in conformity with U S GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations The estimates that the Company deems to be most critical to an understanding of its results of operations and financial condition are those related to the valuation of investments and derivatives deferred policy acquisition costs DAC liabilities for future policy benefits and income taxes The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management s analyses and judgments Calculations of DAC and the LFPB require the use of estimates based on actuarial valuation techniques The application of these critical accounting estimates determines the values at which 92 of the Company s assets and 78 of its liabilities are reported as of December 31 2024 and thus has a direct effect on net earnings and shareholders equity Subsequent experience or use of other assumptions could produce significantly different results
The Company s investments primarily consisting of debt and equity securities include both publicly issued and privately issued securities For publicly issued securities the Company determines the fair values from quoted market prices readily available from public exchange markets and price quotes and valuations from third party pricing vendors For the majority of privately issued securities and derivatives associated with VIEs within the Company s investment portfolio a third party pricing vendor has developed valuation models that the Company utilizes to determine fair values These models and associated processes and controls are executed by Company personnel For the remaining privately issued securities the Company uses non binding price quotes from outside brokers The Company s valuation model for private placements explicitly incorporates currency basis swap adjustments market observable data to assumed interest rate curves where appropriate
The Company estimates the fair values of its securities on a monthly basis The Company monitors the estimated fair values obtained from its pricing vendors and brokers for consistency from month to month while considering current market conditions The Company also periodically discusses with its pricing brokers and vendors the pricing techniques they use to monitor the consistency of their approach and periodically assess the appropriateness of the valuation level assigned to the values obtained from them 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 Inputs used to value derivatives include but are not limited to interest rates credit spreads foreign currency forward and spot rates foreign currency volatility and interest rate volatility
The Company estimates an expected lifetime credit loss on investments measured at amortized cost including held to maturity fixed maturity securities loan receivables and certain loan commitments on a quarterly basis For the Company s available for sale fixed maturity securities the Company evaluates estimated credit losses only when the fair value of the available for sale fixed maturity security is below its amortized cost basis
The Company s approach to estimating credit losses is complex and incorporates significant judgments In addition to a security an asset class or issuer specific credit fundamentals it considers past events current economic conditions and forecasts of future economic conditions The Company s estimates are revised as conditions change and new information becomes available
See the tabular disclosure entitled Sensitivity of Fair Values of Financial Instruments to Interest Rate Change in Item 7A Quantitative and Qualitative Disclosures About Market Risk and Notes 1 3 4 and 5 of the Notes to the Consolidated Financial Statements for additional information
The majority of the supplemental health and life insurance policies the Company issues are classified as long duration contracts The contract provisions generally cannot be changed or canceled during the contract period however the Company may adjust premiums for supplemental health policies issued in the U S within prescribed guidelines and with the approval of state insurance regulatory authorities
Insurance premiums for most of the Company s health and life policies including cancer accident hospital critical illness supplemental dental and vision term life whole life long term care and disability are recognized as earned premiums over the premium paying periods of the contracts when due from policyholders When earned premiums are reported the related amounts of benefits and expenses are charged against such revenues This association is accomplished by means of annual increases or decreases to the LFPB and the deferral and subsequent amortization of policy acquisition costs
Premiums from the Company s products with limited pay features including cancer medical and nursing care term life whole life WAYS and child endowment are collected over a significantly shorter period than the contract term i e the period during which benefits are provided Premiums for these products are recognized as earned premiums over the premium paying periods when due from policyholders Any gross premium in excess of the net premium is deferred and recorded as a deferred profit liability a component of the LFPB which is subsequently amortized in net earned premiums such that profits are recognized in a constant relationship with insurance in force Benefits are recorded as an expense when they are incurred An LFPB is recorded when premiums are recognized using the net premium method
Amortization of DAC is computed using the same contract groupings also referred to as cohorts and mortality and termination assumptions that are used in computing the LFPB and these assumptions are reviewed and updated at least annually The effects of changes in assumptions are recognized prospectively over the remaining contract term as a revision of the future amortization pattern while current period amortization is calculated based on the actual experience during the quarter For additional information see Note 6 of the Notes to the Consolidated Financial Statements
The Company s LFPB is determined in accordance with applicable guidelines as defined under U S GAAP and Actuarial Standards of Practice and represent claims that are expected to occur in the future and already incurred claims which represent claims that have been incurred and are in the process of payment as well as an estimate of those claims that have been incurred but have not yet been reported to the Company and are measured using the net level premium method Future policy benefits are calculated using assumptions and estimates including mortality morbidity termination also referred to as lapses expense and discount rates The assumptions and estimates that the Company uses depend on its judgment regarding the likelihood of future events and are inherently uncertain
Cash flow assumptions mortality morbidity and termination are established at policy inception and are evaluated each quarter to determine if an update is needed To facilitate a more detailed review of cash flow assumptions experience studies are performed annually during the third quarter Changes in cash flow assumptions are recognized in reserve remeasurement gains losses in the consolidated statements of earnings Expense assumptions are established at policy inception and are not updated Actual experience is reflected in the calculation of future policy benefits each quarter and changes in the liability due to actual experience are recognized in reserve remeasurement gains losses in the consolidated statements of earnings
Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves in benefits and claims excluding reserve remeasurement in the consolidated statements of earnings Discount rates used to measure the carrying value of LFPB in the consolidated balance sheets are updated each reporting period and the differences between the liability balances calculated using the locked in discount rates and the updated discount rates are recognized in accumulated other comprehensive income loss The discount rate methodology is designed to prioritize observable inputs based on market data available in the local debt markets where the respective policies were issued in the currency in which the policies are denominated For the discount rates applicable to tenors for which the single A debt market is not liquid or there is little or no observable market data the Company uses various estimation techniques consistent with the fair value guidance in ASC 820 Fair Value Measurement which include but are not limited to i for tenors where there is less observable market data and or the observable market data is available for similar instruments estimating tenor specific single A credit spreads and
If interest rates decreased by 100 basis points the Company s LFPB balance as of December 31 2024 would increase by 9 6 billion and if interest rates increased by 100 basis points the Company s LFPB balance as of December 31 2024 would decrease by 7 6 billion
Income tax provisions are generally based on pretax earnings reported for financial statement purposes which differ from those amounts used in preparing the Company s income tax returns Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the Company expects the temporary differences to reverse The evaluation of a tax position in accordance with U S GAAP is a two step process Under the first step the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination by taxing authorities The second step is measurement whereby a tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized The determination of a valuation allowance for deferred tax assets requires management to make certain judgments and assumptions
In evaluating the ability to recover deferred tax assets the Company s management considers all available evidence including taxable income in open carry back years the existence of cumulative losses in the most recent years forecasted earnings future taxable income exclusive of reversing temporary differences and carryforwards future taxable temporary difference reversals and prudent and feasible tax planning strategies In the event the Company determines it is not more likely than not that it will be able to realize all or part of its deferred tax assets in the future a valuation allowance would be charged to earnings in the period such determination is made Likewise if it is later determined that it is more likely than not that those deferred tax assets would be realized the previously provided valuation allowance would be reversed Future economic conditions and market volatility including increases in interest rates or widening credit spreads can adversely impact the Company s tax planning strategies and in particular the Company s ability to utilize tax benefits on previously recognized capital losses The Company s judgments and assumptions are subject to change given the inherent uncertainty in predicting future performance and specific industry and investment market conditions
On January 1 2023 the Company adopted LDTI employing a modified retrospective transition method which required 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 Transition Date impact from adoption resulted in a decrease in AOCI of approximately 18 6 billion and a decrease in retained earnings of approximately 0 3 billion
The Company is exposed primarily to the following types of market risks currency risk interest rate risk credit risk and equity risk Fluctuations in these factors could impact the Company s consolidated results of operations or financial condition The Company regularly monitors its market risks and uses a variety of strategies to manage its exposure to these market risks
The functional currency of Aflac Japan s insurance operations is the Japanese yen Aflac Japan s premiums and a significant portion of its investment income are received in yen and its claims and most expenses are paid in yen Aflac Japan purchases yen denominated assets and U S dollar denominated assets which may be hedged to yen to support yen denominated policy liabilities These and other yen denominated financial statement items are however translated into U S dollars for financial reporting purposes Most of Aflac Japan s cash and liabilities are yen denominated
The Company engages in hedging activities to mitigate certain currency risks from holding U S dollar denominated investments in Aflac Japan however this hedging program also has some inherent risks There is a risk that in a scenario of long term yen weakening there could be significant derivative losses that create corresponding liquidity requirements to support interim derivative settlements Further the derivatives used for hedging are shorter in duration than the hedged investments so there is rollover risk In unfavorable market environments the rollover of derivatives throughout the hedging period could result in increased hedge costs Additionally as discussed in detail in the Risk Factors section titled Lack of availability of acceptable yen denominated investments could adversely affect the Company s results of operations financial position or liquidity there is a risk that losses realized on derivative settlements during periods of yen weakening may not be recouped through realization of the corresponding holding currency gains on the hedged U S dollar denominated investments if these investments are not ultimately sold and the U S dollar proceeds converted to yen
The Company has taken steps to refine the strategy to mitigate currency exposure of Aflac Japan from U S dollar denominated investments while balancing the consideration of the economic equity surplus in Aflac Japan This refinement in strategy resulted in an increased amount of the unhedged U S dollar denominated investments held in Aflac Japan while at the same time mitigating hedge cost increases Generally Aflac Japan s exposure to the currency risk increases when its portfolio of unhedged U S dollar denominated investments increases As the value of the U S dollar denominated investment portfolio in Aflac Japan fluctuates and the Company s business model evolves the Company periodically reevaluates this size of the unhedged portfolio and may accordingly adjust up or down its currency hedging targets See Part I Item 1A Risk Factors for the risk factor titled The Company is exposed to foreign currency fluctuations in the yen dollar exchange rate for additional information
The Company is exposed to currency risk when yen funds are converted into U S dollars This occurs when yen denominated funds are paid as dividends and management fees from Aflac Japan to the Parent Company and with quarterly settlements of internal reinsurance transactions The exchange rates prevailing at the time of yen payments will differ from the exchange rates prevailing at the time the yen profits were earned The Company may use a portion of the yen dividend and management fee payments to service Aflac Incorporated s yen denominated notes payable with the remainder converted into U S dollars Internal reinsurance transactions create foreign currency exposure at Aflac Re primarily due to yen denominated reinsurance liabilities to Aflac Japan while a majority of Aflac Re s assets are denominated in U S dollars which may require Aflac Re to convert U S dollars to yen or enter foreign exchange derivatives with the Parent Company to manage yen denominated liabilities
In addition to yen payments and internal reinsurance transactions certain investment activities for Aflac Japan expose the Company to economic currency risk when yen are converted into U S dollars As noted above the Company invests a portion of its yen cash flows in U S dollar denominated assets This requires that the Company convert the yen cash flows to U S dollars before investing As previously discussed for certain of its U S dollar denominated securities the Company enters into foreign currency forward and option contracts to hedge the currency risk on the fair value of hedged investments Additionally the Parent Company enters into forward contracts to accomplish a dual objective of hedging foreign currency rate risk to dividend payments by Aflac Japan and reducing enterprise wide hedge costs The Company also balances the volume of hedging instruments between forwards and options in an attempt to manage and balance the risks associated with collateral hedge costs and cash settlements If the markets experience a significant strengthening of yen this could cause cash strain at the Parent Company as a result of cash collateral and potentially cash settlement requirements Based on the timing and severity of exchange rate fluctuations combined with the level of outstanding activity in this program the cash strain at the Parent Company could be significant
Aside from the activities discussed above the Company generally does not convert yen into U S dollars however it does translate financial statement amounts from yen into U S dollars for financial reporting purposes Therefore reported amounts are affected by foreign currency fluctuations The Company reports unrealized foreign currency translation gains
and losses in AOCI In periods when the yen weakens against the dollar translating yen into dollars causes fewer dollars to be reported When the yen strengthens translating yen into U S dollars causes more U S dollars to be reported The weakening of the yen relative to the U S dollar will generally adversely affect the value of the Company s yen denominated investments in U S dollar terms The Company also considers the economic equity surplus in Aflac Japan and related exposure to foreign currency The Company manages this currency risk by investing a portion of Aflac Japan s investment portfolio in U S dollar denominated securities and by the Parent Company s issuance of yen denominated debt As a result the effect of currency fluctuations on the Company s net assets is reduced
The following table demonstrates the effect of foreign currency fluctuations by presenting the dollar values of the Company s yen denominated assets and liabilities and its consolidated yen denominated net asset exposure at selected exchange rates as of December 31
The Company is required to consolidate certain VIEs Some of the consolidated VIEs in Aflac Japan s portfolio use foreign currency swaps to convert foreign denominated cash flows to yen the functional currency of Aflac Japan in order to minimize cash flow fluctuations Foreign currency swaps exchange an initial principal amount in two currencies agreeing to re exchange the currencies at a future date at an agreed upon exchange rate There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts Prior to consolidation the Company s beneficial interest in these VIEs was a yen denominated available for sale fixed maturity security Upon consolidation the original yen denominated investment was derecognized and the underlying fixed maturity securities and cross currency swaps were recognized The combination of a U S dollar denominated investment and cross currency swap economically creates a yen denominated investment and has no impact on the Company s net investment hedge position
Similarly the combination of the U S corporate bonds and the foreign currency forwards and options that the Company has entered into as discussed in the Aflac Japan Investment subsection of MD A economically creates a yen denominated investment that qualifies for inclusion as a component of the Company s investment in Aflac Japan for net investment hedge purposes
The Company s primary interest rate exposure is to the impact of changes in interest rates on the fair value of its investments in debt securities Significant increases in interest rates cause declines in the values of the Company s investment portfolio which also has a secondary impact on the Company s overall evaluation of its deferred tax asset position The Company monitors its investment portfolio on a quarterly basis utilizing a full valuation methodology measuring price volatility and sensitivity of the fair values of its investments to interest rate changes on the debt securities the Company owns For example if the current duration of a debt security is 10 years then the fair value of that security will increase by approximately 10 if market interest rates decrease by 100 basis points assuming all other factors remain constant Likewise the fair value of the debt security will decrease by approximately 10 if market interest rates increase by 100 basis points assuming all other factors remain constant
There are various factors that affect the fair value of the Company s investments in debt securities Included in those factors are changes in the prevailing interest rate environment which directly affect the balance of unrealized gains or losses for a given period in relation to a prior period Decreases in market yields generally improve the fair value of debt securities while increases in market yields generally have a negative impact on the fair value of the Company s debt securities However the Company does not expect to realize a majority of any unrealized gains or losses For additional information on unrealized losses on debt securities see Note 3 of the Notes to the Consolidated Financial Statements
The Company attempts to match the duration of its assets with the duration of its liabilities The following table presents the approximate duration of yen denominated assets and liabilities of Aflac Japan along with premiums as of December 31
Aflac Japan investment yields above include U S dollar denominated investment yields prior to factoring in amortized hedge costs The Company continues to monitor the spread between its new money yield and the required interest assumption for newly issued products in both the U S and Japan and will re evaluate those assumptions as necessary Currently when investments the Company owns mature the proceeds may be reinvested at a yield below that of the interest required for the accretion of policy benefit liabilities on policies issued in earlier years Overall adequate profit margins exist in Aflac Japan s aggregate block of business because of changes in the mix of business and favorable experience from mortality morbidity and expenses
Periodically the Company may enter into derivative transactions to hedge interest rate risk depending on general economic conditions For additional information on interest rate derivatives see the Hedging Activities subsection of Item 7 MD A and Note 4 of the Notes to the Consolidated Financial Statements
A significant portion of the Company s investment portfolio consists of debt securities and loans that expose it to the credit risk of the underlying issuer or borrower The Company carefully evaluates this risk on every new investment and closely monitors the credit risk of its existing investment portfolio The Company incorporates the needs of its products and liabilities the overall requirements of the business and other factors in addition to its underwriting of the credit risk for each investment in the portfolio
Evaluating the underlying risks in the Company s credit portfolio involves a multitude of factors including but not limited to its assessment of the issuer s or borrower s business activities assets products market position financial condition and future prospects including sustainability of the issuer s or borrower s business The Company incorporates the assessment of the NRSROs in assigning credit ratings and incorporates the rating methodologies of its external managers in assigning loan ratings to portfolio holdings The Company performs extensive internal assessments of the credit risks for all its portfolio holdings and potential new investments which includes using analyses provided by the Company s
specialist external managers For assets managed by external asset managers the Company provides investment and credit risk parameters that must be used when making investment decisions and requires ongoing monitoring and reporting from the asset managers on significant changes in credit risks within the portfolio
As previously disclosed the Company owns long dated debt instruments in support of its long dated policyholder obligations Some of the Company s largest global investment holdings are positions that were purchased many years ago and increased in size due to merger and consolidation activity among the issuing entities In addition many of the Company s largest holdings are yen denominated therefore strengthening of the yen can increase its position in dollars and weakening of the yen can decrease its position in dollars The Company s global investment guidelines establish concentration limits for its investment portfolios
The primary factor considered when determining the domicile of investment exposure is the legal country risk location of the issuer However other factors such as the location of the parent guarantor the location of the company s headquarters or major business operations including location of major assets location of primary market including location of revenue generation and specific country risk publicly recognized by rating agencies can influence the assignment of the country or geographic risk location When the issuer is a special financing vehicle or a branch or subsidiary of a global company then the Company considers any guarantees and or legal regulatory and corporate relationships of the issuer relative to its ultimate parent in determining the proper assignment of country risk
The Company is a direct counterparty to the majority of derivative instruments and is exposed to credit risk in the event of nonperformance by the counterparties in those contracts 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 foreign exchange and or credit loss due to counterparty default even though it is not a direct counterparty to those contracts The risk of counterparty default for the Company s VIE and senior note and subordinated debenture swaps foreign currency swaps certain foreign currency forwards foreign currency options and interest rate swaptions is mitigated by collateral posting requirements that counterparties to those transactions must meet If collateral posting agreements are not in place or the counterparty defaults on its collateral posting obligations the counterparty risk associated with foreign currency forwards and foreign currency options is the risk that at expiry of the contract the counterparty is unable to deliver the agreed upon amount of yen at the agreed upon price or delivery date thus exposing the Company to additional unhedged exposure to U S dollars in the Aflac Japan investment portfolio See Note 4 of the Notes to the Consolidated Financial Statements for additional information
Market prices for equity securities are subject to fluctuation and consequently the amount realized in the subsequent sale of an investment may significantly differ from the reported market value Fluctuation in the market price of a security may result from the relative price of alternative investments and general market conditions The Company s three largest equity exposures had a fair value of 222 million or approximately 28 of its total investment in equity securities as of December 31 2024 If equity prices experienced a hypothetical broad based decline of 10 the fair value of the Company s equity investments would decline by approximately 80 million
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a 15 f under the Exchange Act Under the supervision and with the participation of the Company s management including its principal executive officer and principal financial officer the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in
issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on the Company s evaluation under this framework management has concluded that the Company s internal control over financial reporting was effective as of December 31 2024
KPMG LLP PCAOB Firm ID 185 an independent registered public accounting firm has issued an attestation report from the firm s location in Atlanta Georgia on the effectiveness of internal control over the Company s financial reporting as of December 31 2024 which is included herein
issued by the Committee of Sponsoring Organizations of the Treadway Commission In our opinion the Company maintained in all material respects effective internal control over financial reporting as of December 31 2024 based on criteria established in
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of December 31 2024 and 2023 the related consolidated statements of earnings comprehensive income loss shareholders equity and cash flows for each of the years in the three year period ended December 31 2024 and the related notes and financial statement schedules II III and IV collectively the consolidated financial statements and our report dated February 26 2025 expressed an unqualified opinion on those consolidated financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Annual Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audit also included performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheets of Aflac Incorporated and subsidiaries the Company as of December 31 2024 and 2023 the related consolidated statements of earnings comprehensive income loss shareholders equity and cash flows for each of the years in the three year period ended December 31 2024 and the related notes and financial statement schedules II III and IV collectively the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of December 31 2024 and 2023 and the results of its operations and its cash flows for each of the years in the three year period ended December 31 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of December 31 2024 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26 2025 expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on these consolidated financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As discussed in Note 5 to the consolidated financial statements the Company invests in certain privately issued securities that require judgment in the estimation of fair values The fair values of privately issued securities are estimated using a discounted cash flow valuation model developed by a third party pricing vendor and take into consideration unique characteristics of the securities and other market information to determine an issuer specific credit curve to estimate expected cash flows Judgment is required to determine the inputs and assumptions used in the valuation models including the determination of the most appropriate comparable securities to develop an issuer specific credit curve when it cannot be developed from the specific security features As of December 31 2024 the values of certain privately issued securities are included within the financial statement captions of fixed maturity securities available for sale at fair value of 61 841 million fixed maturity securities available for sale consolidated variable interest entities at fair value of 3 428 million and fixed maturity securities held to maturity at amortized cost of 15 966 million
We identified the assessment of the fair values of certain privately issued securities as a critical audit matter Due to the complexity of the valuation models subjective auditor judgment and specialized valuation skills and knowledge were needed to evaluate the valuation models the methodology used to estimate fair value and the Company s determination of the most appropriate comparable securities to develop an issuer specific credit curve when necessary
The following are the primary procedures we performed to address this critical audit matter We evaluated the design and tested the operating effectiveness of certain internal controls with the assistance of valuation professionals over the Company s process to estimate the fair values of certain privately issued securities This included controls over the Company s determination of comparable securities when appropriate to develop an issuer specific credit curve to be used in the valuation models to estimate fair values We involved valuation professionals with specialized skills and knowledge to assist in assessing the estimated fair values of such securities which included
Assessing the Company s model developed by a third party to estimate the fair values of privately issued securities by determining that differences in fair values between that model and an internally developed model above pre established tolerances if any were investigated by the Company
Evaluating for a selection of privately issued securities the comparable securities used to develop an issuer specific credit curve by assessing whether the determination of comparable securities was reasonable based on the Company s methodology and our knowledge of the securities and the markets for such securities
Developing an independent estimate of fair value for a selection of privately issued securities based on independently developed valuation models and assumptions as applicable using market data sources and comparing our independent estimate to the Company s fair value
As discussed in Note 1 and Note 7 to the consolidated financial statements the liability for future policy benefits LFPB is determined as the present value of expected future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company s insurance contracts Future policy benefits are calculated using assumptions and estimates including mortality morbidity termination and discount rates Cash flow assumptions mortality morbidity and termination are established at policy inception and are evaluated each quarter to determine if an update is needed Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves in benefits and claims excluding reserve remeasurement in the consolidated statements of earnings Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheets are updated each reporting period and the difference between the liability balances calculated using the locked in discount rates and the updated discount rates is recognized in accumulated other comprehensive income loss AOCI The Company s LFPB was 70 381 million as of December 31 2024
We identified the evaluation of certain assumptions used in estimating the LFPB as a critical audit matter A high level of auditor effort including specialized skills and knowledge and subjective auditor judgment was involved in the evaluation of actuarial methodologies certain cash flow assumptions mortality morbidity and termination and the discount rate curve assumptions for Japan
The following are the primary procedures we performed to address this critical audit matter With the assistance of valuation and actuarial professionals we evaluated the design and tested the operating effectiveness of certain internal controls related to the Company s LFPB This included controls related to actuarial methodologies and the development of certain cash flow assumptions mortality morbidity and termination and the discount rate curve We involved valuation professionals with specialized skills and knowledge to assist in assessing the methodology and assumptions used by the Company to develop the discount rate curve for Japan by developing an independent discount rate curve and comparing it to that used by the Company We also involved actuarial professionals with specialized skills and knowledge who assisted in
Evaluating certain of the Company s cash flow assumptions mortality morbidity and termination by assessing them in comparison to the Company s relevant historical experience data and anticipated trends
Aflac Incorporated the Parent Company and its subsidiaries collectively the Company primarily sell supplemental health and life insurance in Japan and the United States U S The Company s insurance business is marketed and administered through Aflac Life Insurance Japan Ltd ALIJ in Japan and through American Family Life Assurance Company of Columbus Aflac American Family Life Assurance Company of New York Aflac New York Continental American Insurance Company CAIC Tier One Insurance Company TOIC and Aflac Benefits Solutions Inc ABS in the U S The Company s operations consist of two reportable business segments Aflac Japan which includes ALIJ and Aflac U S which includes Aflac Aflac New York CAIC TOIC and ABS Aflac New York is a wholly owned subsidiary of Aflac Most of the Aflac U S policies are individually underwritten and marketed through independent agents With the exception of dental and vision products administered by ABS and certain group life insurance products Aflac U S markets and administers group products through CAIC branded as Aflac Group Insurance Additionally Aflac U S markets its consumer markets products through TOIC The Company s insurance operations in the U S and Japan service the two markets for the Company s insurance business The Parent Company other operating business units that are not individually reportable reinsurance activities including internal reinsurance activity with Aflac Re Bermuda Ltd Aflac Re and other business activities not included in Aflac Japan or Aflac U S as well as intercompany eliminations are included in Corporate and other
The Company prepares its financial statements in accordance with U S generally accepted accounting principles U S GAAP These principles are established primarily by the Financial Accounting Standards Board FASB In these Notes to the Consolidated Financial Statements references to U S GAAP issued by the FASB are derived from the FASB Accounting Standards Codification
ASC The preparation of financial statements in conformity with U S GAAP requires the Company to make estimates based on currently available information when recording transactions resulting from business operations The most significant items on the Company s balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments and derivatives deferred policy acquisition costs DAC liabilities for future policy benefits and income taxes These accounting estimates and actuarial determinations are sensitive to market conditions investment yields interest rates mortality morbidity commission and other acquisition expenses and terminations by policyholders As additional information becomes available or actual amounts are determinable the recorded estimates are revised and reflected in the consolidated financial statements Although some variability is inherent in these estimates the Company believes the amounts provided are reasonable and reflective of the best estimates of management
The consolidated financial statements include the accounts of the Parent Company its subsidiaries and those entities required to be consolidated under applicable accounting standards All material intercompany accounts and transactions have been eliminated
The functional currency of Aflac Japan is the Japanese yen The Company translates its yen denominated financial statement accounts into U S dollars as follows Assets and liabilities are translated at end of period exchange rates Realized gains and losses on security transactions are translated at the exchange rate on the trade date of each transaction Other revenues expenses and cash flows are translated using average exchange rates for the period The resulting currency translation adjustments are reported in accumulated other comprehensive income The Company includes the foreign currency gains and losses resulting from the remeasurement of foreign currency and realized foreign currency exchange gains and losses in the net investment gains losses line item in the consolidated statements of earnings
The Parent Company has designated a majority of its yen denominated liabilities yen denominated notes payable and yen denominated loans as non derivative hedges and foreign currency forwards and options as derivative hedges of the foreign currency exposure of the Parent Company s net investment in Aflac Japan The gains or losses on hedging derivative instruments and the foreign currency transaction gains or losses on the non derivative hedging instruments that are designated as and are effective as an economic hedge of the net investment in Aflac Japan are recorded as
Substantially all of the supplemental health and life insurance policies the Company issues are classified as long duration contracts The contract provisions generally cannot be changed or canceled during the contract period however the Company may adjust premiums for supplemental health policies issued in the U S within prescribed guidelines and with the approval of state insurance regulatory authorities
Insurance premiums for most of the Company s health and life policies including cancer accident hospital critical illness supplemental dental and vision term life whole life long term care and disability are recognized as earned premiums over the premium paying periods of the contracts when due from policyholders When earned premiums are reported the related amounts of benefits and expenses are charged against such revenues This association is accomplished by means of annual increases or decreases to the liability for future policy benefits LFPB and the deferral and subsequent amortization of policy acquisition costs
Premiums from the Company s products with limited pay features including cancer medical and nursing care term life whole life WAYS and child endowment are collected over a significantly shorter period than the contract term i e the period during which benefits are provided Premiums for these products are recognized as earned premiums over the premium paying periods when due from policyholders Any gross premium in excess of the net premium is deferred and recorded as a deferred profit liability which is subsequently amortized in net earned premiums such that profits are recognized in a constant relationship with insurance in force Net premium is calculated as gross premium multiplied by the net premium ratio NPR and represents the portion of gross premium required to provide for benefits and expenses Benefits are recorded as an expense when they are incurred An LFPB is recorded when premiums are recognized using the net premium method
Policyholders also have an option to pay discounted advanced premiums for certain of the Company s products Advanced premiums are deferred and recognized when due from policyholders over the otherwise required contractual premium payment period
Benefit expense is bifurcated between benefits and claims and reserve remeasurement gains losses The NPR is used to measure benefit expense and is calculated as the ratio of the present value of actual and future expected benefits and expenses to the present value of actual and future expected gross premiums A revised NPR is calculated as of the beginning of each reporting period using updated future cash flow expectations
Reserve remeasurement gains losses represent the difference between two reserve measures both calculated as of the beginning of the current reporting period using the same locked in discount rates One reserve measure uses the NPR as of the end of the prior reporting period and the second uses the revised NPR Benefits and claims represent the difference in the liability balance calculated as of the beginning of the current reporting period and the end of the current reporting period both using the revised NPR and the locked in discount rates The locked in interest accretion rate utilized for accretion of interest expense on insurance reserves is the original discount rate used at contract issue date
Advertising expense is reported as incurred in insurance and other expenses in the consolidated statements of earnings For the years ended December 31 2024 2023 and 2022 advertising expense was 181 million 188 million and 204 million respectively
The Company s debt securities consist of fixed maturity securities which are classified as either held to maturity or available for sale Securities classified as held to maturity are securities that the Company has the ability and intent to hold to maturity or redemption and are carried at amortized cost
All other fixed maturity debt securities are classified as available for sale and are carried at fair value If the fair value is higher than the amortized cost for debt securities the excess is an unrealized gain and if lower than cost the difference is an unrealized loss The net unrealized gains and losses on securities available for sale less related deferred income taxes are recorded in other comprehensive income and included in accumulated other comprehensive income
Amortized cost of debt securities is based on the Company s purchase price adjusted for accrual of discount or amortization of premium and recognition of impairment charges if any The amortized cost of debt securities the
Company purchases at a discount or premium will equal the face or par value at maturity or the call date if applicable Interest is reported as income when earned and is adjusted for amortization of any premium or discount
The Company has investments in marketable equity securities which are carried at fair value Changes in the fair value of equity securities are recorded in earnings as a component of net investment gains losses
The Company has investments in variable interest entities VIEs Criteria for evaluating VIEs for consolidation focus on determining if the Company has the power to direct the activities of the VIE that most significantly impact the entity s economic performance and 1 the obligation to absorb losses of the VIE or 2 the right to receive benefits from the VIE The Company is the primary beneficiary of certain VIEs and therefore consolidates these entities in its financial statements While the consolidated VIEs generally operate within a defined set of contractual terms there are certain powers that are retained by the Company that are considered significant in the conclusion that the Company is the primary beneficiary These powers vary by structure but generally include the initial selection of the underlying collateral the ability to obtain the underlying collateral in the event of default and the ability to appoint or dismiss key parties in the structure In particular the Company s powers surrounding the underlying collateral were considered to be the most significant powers because these most significantly impact the economics of the VIE The Company has no obligation to provide any continuing financial support to any of the entities in which it is the primary beneficiary The Company s maximum loss is limited to its original investment and in certain cases to any unfunded commitment held in the VIE Neither the Company nor any of its creditors have the ability to obtain the underlying collateral nor does the Company have control over the instruments held in the VIEs unless there is an event of default For those entities where the Company is the primary beneficiary the consolidated entity s assets are segregated on the balance sheet by the caption consolidated variable interest entities and consist of fixed maturity securities loan receivables limited partnerships and derivative instruments
For the mortgage and asset backed securities held in the Company s fixed maturity portfolio the Company recognizes income using a constant effective yield which is based on anticipated prepayments and the estimated economic life of the securities When estimates of prepayments change the effective yield is recalculated to reflect actual payments to date and anticipated future payments The net investment in mortgage and asset backed securities is adjusted to the amount that would have existed had the new effective yield been applied at the time of acquisition This adjustment is reflected in net investment income
The Company uses the specific identification method to determine the gain or loss from securities transactions and report the realized gain or loss in the consolidated statements of earnings as net investment gain or loss Securities transactions are accounted for based on values as of the trade date of the transaction
The Company lends fixed maturity and public equity securities to financial institutions in short term security lending transactions These securities continue to be carried as investment assets on the Company s balance sheet during the terms of the loans and are not reported as sales The Company receives cash or other securities as collateral for such loans For loans involving unrestricted cash or securities as collateral the collateral is reported as an asset with a corresponding liability for the return of the collateral For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge the collateral is not reported as an asset
Commercial mortgage and other loans include transitional real estate loans TREs commercial mortgage loans CMLs middle market loans MMLs and other loans The Company s investments in TREs CMLs MMLs and other loans are accounted for as loan receivables and are recorded at amortized cost on the acquisition date The Company has the intent and ability to hold these loan receivables for the foreseeable future or until they mature and therefore they are considered held for investment and are carried at amortized cost in the commercial mortgage and other loans line in its consolidated balance sheets The amortized cost of the loan receivables reflects allowances for expected lifetime credit losses estimated as of each reporting date Income on commercial mortgage and other loans is recognized using the interest method
Other investments include policy loans limited partnerships real estate owned REO and short term investments with maturities at the time of purchase of one year or less but greater than 90 days Limited partnerships are accounted for using the equity method of accounting Under the equity method of accounting the Company reports its proportionate share of the investee s earnings or losses as a component of net investment income in its consolidated statements of earnings The underlying investments held by the Company s limited partnerships primarily consist of private equity and real estate REO consists of property held and used for the production of income and property held for sale REO is obtained through foreclosure or deed in lieu of foreclosure of certain of the Company s loan receivables When held for the production of income REO is recorded at fair value upon acquisition which establishes the property s initial cost basis Thereafter it is carried at cost less accumulated depreciation and written down to fair value for impairment losses
Depreciation is recorded on a straight line basis over the estimated useful life of the asset and is reported in net investment income A review for impairment is performed whenever events or circumstances indicate that the carrying value may not be recoverable An impairment loss is recognized in net investment gains losses when the carrying value of the property exceeds the expected undiscounted cash flows generated from the property at which point the carrying value is written down to an estimated fair value Real estate held for sale is initially recorded at fair value less costs to sell and is subsequently measured at the lower of its initial carrying amount or fair value less costs to sell Properties held for sale are not depreciated Net operating income earned on REO is reported as a component of net investment income Short term investments are stated at amortized cost which approximates fair value
The Company designates nonaccrual status for a nonperforming loan or debt security or a loan or debt security that is not generating its stated interest rate because of nonpayment of periodic interest or principal by the borrower The Company applies the cash basis method to record any payments received on nonaccrual assets The Company resumes the accrual of interest on fixed maturity securities and loans that are currently making contractual payments or for those that are not current where the borrower has paid timely less than 30 days outstanding
The Company estimates expected lifetime credit losses on financial assets measured at amortized cost including short term receivables premiums receivable held to maturity fixed maturity securities loan receivables loan commitments and reinsurance recoverables For available for sale fixed maturity securities the Company evaluates estimated credit losses only when the fair value of the available for sale fixed maturity security is below its amortized cost basis Credit loss changes are recorded as a component of net investment gains losses for the Company s held to maturity and available for sale securities loan receivables including collateral dependent assets loan commitments and reinsurance recoverables whereas credit losses on premium receivables are recorded in net earned premiums in the consolidated statement of earnings The Company s off balance sheet credit exposure is primarily attributable to loan commitments that are not unconditionally cancellable The Company considers the contractual period of exposure to credit risk the likelihood that funding will occur the risk of loss and the current conditions and expectations of future economic conditions to develop the estimate of expected credit losses The Company records the estimate of expected credit losses for certain loan commitments within other liabilities in the consolidated balance sheet
The Company has elected not to measure an allowance on accrued interest income for all asset types because the uncollectible accrued interest receivable is written off in a timely manner The Company writes off accrued interest when it is more than ninety days past due by reducing interest income which is a component of net investment income in the consolidated statement of earnings
The Company records due premium receivable net of current expected credit losses in the receivables line item in the consolidated balance sheet utilizing an aging methodology based on historical loss information adjusted for current conditions and reasonable and supportable forecasts Changes in the estimated credit losses related to premium receivable are recorded in net earned premiums in the consolidated statement of earnings
Freestanding derivative instruments are reported in the consolidated balance sheet at fair value within other assets and other liabilities with changes in value reported in earnings and or other comprehensive income These freestanding derivatives include foreign currency forwards foreign currency options foreign currency swaps interest rate swaps and interest rate swaptions The Company does not use derivatives for trading purposes
The Company may purchase certain investments or enter into contracts that contain embedded derivatives The Company assesses whether an embedded derivative is clearly and closely related to its host contract If the Company determines that the embedded derivative is not clearly and closely related to the host contract and a separate instrument with the same terms would qualify as a derivative instrument the embedded derivative is separated from that contract held at fair value and reported with the host instrument in the consolidated balance sheets with changes in fair value reported in earnings If the Company has elected the fair value option the embedded derivative is not bifurcated and the entire investment is held at fair value with changes in fair value reported in earnings
See Note 5 for a discussion on how the Company determines the fair value of its derivatives Accruals on derivatives are typically recorded in other assets or other liabilities in the consolidated balance sheets
To qualify for hedge accounting treatment a derivative must be highly effective in mitigating the designated risk attributable to the hedged item At the inception of hedging relationships the Company formally documents all
relationships between hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking the respective hedging relationship and the methodology that will be used to assess the effectiveness of the hedge relationship at and subsequent to hedge inception The Company documents the designation of each hedge as either i a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or the hedge of a forecasted transaction cash flow hedge ii a hedge of the exposure to changes in the fair value of a recognized asset or liability attributable to a particular risk fair value hedge or iii a hedge of foreign currency exposure of a net investment in a foreign operation net investment hedge The documentation process includes linking derivatives and non derivative financial instruments that are designated in hedge relationships with specific assets or groups of assets or liabilities in the statement of financial position or to specific forecasted transactions and defining the effectiveness testing methods to be used At the hedge inception and on an ongoing quarterly basis the Company also formally assesses whether the derivatives and non derivative financial instruments used in hedging activities have been and are expected to continue to be highly effective in offsetting their designated risk The assessment of hedge effectiveness determines the accounting treatment of changes in fair value
Hedge effectiveness is assessed using qualitative and quantitative methods Qualitative methods may include the comparison of critical terms of the derivative to the hedged item and quantitative methods may include regression dollar offset or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship
For derivative instruments that are designated in cash flow hedge relationships the gain or loss on the portion of the hedging instrument included in the assessment of effectiveness is reported as a component of accumulated other comprehensive income loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings Amounts reclassified are recorded in the line item of the consolidated statements of earnings in which gain or loss on the hedged item is recorded The Company includes all components of each derivative s gain or loss in the assessment of hedge effectiveness
For derivative instruments that are designated in fair value hedge relationships the gain or loss on the hedged item and the portion of the hedging instrument included in the assessment of effectiveness are recorded in the line item of the consolidated statements of earnings in which gain or loss on the hedged item is recorded When assessing the effectiveness of the Company s fair value hedges the Company excludes the changes in fair value related to the difference between the spot and forward rates on its foreign currency forwards the change in fair value of cross currency swaps not resulting from fluctuations in spot currency rates and the time value component of foreign exchange options and interest rate swaptions For interest rate swaptions and cross currency interest rate swaps designated in fair value hedges of interest rate risk the excluded component is recognized in other comprehensive income loss and amortized into earnings net investment income over its legal term
For derivative and or non derivative hedging instruments designated in net investment hedge relationships with the Company s investment in Aflac Japan the Company makes its net investment hedge designation at the beginning of each quarter When the hedging instrument is a foreign currency derivative the Company assesses hedge effectiveness using the spot rate method According to that method the change in fair value of the hedging instrument due to fluctuations in the spot exchange rate is recorded in the unrealized foreign currency component of other comprehensive income and reclassified to earnings only when the hedged net investment is sold or when a liquidation of the respective net investment in the foreign entity is substantially completed If and when a sale or liquidation occurs the changes in fair value of the derivative deferred in the unrealized foreign currency component of other comprehensive income will be released in the same income statement line item where the gain loss on the hedged net investment would be recorded upon sale All other changes in fair value of the hedging instrument are considered the excluded component and are accounted for in net investment gains losses Should these designated net investment hedge positions exceed the Company s net investment in Aflac Japan the foreign exchange effect on the portion that exceeds its investment in Aflac Japan would be recognized in current earnings within net investment gains losses
The Company discontinues hedge accounting prospectively when 1 it is determined that the derivative is no longer highly effective in offsetting changes in the estimated cash flows or fair value of a hedged item 2 the derivative is de designated as a hedging instrument or 3 the derivative expires or is sold terminated or exercised
When hedge accounting is discontinued on a cash flow hedge or fair value hedge the derivative is carried in the consolidated balance sheets at its estimated fair value with changes in estimated fair value recognized in current period earnings For discontinued cash flow hedges including those where the derivative is sold terminated or exercised amounts previously deferred in other comprehensive income loss are reclassified into earnings when earnings are impacted by the cash flow of the hedged item
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting changes in the estimated fair value of the derivative are generally reported within other gains losses which is a component of net investment gains losses The fluctuations in estimated fair value of derivatives that have not been designated for hedge accounting can result in volatility in net earnings
The Company receives and pledges cash or other securities as collateral on open derivative positions Cash received as collateral is reported as an asset with a corresponding liability for the return of the collateral Cash pledged as collateral is recorded as a reduction to cash and a corresponding receivable is recognized for the return of the cash collateral The Company generally can repledge or resell collateral obtained from counterparties although the Company does not typically exercise such rights Securities received as collateral are not recognized unless the Company was to exercise its right to sell that collateral or exercise remedies on that collateral upon a counterparty default Securities that the Company has pledged as collateral continue to be carried as investment assets on its balance sheet
The Company does not offset amounts recognized for derivative instruments and amounts recognized for the right to reclaim or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement
Certain direct and incremental costs of acquiring insurance contracts are deferred and amortized on a grouped contract basis over the expected term of the related contracts using a constant level basis For life and health products issued in Japan the constant level basis used is units in force which is a proxy for face amount and insurance in force respectively For life and health products issued in the U S the constant level basis used is face amount and number of policies in force respectively Amortization is computed using the same contract groupings also referred to as cohorts and mortality and termination assumptions that are used in computing the LFPB and these assumptions are reviewed and updated at least annually The effects of changes in assumptions are recognized prospectively over the remaining contract term as a revision of the future amortization pattern while current period amortization is calculated based on the actual experience during the quarter Deferred costs include the excess of current year commissions over ultimate renewal year commissions and certain incremental direct policy issue underwriting and sales expenses directly related to successful policy acquisition
For some products policyholders can elect to modify product benefits features rights or coverages by exchanging a contract for a new contract or by amendment endorsement or rider to a contract or by the election of a feature or coverage within a contract These transactions are known as internal replacements The Company performs a two stage analysis of the internal replacements to determine if the modification is substantive to the base policy The stages of evaluation are as follows 1 determine if the modification is integrated with the base policy and 2 if it is integrated determine if the resulting contract is substantially changed
For internal replacement transactions where the resulting contract is substantially unchanged unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life of the cohort and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred
For an internal replacement transaction that results in a policy that is substantially changed the policy is treated as lapsed for amortization purposes and the costs of acquiring the new policy are capitalized and amortized in accordance with the Company s accounting policies for deferred acquisition costs
Riders can be considered internal replacements that are either integrated or non integrated resulting in either substantially changed or substantially unchanged treatment Riders are evaluated based on the specific facts and circumstances of the rider and are considered an expansion of the existing benefits with additional premium required Non integrated riders to existing contracts do not change the Company s profit expectations for the related products and are treated as a new policy establishment for incremental coverage
The costs of buildings furniture and equipment are depreciated principally on a straight line basis over their estimated useful lives maximum of 50 years for buildings and 20 years for furniture and equipment Expenditures for maintenance and repairs are expensed as incurred expenditures for betterments are capitalized and depreciated Classes of property and equipment as of December 31 were as follows
Depreciation and other amortization expenses which are included in insurance and other expenses in the consolidated statements of earnings were 40 million in 2024 compared with 39 million in 2023 and 45 million in 2022
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized The amount of goodwill recognized is also impacted by measurement differences resulting from certain assets and liabilities not recorded at fair value e g income taxes employee benefits Goodwill is not amortized but is tested for impairment at a level of a reporting unit at least annually in the same reporting period each year Goodwill is included in the other assets line item in the consolidated balance sheets and was 263 million at December 31 2024 compared with 265 million at December 31 2023 A significant majority of the goodwill balance is attributable to business combinations within the Aflac U S segment which represents the reporting unit for goodwill impairment testing
For long duration insurance contracts the Company calculates an integrated reserve that represents all payments under the contract including future expected claims and unpaid policy claims and related expenses The LFPB is measured using the net level premium method
Long duration insurance contracts issued by the Company are grouped into annual calendar year cohorts based on the contract issue date reportable segment legal entity and product type Limited pay contracts are grouped into separate cohorts from other traditional products in the same manner and are further separated based on their premium payment structures
The LFPB is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company s insurance contracts where expected future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR
Future policy benefits are calculated using assumptions and estimates including mortality morbidity termination also referred to as lapses expense and discount rates The assumptions and estimates that the Company uses depend on its judgment regarding the likelihood of future events and are inherently uncertain
Cash flow assumptions mortality morbidity and termination are established at policy inception and are evaluated each quarter to determine if an update is needed To facilitate a more detailed review of cash flow assumptions experience studies are performed annually during the third quarter Changes in cash flow assumptions are the result of applying the updated best estimate assumptions as of the beginning of the reporting period and are recognized in reserve remeasurement gains losses in the consolidated statements of earnings Expense assumptions are established at policy inception and determined for each issue year cohort as a percentage of paid claims These expense assumptions are locked in and remain unchanged over the term of the insurance policy Actual experience is reflected in the calculation of future policy benefits each quarter and changes in the liability due to actual experience are recognized in reserve remeasurement gains losses in the consolidated statements of earnings
Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves in benefits and claims excluding reserve remeasurement in the consolidated statements of earnings Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheets are updated each reporting period and the difference between the liability balances calculated using the
The Company has designed its discount rate methodology for the U S and Japan insurance business The methodology incorporates constructing a current discount rate curve separately for discounting cash flows used to calculate the U S and Japan LFPBs reflective of the characteristics of the insurance liabilities such as currency and tenor Discount rates comprising each curve are determined by reference to upper medium grade low credit risk fixed income instrument yields that reflect the duration characteristics of the corresponding insurance liabilities The Company uses for these yields single A rated fixed income instruments with credit ratings based on international rating standards Where only local ratings are available the Company selects the fixed income instruments with local ratings that are equivalent to a single A rating based on international rating standards The methodology is designed to prioritize observable inputs based on market data available in the local debt markets where the respective policies were issued in the currency in which the policies are denominated For the discount rates applicable to tenors for which the single A debt market is not liquid or there is little or no observable market data the Company uses various estimation techniques consistent with the fair value guidance in ASC 820 Fair Value Measurement which include but are not limited to i for tenors where there is less observable market data and or the observable market data is available for similar instruments estimating tenor specific single A credit spreads and applying them to risk free government rates ii for tenors where there is very limited or no observable single A or similar market data interpolation and extrapolation techniques
The locked in discount rate used for the computation of interest accretion on LFPBs is determined separately for each issue year cohort as a single discount rate calculated as the weighted average of monthly upper medium grade low credit risk fixed income instrument forward curves in the calendar year determined using the methodology described above and weighted using issued annualized premiums for each issue month The single discount rate for each issue year cohort is determined by solving for a rate that produces an equivalent net premium ratio to the forward curve and will remain unchanged after the calendar year of issue
Unearned premiums consist of unearned premiums and advance premiums Unearned premiums represent the portion of premium related to the unexpired coverage as of a balance sheet date and are deferred and recognized in net earned premiums when earned Advance premiums consist primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited payment insurance products Advanced premiums are deferred upon collection and recognized as earned premiums over the contractual premium payment period
For internal replacements that are determined to be substantially changed policy liabilities related to the original policy that was replaced are immediately released and policy liabilities are established for the new insurance contract The policy reserves are evaluated based on the new policy features and changes are recognized at the date of contract change modification For internal replacements that are substantially unchanged no changes to the reserves are recognized For modifications that are not integrated with the base policy new coverage is recognized as a separately issued contract within the current cohort
The Company enters into reinsurance agreements in the normal course of business For each reinsurance agreement the Company determines if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts Premiums benefits and acquisition costs are reported net of insurance ceded
Income tax provisions are generally based on pretax earnings reported for financial statement purposes which differ from those amounts used in preparing the Company s income tax returns Deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities based on enacted tax laws and statutory tax rates applicable to the periods in which the Company expects the temporary differences to reverse The Company records deferred tax assets for tax positions taken based on its assessment of whether the tax position is more likely than not to be sustained upon examination by taxing authorities A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized
In Japan the government has required the insurance industry to contribute to a policyholder protection corporation The Company recognizes a charge for its estimated share of the industry s obligation once it is determinable The Company reviews the estimated liability for policyholder protection corporation contributions on an annual basis and reports any adjustments in Aflac Japan s expenses
In the U S each state has a guaranty association that supports insolvent insurers operating in those states The Company s policy is to accrue assessments when the entity to which the insolvency relates has met its state of domicile s statutory definition of insolvency the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written See Note 15 for further discussion of the guaranty fund assessments charged to the Company
Treasury stock is reflected as a reduction of shareholders equity at cost The Company uses the weighted average purchase cost to determine the cost of treasury stock that is reissued The Company includes any gains and losses in additional paid in capital when treasury stock is reissued
The Company measures compensation cost related to its share based payment transactions at fair value on the grant date and the Company recognizes those costs in the financial statements over the vesting period during which the employee provides service in exchange for the award The Company has made an entity wide accounting policy election to estimate the number of awards that are expected to vest and the corresponding forfeitures
The Company computes basic earnings per share EPS by dividing net earnings by the weighted average number of unrestricted shares outstanding for the period Diluted EPS is computed by dividing net earnings by the weighted average number of shares outstanding for the period plus the shares representing the dilutive effect of share based awards
In November 2023 the FASB issued amendments that add certain segment disclosures related to significant segment expenses and require that a public entity disclose the title and position of the Chief Operating Decision Maker CODM and an explanation of how the CODM uses the reported measure s of segment profit or loss in assessing segment performance and deciding how to allocate resources
The Company adopted this guidance for the annual period beginning January 1 2024 The adoption of this guidance did not have an impact on the Company s financial position or results of operations See Note 2 for expanded disclosures required as a result of the amended guidance
In March 2023 the FASB issued amendments to permit reporting entities to elect to account for their tax equity investments regardless of the tax credit program from which the income tax credits are received using the proportional amortization method if certain conditions are met Under the proportional amortization method an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense benefit
In March 2022 the FASB issued amendments that eliminated the accounting guidance for troubled debt restructurings TDRs for creditors required enhanced disclosures for creditors about loan modifications when a borrower is experiencing financial difficulty and required public business entities to include current period gross write offs in the vintage disclosure tables As a result of eliminating the TDR guidance for creditors all loan modifications will follow the existing loan refinancing or restructuring guidance
In August 2018 the FASB issued amendments that significantly changed how insurers account for long duration contracts The Company adopted the standard on January 1 2023 using a modified retrospective transition method which resulted in applying the amended guidance as of the beginning of the earliest period presented on the January 1 2021 transition date Transition Date The modified retrospective transition method generally results in applying the guidance to contracts on the basis of existing carrying values as of the Transition Date On the Transition Date the Company calculated the ratio of the present value of expected future policy benefits and expenses less existing carrying values to the present value of expected future gross premiums Transition Date NPR using updated assumptions and the discount rate immediately before the Transition Date The Company capped the Transition Date NPR at 100 for any cohorts with a Transition Date NPR greater than 100 The Company calculated the LFPB using the Transition Date NPR capped at 100 if required and two different discount rates i the discount rate used immediately before the Transition Date and ii the discount rate determined by reference to the Transition Date market level yields for upper medium grade low credit risk fixed income instruments as of December 31 2020 For cohorts with their Transition Date NPR capped at 100 the Company recorded as an adjustment decrease to opening retained earnings any difference between the LFPB calculated using the discount rate immediately before the Transition Date and the existing carrying value as of the Transition Date For all cohorts on the Transition Date the Company recorded in AOCI net of tax the difference in the LFPB calculated using the two different discount rates i e the discount rate used immediately before the Transition Date and the updated discount rate as of the Transition Date
Upon adoption the Company adjusted opening equity for the Transition Date impacts to AOCI and retained earnings and adjusted prior periods then presented years 2021 and 2022 following the updated standard Based upon the modified retrospective transition method the Transition Date impact from adoption resulted in a decrease in AOCI of approximately 18 6 billion and a decrease in retained earnings RE of approximately 0 3 billion
In conjunction with the adoption of ASU 2018 12 the Company changed its practice of recording the change in the deferred profit liability on products with limited payment features from the benefits and claims net line item to the net earned premiums line item in the consolidated statements of earnings This reclassification had no impact on net earnings The change in presentation has been made for all comparative periods presented
In December 2023 the FASB issued amendments that require enhanced income tax disclosures including 1 disclosure of specific categories and greater disaggregation of information in the rate reconciliation and 2 income taxes paid disaggregated by jurisdiction It also includes certain other amendments to improve the effectiveness of income tax disclosures
The amendments are effective for annual periods beginning after December 15 2024 Early adoption is permitted The adoption of this guidance has no impact on the Company s financial position or results of operations The Company is evaluating the impact of adoption on its disclosures
In November 2024 the FASB issued amendments that require disaggregated disclosure in the notes to the financial statements of specified information about certain costs and expenses including 1 the amounts of employee compensation depreciation and intangible asset amortization 2 certain expense gain or loss amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements 3 qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and 4 the total amount of selling expenses and in annual reporting periods the Company s definition of selling expenses
The amendments are effective for annual periods beginning after December 15 2026 and interim periods beginning after December 15 2027 Early adoption is permitted The adoption of this guidance has no impact on the Company s financial position or results of operations The Company is evaluating the impact of adoption on its disclosures
The Company consists of two reportable insurance business segments Aflac Japan and Aflac U S both of which sell supplemental health and life insurance In addition the Parent Company other operating business units that are not individually reportable reinsurance activities including internal reinsurance activity with Aflac Re and other business activities not included in Aflac Japan or Aflac U S as well as intercompany eliminations are included in Corporate and other The Company does not allocate corporate overhead expenses to business segments
The Company s reportable segments are regularly reviewed by the Company s CODM Senior Executive Vice President and Chief Financial Officer in deciding how to allocate resources and in assessing performance The Company s CODM reviews and approves the annual budget and operating forecast which allocates resources to segments and serves as a key benchmark for tracking performance and accountability of each segment s operating results The Company s CODM evaluates the performance of the segments using in comparison to the annual budget operating forecast and historical results a financial performance measure called pretax adjusted earnings and believes this financial performance measure to be vitally important for understanding the underlying profitability drivers and trends of the Company s insurance business
are adjusted revenues less benefits and adjusted expenses The adjustments to both revenues and expenses account for certain items that are outside management s control because they tend to be driven by general economic conditions and events or are related to infrequent activities not directly associated with insurance operations The Company excludes income taxes related to operations to arrive at pretax adjusted earnings
Adjusted revenues are U S GAAP total revenues excluding net investment gains and losses except for amortized hedge costs income related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies which are reclassified from net investment gains losses and included in adjusted earnings as a component of adjusted net investment income when analyzing operations
Adjusted expenses are U S GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any non recurring or other items not associated with the normal course of the Company s insurance operations and that do not reflect the Company s underlying business performance
Aflac Japan s adjusted revenues accounted for 55 of the Company s total adjusted revenues in 2024 compared with 60 in 2023 and 64 in 2022 The percentage of the Company s total assets attributable to Aflac Japan was 77 at December 31 2024 compared with 80 at December 31 2023
The change in value of federal historic rehabilitation and solar investments in partnerships of 165 343 and 91 in 2024 2023 and 2022 respectively is included as a reduction to net investment income Tax credits on these investments of 164 334 and 83 in 2024 2023 and 2022 respectively have been recorded as an income tax benefit in the consolidated statements of earnings See Note 3 for additional information on these investments
The change in value of federal historic rehabilitation and solar investments in partnerships of 165 343 and 91 in 2024 2023 and 2022 respectively is included as a reduction to net investment income Tax credits on these investments of 164 334 and 83 in 2024 2023 and 2022 respectively have been recorded as an income tax benefit in the consolidated statements of earnings See Note 3 for additional information on these investments
Aflac Re is a Bermuda domiciled insurer that reinsures certain policies issued by Aflac Japan and is reported as a part of Corporate and other Under these internal reinsurance transactions Aflac Japan s net earned premiums are reduced by the amount of premiums ceded to Aflac Re Aflac Re recorded net earned premiums of 568 million in 2024 258 million in 2023 and 1 million in 2022 related to these reinsurance transactions with Aflac Japan These internal reinsurance transactions have no financial statement impact on a consolidated basis except for the effect of foreign currency accounting For additional information on these internal reinsurance transactions see Note 8
Aflac Japan makes payments to the Parent Company for management fees and remittances of earnings Information on transfers for each of the years ended December 31 is shown below See Note 13 for information concerning restrictions on transfers from Aflac Japan
Receivables consist primarily of monthly insurance premiums due from individual policyholders or their employers for payroll deduction of premiums net of allowance for credit losses Total receivables were 779 million and 848 million as of December 31 2024 and 2023 respectively The allowance for credit losses related to premiums receivable was 108 million and 92 million as of December 31 2024 and 2023 respectively At December 31 2024 197 million or 25 3 of total receivables were related to Aflac Japan s operations compared with 175 million or 20 7 at December 31 2023
The following table shows the yen dollar exchange rates used for or during the periods ended December 31 For comparison exchange effects for the current year were calculated using the yen dollar exchange rate that was used in the prior year
The change in value of federal historic rehabilitation and solar investments in partnerships of 165 343 and 91 in 2024 2023 and 2022 respectively is included as a reduction to net investment income Tax credits on these investments of 164 334 and 83 in 2024 2023 and 2022 respectively have been recorded as an income tax benefit in the consolidated statement of earnings
The amortized cost and allowance for credit losses for the Company s investments in fixed maturity securities and the fair values of these investments as well as the fair value of the Company s investments in equity securities are shown in the following tables
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
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
The unrealized holding gains net of losses recorded as a component of net investment gains and losses for the year ended December 31 2024 that relate to equity securities held at the December 31 2024 reporting date were 118 million The unrealized holding gains net of losses recorded as a component of net investment gains and losses for the year ended December 31 2023 that relate to equity securities held at the December 31 2023 reporting date were 63 million The unrealized holding losses net of gains recorded as a component of net investment gains and losses for the year ended December 31 2022 that relate to equity securities held at the December 31 2022 reporting date were 340 million
The following tables show the fair values and gross unrealized losses of the Company s available for sale investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31
The unrealized losses on the Company s available for sale securities have been primarily related to general market factors such as changes in interest rates foreign exchange rates and or the levels of credit spreads rather than specific concerns with the issuer s ability to pay interest and repay principal
For available for sale securities in an unrealized loss position the Company performs detailed analyses to identify whether the drivers of the decline in fair value are due to general market factors such as the recent rise in interest rates or due to credit related factors Identifying the drivers of the declines in fair value helps to align and allocate the Company s resources to the review and monitoring of securities with real credit related concerns that could impact ultimate collection of principal and interest For any significant declines in fair value determined to be non interest rate or market related the Company performs a more focused review of the related issuers specific credit profile
For corporate issuers the Company evaluates their assets and business profile including industry dynamics and competitive positioning financial statements and other available financial data For non corporate issuers the Company analyzes all sources of credit support including issuer specific factors The Company utilizes information available in the public domain and for certain private placement issuers from consultations with the issuers directly The Company also considers ratings from Nationally Recognized Statistical Rating Organizations NRSROs as well as the specific characteristics of the security it owns including seniority in the issuer s capital structure covenant protections or other relevant features From these reviews the Company evaluates the issuers continued ability to service the Company s investment through payment of interest and principal
Assuming no credit related factors develop unrealized gains and losses on available for sale securities are expected to diminish as investments near maturity Based on its credit analysis the Company believes that the issuers of its available for sale investments in the sectors shown in the table above have the ability to service their obligations to the Company Further the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases which may be at maturity
However if the Company identifies certain available for sale securities where the amortized cost basis exceeds the present value of the cash flows expected to be collected due to credit related factors an allowance for credit losses is recognized Based on an evaluation of its securities currently in an unrealized loss position the Company has determined that those securities should not have an allowance for credit losses as of December 31 2024 Refer to the
The Company classifies its TREs CMLs MMLs and other loans as held for investment and includes them in the commercial mortgage and other loans line on the consolidated balance sheets The Company carries them on the balance sheet at amortized cost less an estimated allowance for credit losses
CMLs and TREs are secured by properties entirely within the U S with the largest concentrations in California 21 Texas 13 and Florida 10 MMLs are issued only to companies domiciled within the U S and Canada
TREs are relatively short term floating rate commercial mortgage loans that are secured by a first lien on the property These loans provide funding for properties undergoing a change in their physical characteristics and or economic profile and do not typically require any principal repayment prior to the maturity date
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
MMLs are typically first lien senior secured cash flow loans to small to mid size companies for working capital refinancing acquisition and recapitalization These loans are generally considered to be below investment grade
As of December 31 2024 the Company had commitments of approximately 739 million to fund future MMLs These commitments are contingent upon the availability of MMLs that meet the Company s underwriting criteria
Other loans are primarily infrastructure loans Infrastructure loans are typically senior secured financing operating portfolios of renewable and conventional energy generation assets characterized by predictable often contractual cash flows for loan repayment The infrastructure loan portfolio weighted average rating is investment grade
As of December 31 2024 the Company had commitments of approximately 1 million to fund future other loans These commitments are contingent upon the availability of other loans that meet the Company s underwriting criteria
For TREs the Company s key credit quality indicators include performance of the loan and loan to value LTV which is calculated by dividing the current outstanding loan balance by the estimated property value primarily using values at origination Given that TREs involve properties undergoing a repositioning of their commercial profile LTV provides the most insight into the credit risk of the loan The Company monitors the performance of the loans periodically but not less frequently than quarterly The monitoring process also focuses on higher risk loans which include those that are delinquent or for which foreclosure or deed in lieu of foreclosure is anticipated
For CMLs the Company s key credit quality indicators include LTV and debt service coverage ratios DSCR DSCR is the most recently available net operating income of the underlying property compared to the required debt service of the loan
For MMLs and held to maturity fixed maturity securities the Company s key credit quality indicator is credit ratings The Company s held to maturity portfolio is composed of investment grade securities that are senior unsecured instruments while its MMLs generally have below investment grade ratings but are typically senior secured instruments The Company monitors the credit ratings periodically but not less frequently than quarterly
For the year ended December 31 2024 the Company recognized 2 million of interest income for TREs CMLs MMLs or other loans on nonaccrual status For the years ended December 31 2023 and 2022 the Company recognized no interest income for TREs CMLs MMLs or other loans on nonaccrual status Of these loans TREs with an amortized cost of 140 million and 160 million had no credit loss allowance as of December 31 2024 and December 31 2023 respectively because these loans are collateral dependent assets for which the estimated fair values of the collateral were in excess of amortized cost As of December 31 2024 MMLs with an amortized cost of 5 million were on nonaccrual status without an allowance for credit losses As of December 31 2023 there were no MMLs on nonaccrual status without an allowance for credit losses
The Company granted certain loan modifications to borrowers experiencing financial difficulty during 2024 and 2023 The types of modifications granted may include interest rate reductions principal forgiveness other than insignificant payment delays term extensions or a combination of these types of modifications The amount timing and extent of modifications granted are considered in determining any credit loss allowance recorded
The following table presents the amortized cost basis of modified loans to borrowers experiencing financial difficulty and the financial effect of the modifications disaggregated by loan classification and type of modification for the year ended December 31
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts Loans that were granted a modification in the past 12 months as of December 31 2024 and subsequently defaulted in the year ended December 31 2024 were immaterial There were no modified loans to borrowers experiencing financial difficulties in the past 12 months as of December 31 2023 that subsequently defaulted in the year ended December 31 2023
The Company calculates its allowance for credit losses for held to maturity securities loan receivables and loan commitments by grouping assets with similar risk characteristics when there is not a specific expectation of a loss for an individual asset For held to maturity securities MMLs and MML commitments the Company groups assets by credit ratings industry and country
The Company groups CMLs and TREs and respective loan commitments by property type property location and the property s LTV and DSCR On a quarterly basis CMLs and TREs within a portfolio segment that share similar risk characteristics are pooled for calculation of credit loss allowance On an ongoing basis TREs CMLs and other loans with dissimilar risk characteristics i e loans with significant declines in credit quality such as collateral dependent mortgage loans i e when the borrower is experiencing financial difficulty including when foreclosure is probable are evaluated individually for credit loss For example the credit loss allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan s underlying collateral less selling cost when foreclosure is probable Accordingly the change in the estimated fair value of the collateral dependent loans which are evaluated individually for credit loss is recorded as a change in the credit loss allowance as a component of net investment gains losses in the consolidated statements of earnings
The credit allowance for held to maturity securities and loan receivables is estimated using a probability of default PD loss given default LGD method discounted for the time value of money For held to maturity securities available for sale securities and loan receivables the Company includes the change in present value due to the passage of time in the change in the allowance for credit losses The Company s methodology for estimating credit losses utilizes the contractual maturity date of the financial asset adjusted when necessary to reflect the expected timing of repayment such as prepayment options renewal options call options or extension options The Company applies reasonable and supportable forecasts of macroeconomic variables that impact the determination of PD LGD over a two year period for held to maturity securities and MMLs The Company reverts to historical loss information over one year following the two year forecast period For the CML and TRE portfolio the Company applies reasonable and supportable forecasts of macroeconomic variables as well as national and local real estate market factors to estimate future credit losses where the market factors revert back to historical levels over time with the period being dependent on current market conditions projected market conditions and difference in the current and historical market levels for each factor The Company continuously monitors the estimation methodology due to changes in portfolio composition changes in underwriting practices and significant events or conditions and makes adjustments as necessary
The Company s held to maturity portfolio includes Japan Government and Agency securities of 15 2 billion amortized cost as of December 31 2024 that meet the requirements for zero credit loss expectation and therefore these asset classes have been excluded from the current expected credit loss measurement
An investment in an available for sale security may be impaired if the fair value falls below amortized cost The Company regularly reviews its available for sale portfolio for declines in fair value The Company s available for sale impairment model focuses on the ultimate collection of the cash flows from its investments and whether the Company has the intent to sell or if it is more likely than not the Company would be required to sell the security prior to recovery of its amortized cost The determination of the amount of impairments under this model is based upon the Company s periodic evaluation and assessment of known and inherent risks associated with the respective securities Such evaluations and assessments are revised as conditions change and new information becomes available
When determining the Company s intention to sell a security prior to recovery of its amortized cost basis the Company evaluates facts and circumstances such as but not limited to future cash flow needs decisions to reposition its security portfolio and risk profile of individual investment holdings The Company performs ongoing analyses of its liquidity needs which includes cash flow testing of its policy liabilities debt maturities projected dividend payments and other cash flow and liquidity needs
The Company s methodology for estimating credit losses for available for sale securities utilizes the discounted cash flow model based on past events current market conditions and future economic conditions as well as industry analysis and credit ratings of the securities In addition the Company evaluates the specific issuer s probability of default and expected recovery of its position in the event of default based on the underlying financial condition and assets of the borrower as well as seniority and or security of other debt holders in the issuer when developing management s best estimate of expected cash flows
As of December 31 2024 the Company identified TREs with an amortized cost of 390 million in anticipation of potential foreclosure or deed in lieu of foreclosure transactions As of December 31 2024 the Company established a credit allowance of 57 million related to these loans
The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits These investments are classified as limited partnerships and included in other investments in the consolidated balance sheets The change in value of each investment is recorded as a reduction to net investment income Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statements of earnings
REO consists of office buildings or other commercial properties obtained through foreclosure or deed in lieu of foreclosure of certain of the Company s TREs As of December 31 2024 all REO was classified as held and used for the production of income and is carried at cost less accumulated depreciation As of December 31 2023 210 million of REO was classified as held and used with the remaining 17 million classified as held for sale which is carried at the lower of depreciated cost or fair value less cost to sell and is not further depreciated once classified as such Depreciation expense was 13 million and an immaterial amount for the years ended December 31 2024 and 2023 respectively Additionally as of December 31 2024 and 2023 accumulated depreciation was 14 million and an immaterial amount respectively
The Company had 2 8 billion and 2 3 billion in outstanding commitments to fund investments in limited partnerships which includes 2 1 billion and 2 0 billion of unfunded commitments related to VIEs that are non consolidated as of December 31 2024 and 2023 respectively
In the normal course of its activities the Company invests in legal entities that are VIEs The Company s variable interests in VIEs are limited to the debt and equity instruments issued by them With the exception of commitments to limited partnerships and to certain loan investments made in the normal course of business the Company has not provided any direct or contingent obligations to fund the limited activities of these VIEs or support related to the limited activities of these VIEs and does not have any intention to do so in the future nor has it provided any direct or indirect financial guarantees
If the Company determines that it is the VIE s primary beneficiary it consolidates the VIE Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company except to the extent of the unfunded commitments referenced above as the Company s obligation to each VIE is limited to the amount of its committed investment
The Company is the sole investor in the consolidated VIEs listed in the table above The Company invests in fixed maturity securities issued by VIEs that in turn hold U S dollar denominated fixed maturity securities coupled with foreign currency swap agreements The weighted average lives of the Company s investments in these VIEs are very similar to the underlying collateral held by these VIEs The activities of these VIEs are limited to holding invested assets and foreign currency swaps and utilizing the cash flows from these securities to service the VIEs debt Neither the Company nor any of its creditors are able to obtain the underlying collateral of these VIEs unless there is an event of default or other specified event The Company is not a direct counterparty to the foreign currency swap contracts and has no control over them The Company s loss exposure to these VIEs is limited to its original investment These consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and foreign currency swap contracts if applicable The underlying collateral assets and funding of these consolidated VIEs are generally static in nature
The Company also utilizes unit trust structures in its Aflac Japan segment to invest in various asset classes which include CMLs MMLs TREs other loans and limited partnerships As the sole investor of these VIEs the Company is required to consolidate these trusts under U S GAAP The limited partnership investments are comprised of private equity and real estate funds The Company s loss exposure to these VIEs is limited to its original investments together with any unfunded portion of the Company s commitments made in the normal course of business to fund certain loan investments and limited partnership investments as described in the Commercial Mortgage and Other Loans and Other Investments sections of this note Excluding these commitments the Company does not provide financial or other support to consolidated VIEs
Certain investments in VIEs that the Company is not required to consolidate are investments that are in the form of debt obligations issued by the VIEs These fixed maturity securities include structured securities primarily asset backed securities The Company s involvement in the related VIEs is limited to that of a passive investor in asset backed securities issued by the VIEs The Company also invests in VIEs that are the primary financing vehicles used by their corporate sponsors to raise financing in the capital markets The variable interests created by these VIEs are principally or solely a result of the debt instruments issued by them The Company does not have the power to direct the activities that most significantly impact the entity s economic performance nor does it have the obligation to absorb losses of the VIE entity or the right to receive benefits from the entity that could be significant to the entity As such the Company is not the primary beneficiary of these VIEs and therefore is not required to consolidate them
The Company also holds equity investments in limited partnerships that have been determined to be VIEs These partnerships primarily invest in private equity and real estate funds The Company s maximum exposure to loss on these investments is limited to the amount of its investment and any unfunded commitments As described in the Other Investments section of this note the Company makes commitments to fund partnership investments in the normal course of business Excluding these commitments the Company did not provide financial or other support to unconsolidated VIEs The Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them The Company classifies these investments as other investments in the consolidated balance sheets
The Company lends fixed maturity securities and from time to time public equity securities to financial institutions in short term securities lending transactions These short term securities lending arrangements increase investment income with minimal risk The Company receives cash or other securities as collateral for such loans The Company s securities lending policy requires that the fair value of the securities received as collateral be 102 or more of the fair value of the loaned securities and that unrestricted cash received as collateral be 100 or more of the fair value of the loaned securities The securities loaned continue to be carried as investment assets on the Company s balance sheet during the terms of the loans and are not reported as sales For loans involving unrestricted cash or securities as collateral the collateral is reported as an asset with a corresponding liability for the return of the collateral For loans where the Company receives as collateral securities that the Company is not permitted to sell or repledge the collateral is not reflected in the consolidated financial statements
In connection with securities lending in addition to cash collateral received the Company received from counterparties securities collateral of 3 0 billion and 4 3 billion at December 31 2024 and 2023 respectively which may not be sold or re pledged unless the counterparty is in default Such securities collateral is not reflected on the consolidated financial statements
Certain fixed maturity securities can be pledged as collateral as part of derivative transactions or pledged to support state deposit requirements on certain investment programs For additional information regarding pledged securities related to derivative transactions see Note 4
At December 31 2024 debt securities with a fair value of 20 million were on deposit with regulatory authorities in the U S including U S territories The Company retains ownership of all securities on deposit and receives the related investment income
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
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
Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U S dollar denominated investments The average maturity of these forwards and options can change depending on factors such as market conditions and types of investments being held In situations where the maturity of the forwards and options is shorter than the underlying investment being hedged the Company may enter into new forwards and options near maturity of the existing derivative in order to continue hedging the underlying investment In forward transactions Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U S dollars at a specified future date The Company also uses one sided foreign currency put options to mitigate the settlement risk on U S dollar denominated assets related to extreme foreign currency rate changes From time to time Aflac Japan also executes foreign currency option transactions in a collar strategy where Aflac Japan agrees with another party to simultaneously purchase put options and sell call options In the purchased put transactions Aflac Japan obtains the option to buy a fixed amount of yen and sell a corresponding amount of U S dollars at a specified future date In the sold call transactions Aflac Japan agrees to sell a fixed amount of yen and buy a corresponding amount of U S dollars at a specified future date The combination of purchasing the put option and selling the call option results in no net premium being paid i e a costless or zero cost collar
From time to time the Company may also enter into foreign currency forwards and options to hedge the currency risk associated with the net investment in Aflac Japan In these forward transactions the Company agrees with another party to buy a fixed amount of U S dollars and sell a corresponding amount of yen at a specified price at a specified future date In the option transactions the Company may use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options options that protect against a weakening yen and selling yen call options options that limit participation in a strengthening yen The combination of these two actions create a zero cost collar Additionally the Company enters into purchased options to hedge cash flows from the net investment in Aflac Japan
The Company enters into foreign currency swaps pursuant to which it exchanges an initial principal amount in one currency for an initial principal amount of another currency with an agreement to re exchange the principal amounts at a future date There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts Foreign currency swaps are used primarily in the consolidated VIEs in the Company s Aflac Japan portfolio to convert foreign denominated cash flows to yen the functional currency of Aflac Japan in order to minimize cash flow fluctuations The Company also uses foreign currency swaps to economically convert certain of its U S dollar denominated senior note and subordinated debenture principal and interest obligations into yen denominated obligations
In order to reduce investment income volatility from its variable rate investments the Company enters into receive fixed pay floating interest rate swaps These derivatives are cleared and settled through a central clearinghouse
Swaptions are used to mitigate the adverse impact resulting from significant changes in the fair value of U S dollar denominated available for sale securities due to fluctuation in interest rates In a payer swaption the Company pays a premium to obtain the right but not the obligation to enter into a swap contract where it will pay a fixed rate and receive a floating rate Interest rate swaption collars are combinations of two swaption positions In order to maximize the efficiency of the collars while minimizing cost a collar strategy is used whereby the Company purchases a long payer swaption the Company purchases an option that allows it to enter into a swap where the Company will pay the fixed rate and receive the floating rate of the swap and sells a short receiver swaption the Company sells an option that provides the counterparty with the right to enter into a swap where the Company will receive the fixed rate and pay the floating rate of the swap The combination of purchasing the long payer swaption and selling the short receiver swaption results in no net premium being paid i e a costless or zero cost collar
Bond purchase commitments result from repackaged bond structures that are consolidated VIEs whereby there is a delay in the trade date and settlement date of the bond within the structure to ensure completion of all necessary legal agreements to support the consolidated VIE that issues the repackaged bond Since the Company has a commitment to purchase the underlying bond at a specified price the agreement meets the definition of a derivative where the value is derived based on the current market value of the bond compared to the fixed purchase price to be paid on the settlement date
The table below summarizes the balance sheet classification of the Company s derivative fair value amounts as well as the gross asset and liability fair value amounts at December 31 The fair value amounts presented do not include income accruals Derivative assets are included in other assets while derivative liabilities are included in other liabilities within the Company s consolidated balance sheets The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk
For certain variable rate U S dollar denominated available for sale securities held by Aflac Japan via consolidated VIEs foreign currency swaps are used to swap the U S Dollar USD variable rate interest and principal payments to fixed rate Japanese Yen JPY interest and principal payments The Company has designated foreign currency swaps as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset cash flow hedge The remaining maximum length of time for which these cash flows are hedged is approximately two years The derivatives in the Company s consolidated VIEs that are not designated as accounting hedges are discussed in the Non qualifying Strategies section of this note
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 for the years ended December 31 The Company had no fair value hedges during the year ended December 31 2024
Gains losses excluded from effectiveness testing includes the forward point on foreign currency forwards and time value change on foreign currency options which are reported in the consolidated statements of earnings as net investment gains losses It also includes the change in the fair value of the interest rate swaptions related to the time value of the swaptions which is recognized as a component of other comprehensive income loss
Gains and losses on foreign currency forwards and options and related hedged items are reported in the consolidated statements of earnings as net investment gains losses For interest rate swaptions and related hedged items gains and losses included in the hedge assessment premium amortization and time value amortization while the hedge items are still outstanding are reported within net investment income The time value gains and losses for interest rate swaptions when the related hedged items are redeemed are reported in net investment gains losses consistent with the impact of the hedged item For the years ended December 31 2023 and 2022 gains and losses included in the hedge assessment on interest rate swaptions and related hedged items were immaterial
The following table shows the carrying amounts of assets designated and qualifying as hedged items in fair value hedges of interest rate risk and the related cumulative hedge adjustment included in the carrying amount The Company had no fair value hedges of interest rate risk as of December 31 2024 and 2023 therefore the amounts presented in the table below are related to previous fair value hedges of interest rate risk that were discontinued
The Company s investment in Aflac Japan is affected by changes in the yen dollar exchange rate To mitigate this exposure the Parent Company s yen denominated liabilities see Note 9 have been designated as non derivative hedges and certain foreign currency forwards and options have been designated as derivative hedges of the foreign currency exposure of the Company s net investment in Aflac Japan
For the Company s derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment all changes in their fair value are reported in current period earnings in net investment gains losses The amount of gain or loss recognized in earnings for the Company s VIEs is attributable to the derivatives in those investment structures While the change in value of the swaps is recorded in current period earnings the change in value of the available for sale fixed maturity securities associated with these swaps is recorded in other comprehensive income
As of December 31 2024 the Parent Company had 450 million notional amount of cross currency interest rate swap agreements related to certain of its U S dollar denominated senior notes to effectively convert a portion of the interest on the notes from U S dollar to Japanese yen Changes in the values of these swaps are recorded in current period earnings
The Company uses foreign currency forwards and options to economically mitigate the currency risk of some of its U S dollar denominated loan receivables and U S government fixed maturity securities held in the Aflac Japan segment These arrangements are not designated as accounting hedges as the foreign currency remeasurement of the loan receivables impacts current period earnings and substantially offsets gains and losses from foreign currency forwards within net investment gains losses The Company also has certain foreign currency forwards on U S dollar denominated available for sale securities where hedge accounting is not being applied
Impact of cash flow hedges reported as net investment gains losses includes 4 of losses reclassified from accumulated other comprehensive income loss into earnings during the year ended December 31 2024 compared with 4 of losses during the years ended December 31 2023 and 2022 respectively
Includes 1 of losses reclassified from accumulated other comprehensive income loss into earnings during the year ended December 31 2024 compared with 1 of losses during the years ended December 31 2023 and 2022 respectively related to fair value hedges excluded component Impact shown net of effect of hedged items see Fair Value Hedges section of this Note 4 for further detail
Interest expense income on cash flow hedges are recorded in net investment income For interest rate swaptions classified as fair value hedges the change in the time value of the swaptions is recognized in other comprehensive income loss and amortized into net investment income over its legal term If the swaption is early terminated but the hedged item is still outstanding the amortization of disposal amount of the swaptions is recorded in net investment income over the remaining life of the hedged items Gains and losses on cash flow hedges and the change in the fair value of interest rate swaptions related to the time value of the swaptions in fair value hedges are recorded as unrealized gains losses Gains and losses on net investment hedges related to changes in foreign currency spot rates are recorded in the unrealized foreign currency translation gains losses line in the consolidated statements of comprehensive income loss
As of December 31 2024 4 million of deferred losses on derivative instruments recorded in accumulated other comprehensive income are expected to be reclassified into earnings during the next twelve months
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
The Company engages in over the counter OTC bilateral derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association Inc ISDA agreements and other documentation Most of the ISDA agreements also include Credit Support Annexes CSAs provisions which generally provide for two way collateral postings at the first dollar of exposure The Company mitigates the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction In addition a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of the Company s financial strength rating The actual amount of payments that the Company could be required to make depends on market conditions the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade
The Company also engages in OTC cleared derivative transactions through regulated central clearing counterparties These positions are marked to market and margined on a daily basis both initial margin and variation margin and the Company has minimal exposure to credit related losses in the event of nonperformance by counterparties to these derivatives
Collateral posted by the Company to third parties for derivative transactions can generally be repledged or resold by the counterparties The aggregate fair value of all derivative instruments with credit risk related contingent features that were in a net liability position by counterparty was approximately 804 million and 1 2 billion as of December 31 2024 and 2023 respectively If the credit risk related contingent features underlying these agreements had been triggered on December 31 2024 the Company estimates that it would be required to post a maximum of 475 million of additional collateral to these derivative counterparties The Company is generally allowed to sell or repledge collateral obtained from its derivative counterparties although it does not typically exercise such rights See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates
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 as of December 31 and as reflected in the tables in accordance with U S GAAP the Company s policy is to not offset these financial instruments in the consolidated balance sheets
U S GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable These two types of inputs create three valuation hierarchy levels as follows
Level 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
The fair values of the Company s public fixed maturity securities are generally based on prices provided by third party pricing vendors The Company utilizes internally generated valuations or broker quotes for privately issued fixed maturity securities or fixed maturity securities where there is no price available from a third party pricing vendor
The fair values of the Company s public equity securities are generally based on price quotes including quoted market prices readily available from independent public exchange markets or established security dealer associations The Company determines the fair values of privately issued equity securities using the following approaches or techniques price quotes and valuations from third party pricing vendors in house valuations and non binding price quotes the Company obtains from outside brokers
The pricing data and market quotes the Company obtains from outside sources including third party pricing services are reviewed internally for reasonableness If a fair value appears unreasonable the Company will re examine the inputs and assess the reasonableness of the pricing data with the provider Additionally the Company may compare the inputs to relevant market indices and other performance measurements Based on management s analysis the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data The Company has performed verification of the inputs and calculations in any valuation models including independent validations and back testing to confirm that the valuations represent reasonable estimates of fair value For the periods presented the Company has not adjusted the quotes or prices it obtains from the pricing services and brokers it uses
These models are discounted cash flow DCF valuation models but also use information from related markets specifically public bond markets and the credit default swap CDS market to estimate expected cash flows The models take into consideration any unique characteristics of the securities and make various adjustments to arrive at an appropriate issuer specific loss adjusted credit curve using the most appropriate comparable security ies of the issuer and issuer specific CDS spreads This credit curve is then used with the relevant recovery rates to estimate expected cash flows and modeling of additional features including illiquidity adjustments if necessary to price the security by discounting those loss adjusted cash flows In cases where a credit curve cannot be developed from market information for the specific issuer the valuation methodology takes into consideration other market observable inputs including
The 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 Parent Company has cross currency swap agreements related to certain of its U S dollar denominated senior notes to effectively convert a portion of the interest on the notes from U S dollar to Japanese yen Their fair values are based on observable market inputs therefore they are classified as Level 2
To determine the fair value of its interest rate derivatives the Company uses inputs that are generally observable in the market or can be derived from observable market data Interest rate swaps are cleared trades In a cleared swap contract the clearinghouse provides benefits to the counterparties similar to contracts listed for investment traded on an exchange since it maintains a daily margin to mitigate counterparties credit risk These derivatives are priced using observable inputs accordingly they are classified as Level 2
For derivatives associated with VIEs where the Company is the primary beneficiary the Company is not the direct counterparty to the swap contracts Nevertheless the Company has full transparency into the contracts to properly value the swaps for reporting purposes For these derivatives the Company utilizes valuation models developed by independent valuation analytics providers The models are market standard DCF models and all associated processes and controls are executed by Company personnel These models take into consideration any unique characteristics of the derivatives in determining the appropriate valuation methodology to estimate expected cash flows The fair values of these swaps are based on observable market inputs and are classified as Level 2 within the fair value hierarchy
For forward bond purchase commitments with VIEs the fair value of the derivative is based on the difference in the fixed purchase price and the current market value of the related bond prior to the settlement date Since the bond is typically a public bond with readily available pricing the derivatives associated with the forward purchase commitment are classified as Level 2 within the fair value hierarchy
Commercial mortgage and other loans include TREs CMLs MMLs and other loans The Company s loan receivables do not have readily determinable market prices and generally lack market liquidity Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U S Treasury or floating rate benchmark yield plus an appropriate spread that considers other risk factors such as credit and liquidity risk The spreads are a significant component of the pricing inputs and are generally considered unobservable Therefore these investments are classified as Level 3 within the fair value hierarchy
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
The fair values of the Company s publicly issued notes payable are determined by utilizing available sources of observable inputs from third party pricing vendors and are classified as Level 2 The Company s private placement notes payable are valued using the same internal models that the Company uses for its yen denominated and U S dollar denominated private placement investment portfolio The fair values for these private placements are deemed Level 2 valuations as they are model derived valuations that are generated internally with all significant valuation inputs being observed in active markets The fair values of the Company s yen denominated loans approximate their carrying values and are classified as Level 3
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data This occurs when market activity decreases significantly and underlying inputs cannot be observed current prices are not available and or when there are significant variances in quoted prices thereby affecting transparency Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data This may be due to a significant increase in market activity a specific event or one or more significant input s becoming observable
The following tables summarize the significant unobservable inputs used in the valuation of the Company s Level 3 investments carried at fair value as of December 31 Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments
The Company holds certain assets that are of a unique specialized and or securitized nature that do not trade on a regular basis in an active market which makes their fair values difficult to estimate Most of these assets are managed by external asset managers and the Company utilizes these managers for their expertise when evaluating various inputs used to determine the fair values for these assets including identifying the appropriate credit or risk spread over risk free interest rates that incorporates the unique nature or structure of the asset in the valuations For those assets of a similar nature but not managed by external asset managers the Company internally estimates the spreads and risk adjustments over risk free interest rates that reflect the unique nature or structure of the asset as well as the current pricing environment and market conditions for comparable or related investments Credit or risk spreads are an important input needed to complete the discounted cash flow analyses used to estimate an investment s fair value Credit or risk spreads underlying these fair values are a significant unobservable input whose derivation is based on the Company s evaluation of a combination of the external manager s expertise and knowledge the current pricing environment and market conditions for the specific asset
In circumstances where the Company s valuation model price is overridden because it implies a value that is not consistent with current market conditions the Company will solicit bids from a limited number of brokers The Company also receives unadjusted prices from brokers for certain of its mortgage and asset backed securities These quotes are non binding but are reflective of valuation best estimates at that particular point in time Offered quotes are an unobservable input in the determination of fair value of mortgage and asset backed securities certain banks financial institutions certain other corporate and equity securities investments
The Company invests in the debt and equity securities of private companies operating in the cancer healthtech insurtech finance internet of things big data and analytics sectors Due to their private and often small startup nature these companies rely on capital provided by institutional and private equity investors for their ongoing operations They do not have public securities that trade on a regular basis in an active market which makes their fair values difficult to estimate The Company values these investments on a cost basis with appropriate adjustments made based on monitoring private financial information provided by these companies Adjustments to valuations are generally made as new funding tranches are executed or if the financial information provided significantly changes indicating the need for impairment This private financial information is unobservable and is a significant determinant in the fair value of these corporate venture investments
Face amount is the stated dollar amount that the policy s beneficiaries receive upon the death of the insured For life and health products issued in Japan the constant level basis used is units in force which is a proxy for face amount and insurance in force respectively Future DAC amortization is impacted by persistency
There were no changes to the inputs judgments or methods used to determine amortization amounts during 2024 and 2023 The Company updated the assumptions used to determine amortization using the same assumptions as those used for measuring the liability for future policy benefits during 2024 and 2023 The Company recognizes the effects of changes in assumptions prospectively over the remaining contract term as a revision of the future amortization pattern See Note 1 for additional information on deferred policy acquisition costs
The liability for future policy benefits is determined as the present value of expected future policy benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Company s insurance contracts Future net premiums receivable are future gross premiums receivable under the contract multiplied by the NPR
The following tables present the changes in the present value of expected future net premiums and the present value of expected future policy benefits by reporting segment and disaggregated by product type for the years ended December 31 The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of internal and external ceded reinsurance
The following tables present the weighted average interest rates and weighted average liability duration calculated using the original discount rate by reporting segment and disaggregated by product type as of December 31
The following table presents a reconciliation of the disaggregated rollforwards above to the ending future policy benefits presented in the consolidated balance sheets as of December 31 The deferred profit liability for limited payment contracts and the deferred reinsurance gain liability are presented together with the liability for future policy benefits in the consolidated balance sheets and have been included as reconciling items in the table below
Elimination entry necessary due to the internal reinsurance transactions with Aflac Re and to recapture a portion of policy liabilities ceded externally as a result of the reinsurance retrocession transaction See Note 8 for additional details
Locked in discount rates are determined separately for each issue year cohort as a single discount rate calculated as the weighted average of monthly upper medium grade low credit risk fixed income instrument forward curves in the calendar year where the weights are the annualized premiums issued for each month of the cohort The single discount rate for each issue year cohort is determined by solving for a rate that produces an equivalent NPR to the forward curve and will remain unchanged after the calendar year of issue
Discount rates are updated each reporting period and require estimation techniques e g interpolation extrapolation for determination of points on the curve for which there is limited or no observable market data The Company constructs a current discount rate curve separately for discounting cash flows used to calculate each of the Japan and U S liabilities for future policy benefits reflective of the characteristics of the corresponding insurance liabilities such as currency and tenor
In the Aflac Japan segment all long duration insurance policies are denominated in yen A significant portion of policies are characterized by tenors exceeding the availability of liquid market data in Japan for single A rated as a proxy for upper medium grade corporate yen denominated debt The discount rate curve is designed to prioritize the observable inputs where available while past the last liquid point the data is derived based on estimation techniques consistent with the fair value guidance in ASC 820 The Aflac Japan segment curve utilizes liquid market indices tracking publicly traded yen denominated single A corporate debt for the initial 10 year tenor For the bonds within these market indices where only local ratings are available the Company prioritizes the bonds with local ratings that are equivalent to a single A rating based on international rating standards
For the discount rates applicable to tenors for which the Japan single A debt market is not liquid but there is sufficient observable market data and or the observable market data is available for similar instruments between 10 and 30 years the Company estimates tenor specific single A credit spreads and applies them to risk free government rates Lastly for the tenors where there is limited or no observable single A or similar market data or risk free government rates beyond 30 years the discount curve is derived by extrapolation of risk free rates beyond their last liquid point following the Smith
Wilson method and grading of the estimated forward credit spread anchored by the ultimate forward rate The ultimate forward rate is based on the economic value based solvency regime which is consistent with the International Association of Insurance Supervisors IAIS Insurance Capital Standards ICS to be introduced in Japan in 2025 and is adjusted for credit and inflation components
For the Aflac U S segment where all long duration insurance policies are denominated in U S dollars and substantially all have cash flow duration within 30 years for which the U S upper medium grade fixed income market is liquid and observable the Company uses data from a liquid fixed income market index tracking single A U S corporate debt For the insignificant portion of the policies with cash flow tenors exceeding 30 years the discount curve beyond that tenor is extrapolated following the Smith Wilson method from year 30 to the same ultimate forward rate calculated for the Japan discount curve at year 60 and held constant thereafter The use of the same ultimate rate for U S and Japan segments is based on the assumption of long term global economic convergence
Mortality rate assumptions are based on industry tables and adjusted for the Company s actual or expected experience where credible or appropriate These assumptions typically vary by age gender and other demographic characteristics such as smoking status
Morbidity assumptions are based on the Company s internal data and consider emerging experience These assumptions are reflective of the coverage and benefits provided and generally vary by age gender duration and any other material policyholder characteristics In cases where a calendar year trend is significant future cash flow projections may include a trend adjustment
In Japan separate lapse assumptions are set based on actual or expected experience These lapse and total termination rate assumptions vary by line of business and with policyholder characteristics such as duration In the U S the majority of the future cash flows are modeled using total termination rates which include both lapse and mortality and are adjusted for actual experience Policy provisions such as reaching premium paid up status are taken into account when setting assumptions
In 2024 and 2023 the variance of actual experience from expected experience was primarily due to favorable variances in morbidity assumptions as compared to actual experience There were no changes to the inputs judgments or methods used in measuring the liability for future policy benefits in 2024 and 2023
The Company performs an annual review of its assumptions during the third quarter In 2024 the Company s annual assumption review process resulted in favorable changes largely due to recent favorable Japan morbidity experience In 2023 the Company s annual assumption review process resulted in favorable changes to its morbidity and termination
The following table summarizes the amount of net earned premiums recognized in the consolidated statements of earnings by reporting segment and disaggregated by product type for the years ended December 31
The following table summarizes the amount of interest expense related to insurance contracts recognized in benefits and claims excluding reserve remeasurement in the consolidated statements of earnings by reporting segment and disaggregated by product type for the years ended December 31
The following tables summarize the amount of undiscounted expected future gross premiums and expected future policy benefits and expenses and discounted discounted at the current period discount rate expected future gross premiums and expected future policy benefits and expenses by reporting segment and disaggregated by product type as of December 31 These tables are presented gross of internal and external ceded reinsurance Future gross premiums represent the expected amount of future premiums to be received For limited payment policies the premiums are collected over a shorter period than the policy term over which benefits are provided As a result once the policy reaches premium paid up status the future gross premiums can be significantly less than the future benefit payments Further benefits and expenses are generally greater in the later years of a policy These are the primary factors that result in future gross premiums lower than future benefit and expense payments for certain lines of business of the Company
As of December 31 2024 and 2023 the largest component of the other policyholders funds liability was the Company s annuity line of business in Aflac Japan The Company s annuities have fixed benefits and premiums
Aflac Japan s fixed annuities have guaranteed fixed crediting rates which results in the policyholders funds balances being sufficient to cover all guaranteed benefit amounts The reserves are adequate to fully fund future benefits at any given time
The Company periodically enters into fixed quota share coinsurance agreements in the normal course of business primarily to provide additional capacity for future growth optimize capital limit losses and minimize exposure to significant risks For each of its reinsurance agreements the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards These reinsurance transactions are indemnity reinsurance agreements that do not relieve the Company from its obligations to policyholders In the event that the reinsurer is unable to meet their obligations the Company remains liable for the reinsured claims
The following table reconciles direct earned premiums direct benefits and claims excluding reserve remeasurement gains and losses and reserve remeasurement gains and losses to net amounts after the effect of reinsurance for the years ended December 31
The Company has recorded a deferred reinsurance gain liability related to reinsurance transactions which represents ceded reserves in excess of consideration paid or consideration received in excess of assumed reserves The remaining consolidated deferred reinsurance gain liability of 146 million and 175 million as of December 31 2024 and 2023 respectively is included in future policy benefits in the consolidated balance sheets and is being amortized into income over the expected lives of the policies
The Company has also recorded a reinsurance recoverable for reinsurance transactions The reinsurance recoverable which is included in other assets in the consolidated balance sheets is reported net of allowance for credit losses and had a remaining balance of 163 million and 183 million as of December 31 2024 and 2023 respectively The allowance for credit losses related to the Company s reinsurance recoverable balance was 4 million and 10 million as of December 31 2024 and 2023 respectively The credit allowance for the reinsurance recoverable balance is estimated using a PD LGD method and the key credit quality indicator is the credit rating of the Company s reinsurance counterparty The Company uses external credit ratings focused on the reinsurer s financial strength and credit worthiness As of December 31 2024 the Company s reinsurance counterparties were rated A The Company monitors the credit ratings periodically but not less frequently than quarterly
In October 2024 ALIJ entered into a coinsurance transaction whereby it ceded 30 of the liabilities associated with certain cancer insurance policies and riders to Aflac Re This transaction transferred approximately 1 8 billion of reserves associated with these policies Approximately 1 7 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis except for the effect of foreign currency accounting
In December 2023 the Company entered into a novation agreement under which Aflac Re assumed the duties obligations and liabilities through reinsurance of business ALIJ previously ceded to an external reinsurer and recorded a pretax loss of 151 million in 2023
In October 2023 ALIJ entered into a coinsurance transaction whereby it ceded 30 of the liabilities associated with certain cancer insurance policies and riders to Aflac Re This transaction transferred approximately 1 9 billion of reserves associated with these policies Approximately 1 7 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis except for the effect of foreign currency accounting
In January 2023 ALIJ entered into a coinsurance transaction whereby it ceded 28 of the liabilities associated with certain cancer insurance policies and riders to Aflac Re This transaction transferred approximately 2 1 billion of reserves associated with these policies Approximately 1 9 billion of assets were transferred from ALIJ to Aflac Re as consideration for assuming the reinsurance risk This internal reinsurance transaction with Aflac Re has no financial statement impact on a consolidated basis except for the effect of foreign currency accounting
In January 2023 ALIJ also entered into an external coinsurance transaction to cede 1 5 of the liabilities associated with the same cancer insurance policies and riders in connection with which ALIJ transferred cash consideration to the reinsurer
In March 2024 the Parent Company issued five series of senior notes totaling 75 0 billion through a private placement The first series which totaled 18 3 billion bears interest at a fixed rate of 1 600 per annum payable semi annually and will mature in March 2034 The second series which totaled 15 0 billion bears interest at a fixed rate of 1 740 per annum payable semi annually and will mature in March 2036 The third series which totaled 16 5 billion bears interest at a fixed rate of 1 920 per annum payable semi annually and will mature in March 2039 The fourth series which totaled 5 7 billion bears interest at a fixed rate of 2 160 per annum payable semi annually and will mature in March 2044 The fifth series which totaled 19 5 billion bears interest at a fixed rate of 2 400 per annum payable semi annually and will mature in March 2054 These notes are redeemable at the Parent Company s option i in whole at any time or ii in part from time to time in an amount not less than 5 of the aggregate principal amount then outstanding of the notes to be redeemed
In March 2024 the Parent Company issued three series of senior notes totaling 48 6 billion through a public debt offering under its U S shelf registration statement The first series which totaled 13 0 billion bears interest at a fixed rate of 1 048 per annum payable semi annually and will mature in March 2029 The second series which totaled 27 9 billion bears interest at a fixed rate of 1 412 per annum payable semi annually and will mature in March 2031 The third series which totaled 7 7 billion bears interest at a fixed rate of 1 682 per annum payable semi annually and will mature in March 2034 These notes are redeemable at the Parent Company s option at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance In addition the notes maturing in March 2029 March 2031 and March 2034 are redeemable at the Parent Company s option in whole or in part from time to time on or after December 21 2028 December 31 2030 and September 21 2033 respectively at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
In December 2023 ALIJ issued 30 0 billion par value of subordinated bonds that will mature in December 2053 The bonds bear interest at an initial rate of 1 958 per annum until December 5 2028 Thereafter the rate of interest of the bonds will be reset every five years to a rate of interest equal to the then current five year JGB rate plus i 1 650 per annum on and after the day immediately following December 5 2028 to December 5 2033 and ii 2 650 per annum on and after the day immediately following December 5 2033 to December 5 2053 The bonds are redeemable in whole but not in part i at any time upon the occurrence of certain regulatory or tax events as specified in the indenture governing the terms of the bonds or ii on each interest rate reset date on or after December 5 2028
In September 2022 the Parent Company issued four series of senior notes totaling 73 0 billion through a public debt offering under its U S shelf registration statement The first series which totaled 33 4 billion bears interest at a fixed rate of 1 075 per annum payable semi annually and will mature in September 2029 The second series which totaled 21 1 billion bears interest at a fixed rate of 1 320 per annum payable semi annually and will mature in December 2032 The third series which totaled 6 5 billion bears interest at a fixed rate of 1 594 per annum payable semi annually and will mature in September 2037 The fourth series which totaled 12 0 billion bears interest at a fixed rate of 2 144 per annum payable semi annually and will mature in September 2052 These notes are redeemable at the Parent Company s option at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance In addition the notes maturing in September 2029 December 2032 and September 2037 are redeemable at the Parent Company s option in whole or in part from time to time on or after June 14 2029 June 14 2032 and March 14 2037 respectively at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
In August 2022 the Parent Company renewed a senior term loan facility with a commitment amount totaling 107 0 billion The first tranche of the facility which totaled 11 7 billion bears interest at a rate per annum equal to the Tokyo interbank market rate TIBOR or alternate TIBOR if applicable plus the applicable TIBOR margin and will mature in August 2027 The applicable margin ranges between 225 and 625 depending on the Parent Company s debt ratings as of the date of determination The second tranche which totaled 25 3 billion bears interest at a rate per annum equal to TIBOR or alternate TIBOR if applicable plus the applicable TIBOR margin and will mature in August 2029 The applicable margin ranges between 325 and 725 depending on the Parent Company s debt ratings as of the date of determination The third tranche which totaled 70 0 billion bears interest at a rate per annum equal to TIBOR or alternate TIBOR if applicable plus the applicable TIBOR margin and will mature in August 2032 The applicable margin ranges between 475 and 1 025 depending on the Parent Company s debt ratings as of the date of determination
In April 2021 the Parent Company issued five series of senior notes totaling 82 0 billion through a public debt offering under its then existing U S shelf registration statement The first series which totaled 30 0 billion bears interest at a fixed rate of 633 per annum payable semi annually and will mature in April 2031 The second series which totaled 12 0 billion bears interest at a fixed rate of 844 per annum payable semi annually and will mature in April 2033 The third series which totaled 10 0 billion bears interest at a fixed rate of 1 039 per annum payable semi annually and will mature in April 2036 The fourth series which totaled 10 0 billion bears interest at a fixed rate of 1 264 per annum payable semi annually and will mature in April 2041 The fifth series which totaled 20 0 billion bears interest at a fixed rate of 1 560 per annum payable semi annually and will mature in April 2051 The notes are redeemable at the Parent Company s option i at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance or ii on or after the date that is six months prior to the stated maturity date of the series in whole or in part at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
In March 2021 the Parent Company issued 400 million of senior sustainability notes through a U S public debt offering The notes bear interest at a fixed rate of 1 125 per annum payable semi annually and will mature in March 2026 The Company intends but is not contractually committed to allocate an amount at least equivalent to the net proceeds from this issuance exclusively to existing or future investments in or financing of assets businesses or projects that meet the eligibility criteria of the Company s sustainability bond framework described in the offering documentation in connection with such notes These notes are redeemable at the Parent Company s option in whole at any time or in part from time to time at a redemption price equal to the greater of i the aggregate principal amount of the notes to be redeemed or ii the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed not including any portion of the payments of interest accrued as of such redemption date discounted to such redemption date on a semiannual basis at the yield to maturity for a U S Treasury security with a maturity comparable to the remaining term of the notes plus 10 basis points plus in each case accrued and unpaid interest on the principal amount of the notes to be redeemed to but excluding such redemption date
In April 2020 the Parent Company issued 1 0 billion of senior notes through a U S public debt offering The notes bear interest at a fixed rate of 3 60 per annum payable semi annually and will mature in April 2030 These notes are redeemable at the Parent Company s option in whole at any time or in part from time to time at a redemption price equal to the greater of i the aggregate principal amount of the notes to be redeemed or ii the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed not including any portion of the payments of interest accrued as of such redemption date discounted to such redemption date on a semiannual basis at the yield to maturity for a U S Treasury security with a maturity comparable to the remaining term of the notes plus 45 basis points plus in each case accrued and unpaid interest on the principal amount of the notes to be redeemed to but excluding such redemption date
In March 2020 the Parent Company issued four series of senior notes totaling 57 0 billion through a public debt offering under its then existing U S shelf registration statement The first series which totaled 12 4 billion bears interest at a fixed rate of 300 per annum payable semi annually and will mature in September 2025 The second series which totaled 13 3 billion bears interest at a fixed rate of 550 per annum payable semi annually and will mature in March 2030 The third series which totaled 20 7 billion bears interest at a fixed rate of 750 per annum payable semi annually and will mature in March 2032 The fourth series which totaled 10 6 billion bears interest at a fixed rate of 830 per annum payable semi annually and will mature in March 2035 These notes may only be redeemed before maturity in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance
In December 2019 the Parent Company issued four series of senior notes totaling 38 0 billion through a public debt offering under its then existing U S shelf registration statement The first series which totaled 12 6 billion bears interest at a fixed rate of 500 per annum payable semi annually and will mature in December 2029 The second series which totaled 9 3 billion bears interest at a fixed rate of 843 per annum payable semi annually and will mature in December 2031 The third series which totaled 9 8 billion bears interest at a fixed rate of 934 per annum payable semi annually and will mature in December 2034 The fourth series which totaled 6 3 billion bears interest at a fixed rate of 1 122 per annum payable semi annually and will mature in December 2039 The notes are redeemable at the Parent Company s option i at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance or ii on or after the date that is six months prior to the stated maturity date of the series in whole or in part at a redemption price equal to the aggregate principal amount to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
In April 2019 ALIJ issued 30 0 billion par value of perpetual subordinated bonds These bonds bear interest at a fixed rate of 963 per annum and then at six month Euro Yen LIBOR plus an applicable spread on and after the day immediately following April 18 2024 The bonds will be callable on each interest payment date on and after April 18 2024 In November 2019 ALIJ amended the bonds to change their duration from perpetual to a stated maturity date of April 16 2049 and to remove provisions that permitted ALIJ to defer payments of interest under certain circumstances In April 2024 ALIJ redeemed 30 0 billion of its 963 subordinated bonds due April 2049
In October 2018 the Parent Company issued 550 million of senior notes through a U S public debt offering The notes bear interest at a fixed rate of 4 750 per annum payable semi annually and will mature in January 2049 These notes are redeemable at the Parent Company s option in whole at any time or in part from time to time at a redemption price equal to the greater of i the aggregate principal amount of the notes to be redeemed or ii the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed not including any portion of the payments of interest accrued as of such redemption date discounted to such redemption date on a semiannual basis at the yield to maturity for a U S Treasury security with a maturity comparable to the remaining term of the notes plus 25 basis points plus in each case accrued and unpaid interest on the principal amount of the notes to be redeemed to but excluding such redemption date
In October 2018 the Parent Company issued three series of senior notes totaling 53 4 billion through a public debt offering under its then existing U S shelf registration statement The first series which totaled 29 3 billion bears interest at a fixed rate of 1 159 per annum payable semi annually and will mature in October 2030 The second series which totaled 15 2 billion bears interest at a fixed rate of 1 488 per annum payable semi annually and will mature in October 2033 The third series which totaled 8 9 billion bears interest at a fixed rate of 1 750 per annum payable semi annually and will mature in October 2038 These notes may only be redeemed before maturity in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance
In October 2017 the Parent Company issued 60 0 billion of subordinated debentures through a U S public debt offering The debentures bear interest at an initial rate of 2 108 per annum through October 22 2027 or earlier redemption Thereafter the rate of interest of the debentures will be reset every five years to a rate of interest equal to the then current JPY 5 year Swap Offered Rate plus 205 basis points The debentures are payable semi annually in arrears and will mature in October 2047 The debentures are redeemable i at any time in whole but not in part upon the occurrence of certain tax events or certain rating agency events as specified in the indenture governing the terms of the debentures or ii on or after October 23 2027 in whole or in part at a redemption price equal to their principal amount plus accrued and unpaid interest to but excluding the date of redemption
In January 2017 the Parent Company issued 60 0 billion of senior notes through a U S public debt offering The notes bear interest at a fixed rate of 932 per annum payable semi annually and will mature in January 2027 These notes may only be redeemed before maturity in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance
In September 2016 the Parent Company issued two series of senior notes totaling 700 million through a U S public debt offering The first series which totaled 300 million bears interest at a fixed rate of 2 875 per annum payable semi annually and will mature in October 2026 The second series which totaled 400 million bears interest at a fixed rate of 4 00 per annum payable semi annually and will mature in October 2046
In 2010 and 2009 the Parent Company issued senior notes through U S public debt offerings the details of these notes are as follows In August 2010 the Parent Company issued 450 million of senior notes that will mature in August 2040 In December 2009 the Parent Company issued 400 million of senior notes that will mature in December 2039 These senior notes pay interest semiannually and are redeemable at the Parent Company s option in whole at any time or in part from time to time at a redemption price equal to the greater of i the principal amount of the notes or ii the present value of the remaining scheduled payments of principal and interest to be redeemed discounted to the redemption date plus accrued and unpaid interest In December 2016 the Parent Company completed a tender offer in which it extinguished 176 million principal of its 6 90 senior notes due December 2039 and 193 million principal of its 6 45 senior notes due August 2040 The pretax loss due to the early redemption of these notes was 137 million
For the Company s yen denominated notes and loans the principal amount as stated in dollar terms will fluctuate from period to period due to changes in the yen dollar exchange rate The Company has designated the majority of its yen denominated notes payable as a non derivative hedge of the foreign currency exposure of the Company s investment in Aflac Japan
Interest expense related to the Company s notes payable which is included in interest expense in the consolidated statements of earnings was 194 million 190 million and 217 million for the years ended December 31 2024 2023 and 2022 respectively
Operating lease costs included in insurance and other expenses in the consolidated statements of earnings were 43 million 49 million and 52 million for the years ended December 31 2024 2023 and 2022 respectively Operating cash outflows for operating leases were 41 million 48 million and 49 million for the years ended December 31 2024 2023 and 2022 respectively
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
A rate per annum equal to at the Company s option either a Secured Overnight Financing Rate SOFR for U S dollar denominated borrowings or TIBOR for Japanese yen denominated borrowings in either case adjusted for certain costs or b a base rate determined by reference to the highest of 1 the federal funds rate plus 1 2 of 1 2 the rate of interest for such day announced by the agent as its prime rate or 3 SOFR for an interest period of one month plus 1 00 in each case plus an applicable margin
A rate per annum equal to at the Parent Company s option either a a rate determined by reference to SOFR for the interest period relevant to such borrowing or b the base rate determined by reference to the highest of 1 the lender s USD short term commercial loan rate and 2 the federal funds rate plus 1 2 of 1
Three month term SOFR plus a 10 basis point SOFR adjustment and an additional 97 basis points per annum for U S dollar denominated borrowings or three month TIBOR plus 97 basis points per annum for Japanese yen denominated borrowings
Three month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U S dollar denominated borrowings or three month TIBOR plus 68 basis points per annum for Japanese yen denominated borrowings
Three month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U S dollar denominated borrowings or three month TIBOR plus 68 basis points per annum for Japanese yen denominated borrowings
Three month term SOFR plus a 10 basis point SOFR adjustment and an additional 68 basis points per annum for U S dollar denominated borrowings or three month TIBOR plus 68 basis points per annum for Japanese yen denominated borrowings
Aflac Japan holds certain U S dollar denominated assets in a Delaware Statutory Trust DST These assets are mostly comprised of various U S dollar denominated commercial mortgage loans The functional currency of the DST for U S tax purposes was historically the Japanese yen In 2022 the Company requested a change in tax accounting method through the Internal Revenue Service s automatic consent procedures to change the functional currency of the DST for U S tax purposes to the U S dollar As a result foreign currency translation gains or losses on assets held in the DST are no longer recognized for U S tax purposes The Company historically recorded a deferred tax liability for foreign currency translation gains on the DST assets which was released in the third quarter of 2022 as a result of the functional currency change The release of the deferred tax liability resulted in the Company recognizing an income tax benefit of 208 million in 2024 174 million in 2023 and 452 million in 2022
Income tax expense in the accompanying statements of earnings varies from the amount computed by applying the expected U S tax rate of 21 to pretax earnings The principal reasons for the differences and the related tax effects for the years ended December 31 were as follows
The application of U S GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized The Company has determined no valuation allowance against its anticipatory foreign tax credits is necessary The anticipatory foreign tax credit represents the foreign tax credit the Company will generate from the reversal of Japan deferred tax liabilities in the future Deferred foreign tax credits are foreign tax credits generated in the current tax year by the Japanese life company but are unable to be utilized until 2025 due to Japan s current tax year not closing until March 31 2025 Based upon a review of the Company s anticipated future taxable income and including all other available evidence both positive and negative the Company s management has concluded that it is more likely than not that all other deferred tax assets will be realized
Under U S income tax rules only 35 of non life operating losses can be offset against life insurance taxable income each year For current U S income tax purposes as of December 31 2024 there were non life operating loss carryforwards of 26 million available to offset against future taxable income which expire after December 31 2040 and there were life operating loss carryforwards available to offset against future taxable income of 92 million which do not expire The Company has no capital loss carryforwards available to offset capital gains The Company has a foreign tax credit carryforward of 314 million as of December 31 2024 which expires after December 31 2034
The Company files federal income tax returns in the U S and Japan as well as state or prefecture income tax returns in various jurisdictions in the two countries There are currently no other open Federal State or local U S income tax audits U S federal income tax returns for years before 2021 are no longer subject to examination Japan corporate income tax returns for years before the tax year ended March 2023 are no longer subject to examination Management believes it has established adequate tax liabilities and final resolution of all open audits is not expected to have a material impact on the Company s consolidated financial statements
Included in the balance of the liability for unrecognized tax benefits at December 31 2024 and 2023 were no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility Because of the impact of deferred tax accounting other than interest and penalties the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period The Company has accrued an immaterial amount as of December 31 2024 for permanent uncertainties which if reversed would not have a material effect on the annual effective rate
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense The Company recognized an immaterial amount of interest and penalties in 2024 2023 and 2022 The Company accrued an immaterial amount for the payment of interest and penalties as of December 31 2024 and 2023 respectively
In November 2022 the Company s board of directors authorized the purchase of an additional 100 million shares of its common stock As of December 31 2024 a remaining balance of 47 3 million shares of the Company s common stock was available for purchase under share repurchase authorizations by its board of directors
During 2024 the Company repurchased 30 4 million shares of its common stock in the open market for 2 8 billion The Company repurchased 38 9 million shares for 2 8 billion in 2023 and 39 2 million shares for 2 4 billion in 2022
In accordance with the Parent Company s articles of incorporation shares of common stock are generally entitled to one vote per share until they have been held by the same beneficial owner for a continuous period of 48 months at which time they become entitled to 10 votes per share
Outstanding share based awards are excluded from the calculation of weighted average shares used in the computation of basic EPS but are included in the calculation of weighted average shares used in the computation of diluted EPS Anti dilutive share based awards are excluded from the computation of diluted EPS
The following table presents the approximate number of share based awards to purchase shares on a weighted average basis that were considered to be anti dilutive and were excluded from the calculation of diluted EPS at December 31
As of December 31 2024 the Company has outstanding share based awards under the Aflac Incorporated Long Term Incentive Plan As Amended and Restated February 14 2017 as further amended on August 9 2022 the Plan Share based awards are designed to reward employees for their long term contributions to the Company and provide incentives for them to remain with the Company The number and frequency of share based awards are based on competitive practices operating results of the Company government regulations and other factors
The Plan allows for a maximum number of shares issuable over its term of 75 million shares including 38 million shares that may be awarded in respect of awards other than options or stock appreciation rights If any awards granted under the Plan are forfeited or are terminated before being exercised or settled for any reason other than tax forfeiture then the shares underlying the awards will again be available under the Plan
The Plan allows awards to Company employees for incentive stock options ISOs non qualifying stock options NQSOs restricted stock restricted stock units and stock appreciation rights Non employee directors are eligible for grants of NQSOs restricted stock and stock appreciation rights As of December 31 2024 approximately 33 6 million shares were available for future grants under this plan The ISOs and NQSOs have a term of 10 years and the share based awards generally vest upon time based conditions or time and performance based conditions Time based vesting generally occurs after three years Performance based vesting conditions generally include the attainment of goals related to the Company s financial performance As of December 31 2024 the only performance based awards issued and outstanding were restricted stock awards and units
Stock options and stock appreciation rights granted under the amended Plan have an exercise price of at least the fair market value of the underlying stock on the grant date and have an expiration date no later than 10 years from the grant date Time based restricted stock awards restricted stock units and stock options generally vest on a ratable basis over three years The Compensation Committee of the board of directors has the discretion to determine vesting schedules
Share based compensation expense consists primarily of expenses for stock options restricted stock awards including performance based restricted stock awards and restricted stock units granted to employees
The Company estimates the fair value of each stock option granted using the Black Scholes Merton multiple option approach Expected volatility is based on historical periods generally commensurate with the estimated terms of the options The Company uses historical data to estimate option exercise and termination patterns within the model Separate groups of employees that have similar historical exercise patterns are stratified and considered separately for valuation purposes The expected term of options granted is derived from the output of the Company s option model and represents the weighted average period of time that options granted are expected to be outstanding The Company bases the risk free interest rate on the Treasury note rate with a term comparable to that of the estimated term of the options There were no options granted in 2024 2023 or 2022 The following table presents the assumptions used in valuing options granted if applicable during the years ended December 31
The aggregate intrinsic value in the following table represents the total pretax intrinsic value and is based on the difference between the exercise price of the stock options and the quoted closing common stock price of 103 44 as of December 31 2024 for those awards that have an exercise price currently below the closing price As of December 31 2024 the aggregate intrinsic value of stock options outstanding was 43 million with a weighted average remaining term of 1 7 years The total number of in the money stock options exercisable as of December 31 2024 was 623 thousand shares The aggregate intrinsic value of stock options exercisable at that same date was 43 million with a weighted average remaining term of 1 7 years
Under the Plan each February the Company grants selected executive officers performance based restricted stock awards PBRS and performance based restricted stock units PSU with vesting contingent upon meeting various performance goals PBRS and PSU are generally granted at the money and contingently cliff vest over a period of three years generally subject to continued employment In February 2024 the Company granted 303 thousand performance based stock awards and units which are contingent on the achievement of the Company s financial performance metrics and its market based conditions On the date of grant the Company estimated the fair value of restricted stock awards with market based conditions using a Monte Carlo simulation model The model discounts the value of the stock at the assumed vesting date based on a risk free interest rate Based on estimates of actual performance versus the vesting thresholds the calculated fair value percentage pay out estimate will be updated each quarter Actual performance including modification for relative total shareholder return may result in the ultimate award of 0 to 200 percent of the initial number of PBRS and PSU issued with the potential for no award if company performance goals are not achieved during the three year period PBRS and PSU subject to accelerated vesting at the date of retirement eligibility are expensed over the implicit service period
The Company also granted selected executive officers PSU throughout the year with vesting contingent upon meeting various performance goals PSU are generally granted at the money and contingently cliff vest over a period of three years generally subject to continued employment In 2024 the Company granted 93 thousand performance based stock units which are contingent on the achievement of certain Company determined metrics Based on estimates of actual performance versus the vesting thresholds the calculated fair value percentage pay out estimate will be updated each quarter Actual performance may result in the ultimate award of 0 to 150 percent of the initial number of PSU issued with the potential for no award if the Company determined metrics are not achieved during the three year period Compensation expense for PSU subject to accelerated vesting at the date of retirement eligibility is expensed over the implicit service period
The Company uses third party analyses to assist in developing the assumptions used in as well as calibrating a Monte Carlo simulation model The Company is responsible for determining the assumptions used in estimating the fair value of its share based payment awards
The value of restricted stock awards and restricted stock units is based on the fair market value of the Company s common stock at the date of grant The following table summarizes restricted stock activity during the years ended December 31
As of December 31 2024 total compensation cost not yet recognized in the Company s financial statements related to restricted stock awards and restricted stock units was 34 million of which 14 million 1 8 million shares was related to restricted stock awards with a performance based vesting condition The Company expects to recognize these amounts over a weighted average period of approximately 1 7 years There are no other contractual terms covering restricted stock awards once vested
The Company s insurance subsidiaries are required to report their results of operations and financial position to insurance regulatory authorities on the basis of statutory accounting practices prescribed or permitted by such authorities
Aflac Japan must report its results of operations and financial position to the Japanese Financial Services Agency FSA on a Japanese regulatory accounting basis as prescribed by the FSA Japanese regulatory accounting practices differ in many respects from U S GAAP For example under Japanese regulatory accounting practices policy acquisition costs are expensed immediately policy benefit and claim reserving methods and assumptions are different premiums are recognized on a cash basis different consolidation criteria apply to VIEs reinsurance is recognized on a different basis and investments can have a separate accounting classification and treatment referred to as policy reserve matching bonds PRM Capital and surplus of Aflac Japan based on current Japanese regulatory accounting practices was 8 1 billion at both December 31 2024 and 2023
Aflac CAIC and TOIC report statutory financial statements that are prepared on the basis of accounting practices prescribed or permitted by the Nebraska Department of Insurance NDOI The NDOI recognizes statutory accounting principles and practices prescribed or permitted by the state of Nebraska for determining and reporting the financial condition and results of operations of an insurance company and for determining a company s solvency under Nebraska insurance law
Aflac New York reports statutory financial statements that are prepared on the basis of accounting practices prescribed or permitted by the New York State Department of Financial Services NYSDFS The NYSDFS recognizes statutory accounting principles and practices prescribed or permitted by the state of New York for determining and reporting the financial condition and results of operations of an insurance company and for determining a company s solvency under New York insurance law
have been adopted by both the state of Nebraska and the state of New York as a component of those prescribed or permitted practices Statutory accounting practices primarily differ from U S GAAP by charging policy acquisition costs to expense as incurred establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis Additionally the Director of the NDOI and the Superintendent of the NYSDFS each have the right to permit other specific practices which deviate from prescribed practices Aflac CAIC TOIC and Aflac New York had no permitted practices as of December 31 2024 and 2023
Aflac Re is licensed by the BMA as a long term insurer and is subject to the Bermuda Insurance Act of 1978 Bermuda Insurance Act Aflac Re is required to file an annual return for its Bermuda Solvency Capital Requirement BSCR which utilizes an Economic Balance Sheet EBS framework to determine Aflac Re s Enhanced Capital Requirement ECR Aflac Re is also subject to a Minimum Margin of Solvency MMS related to its statutory financial statements The MMS is equal to the greater of 500 000 1 5 of the total statutory assets or 25 of ECR
Under the EBS framework Aflac Re is required to value assets equal to U S GAAP fair values and insurance reserves are valued using technical provisions which consist of a best estimate liability plus a risk margin The best estimate liability can be calculated by applying the standard approach or with regulatory approval the scenario based approach The standard approach uses discount rates for insurance reserves as prescribed by the BMA The scenario based approach uses a discount rate based on the yield of eligible assets owned by the insurer as determined using a series of prescribed stress scenarios At December 31 2024 and 2023 Aflac Re was in compliance with the ECR and MMS requirements Statutory capital and surplus of Aflac Re based on Bermuda statutory accounting practices was 581 million at December 31 2024 compared with 439 million at December 31 2023
The Parent Company depends on its subsidiaries for cash flow primarily in the form of dividends and management fees Consolidated retained earnings in the accompanying financial statements largely represent the undistributed earnings of the Company s insurance subsidiaries Amounts available for dividends management fees and other payments to the Parent Company by its insurance subsidiaries may fluctuate due to different accounting methods required by regulatory authorities These payments are also subject to various regulatory restrictions and approvals related to safeguarding the interests of insurance policyholders The Company s U S life insurance entities must maintain adequate risk based capital RBC for U S regulatory authorities Aflac Japan must maintain adequate solvency margins for Japanese regulatory authorities and Aflac Re must maintain minimum capital requirements for Bermuda regulatory authorities
The maximum amount of dividends that can be paid to the Parent Company by Aflac CAIC and TOIC without prior approval of Nebraska s director of insurance is the greater of the net income from operations which excludes net investment gains for the previous year determined under statutory accounting principles or 10 of statutory capital and
surplus as of the previous year end In 2024 Aflac declared dividends of 976 million compared with 894 million in 2023 Dividends declared by Aflac during 2025 in excess of 912 million would require such approval CAIC and TOIC did not declare dividends in 2024 or 2023 From time to time Aflac New York pays dividends to Aflac the parent company of Aflac New York Aflac New York may not pay dividends to Aflac without the prior approval of the NYSDFS Aflac New York declared dividends of 54 million in 2024 and 67 million in 2023 which were authorized by the NYSDFS
Aflac Japan is required to meet certain financial criteria as governed by the Companies Act of Japan in order to provide dividends to the Parent Company Under these criteria dividend capacity at Aflac Japan is defined as retained earnings excluding capital reserves which represent equity generated by capital profits that are statutorily required in Japan less net after tax unrealized losses on available for sale securities based on the previous fiscal year end Profits remitted by Aflac Japan to the Parent Company were as follows for the years ended December 31
Under the Bermuda Insurance Act Aflac Re is prohibited from paying dividends in an amount that exceeds 25 of the prior year s statutory capital and surplus without an affidavit stating that Aflac Re will continue to meet its solvency margin Further Aflac Re may not reduce its total statutory capital by 15 or more without prior regulatory approval Additionally Aflac Re is not permitted to pay any dividends that would cause Aflac Re to fail to meet its minimum capital requirements Aflac Re did not declare dividends in 2024 or 2023
The Company has funded defined benefit plans in Japan and the U S however future benefits under the U S plan were frozen effective January 1 2024 which resulted in the Company recognizing a curtailment gain of 49 million in 2023 As part of the U S plan freeze the company offered lump sum payments to certain participants The lump sum payments were distributed in the fourth quarter of 2024 and resulted in a settlement charge of 18 million in 2024 due to the payments being greater than the settlement threshold In January 2025 the Company purchased a nonparticipating single premium group annuity contract from an external insurer to settle its obligations under the U S defined pension plan and paid to the insurer the related annuity premium Effective April 1 2025 the external insurer will begin making annuity payments to plan participants
The Company also maintains non qualified unfunded supplemental retirement plans that provide defined pension benefits in excess of limits imposed by federal tax law for certain Japanese U S and former employees However future benefits under the Company s Supplemental Executive Retirement Plan and Retirement Plan for Senior Officers were frozen effective January 1 2024 provided that actively employed participants may continue to accrue service toward eligibility for early retirement benefits or delayed early retirement benefits
The Company provides certain health care benefits for eligible U S retired employees their beneficiaries and covered dependents other postretirement benefits The health care plan is contributory and unfunded Effective January 1 2014 employees eligible for benefits included the following 1 active employees whose age plus service in years equaled or exceeded 80 rule of 80 2 active employees who were age 55 or older and have met the 15 years of service requirement 3 active employees who would meet the rule of 80 in the next five years 4 active employees who were age 55 or older and who would meet the 15 years of service requirement within the next five years and 5 current retirees For certain employees and former employees additional coverage is provided for all medical expenses for life
The net amount of projected benefit obligation and plan assets for the overfunded Japan pension plan was 63 and 20 at December 31 2024 and 2023 respectively and was classified as other assets on the statement of financial position
The net amount of projected benefit obligation and plan assets for the underfunded including unfunded U S pension plan was 145 and 116 at December 31 2024 and 2023 respectively and was classified as other liabilities on the statement of financial position
Information for other postretirement benefit plans with an accumulated postretirement benefit obligation in excess of plan assets has been disclosed in the note on Obligations and Funded Status because all the other postretirement benefit plans are unfunded or underfunded
The Company determines its discount rate assumption for its U S pension retirement obligations based on indices for AA corporate bonds with an average duration of approximately 11 years and determination of the U S pension plan discount rate utilizes the 85 year extrapolated yield curve In Japan the discount rate assumption is determined using the yield curve equivalent approach and participant salary and future salary increases are factors in determining pension benefit cost or the related pension benefit obligation
The Company bases its assumption for the long term rate of return on assets on historical trends 10 year or longer historical rates of return for the Japanese plan assets and 15 year historical rates of return for the U S plan assets expected future market movement as well as the portfolio mix of securities in the asset portfolio including but not limited to style class and equity and fixed income allocations In addition the Company s consulting actuaries evaluate its assumptions for long term rates of return under Actuarial Standards of Practice ASOP Under the ASOP the actual portfolio type mix and class are modeled to determine a best estimate of the long term rate of return The Company in turn uses those results to further validate its own assumptions
Pension and other postretirement benefit expenses are included in acquisition and operating expenses in the consolidated statements of earnings which includes 24 million 39 million and 14 million of other components of net periodic pension cost and postretirement costs other than service costs for the years ended December 31 2024 2023 and 2022 respectively Total net periodic benefit cost includes the following components
The Company plans to make contributions of 23 million to the Japanese funded defined benefit plan in 2025 The Company does not plan to make any contributions to the U S funded defined benefit plan in 2025 The Company did not make a contribution to the U S funded defined benefit plan in 2024 The funding policy for the Company s non qualified supplemental defined benefit pension plans and other postretirement benefits plan is to contribute the amount of the benefit payments made during the year
The investment objective of the Company s Japanese and U S funded defined benefit plans is to preserve the purchasing power of the plan s assets and earn a reasonable inflation adjusted rate of return over the long term In January 2025 the assets of the U S defined benefit plan were moved to cash in anticipation of plan termination Furthermore the Company seeks to accomplish these objectives in a manner that allows for the adequate funding of plan benefits and expenses In order to achieve these objectives the Company s goal is to maintain a conservative well diversified and balanced portfolio of high quality equity fixed income and money market securities As a part of its strategy the Company has established strict policies covering quality type and concentration of investment securities For the Company s Japanese plan these policies include limitations on investments in derivatives including futures options and swaps and low liquidity investments such as real estate venture capital investments and privately issued securities For the Company s U S plan these policies prohibit investments in precious metals limited partnerships venture capital and direct investments in real estate The Company is also prohibited from trading on margin
The plan fiduciaries for the Company s funded defined benefit plans have developed guidelines for asset allocations reflecting a percentage of total assets by asset class which are reviewed on an annual basis Asset allocation targets as of December 31 2024 were as follows
The following table presents the fair value of Aflac U S s pension plan assets that are measured at fair value on a recurring basis as of December 31 All of these assets are classified as Level 1 in the fair value hierarchy
The fair values of the Company s pension plan investments categorized as Level 1 consisting of mutual funds are based on quoted market prices for identical securities traded in active markets that are readily and regularly available to the Company The fair values of the Company s pension plan investments classified as Level 2 are based on quoted prices for similar assets in markets that are not active other inputs that are observable such as interest rates yield curves volatilities prepayment speeds loss severities credit risks and default rates or other market corroborated inputs The fair values of the Company s pension plan investments classified as Level 3 are based on certain inputs that are not observable in an active market including the difference between contract rates and market rates the difference of interest spread on contract and interest spread on market and the appraisal value of collateralized real estate
The Company sponsors a 401 k plan in which it matches a portion of U S employees contributions The plan provides for salary reduction contributions by employees and in 2024 2023 and 2022 provided matching contributions by the Company of 100 of each employee s contributions which were not in excess of 4 of the employee s annual cash compensation The Company also provides a nonelective contribution to the 401 k plan of 4 of annual cash compensation Effective January 1 2024 the nonelective 401 k employer contribution was extended to U S employees who were participants in the defined benefit plan prior to the freeze of future benefits on January 1 2024
The 401 k contributions by the Company included in acquisition and operating expenses in the consolidated statements of earnings were 21 million in 2024 and 20 million in 2023 and 18 million in 2022 The plan trustee held approximately 1 9 million shares of the Company s common stock for plan participants at December 31 2024
Aflac U S maintains a stock bonus plan for eligible U S sales associates Plan participants receive shares of Aflac Incorporated common stock based on their new annualized premium sales and their first year persistency of substantially all new insurance policies The cost of this plan which was capitalized as deferred policy acquisition costs amounted to 21 million in 2024 and 19 million in 2023 and 16 million in 2022
The Company has an outsourcing agreement with a technology and consulting corporation that provides for mainframe computer operations distributed mid range server computer operations and related support for Aflac Japan The agreement has a remaining term of four years with an aggregate remaining cost of 43 4 billion 274 million using the December 31 2024 exchange rate
The Company has three outsourcing agreements with a management consulting and technology services company The first agreement provides for application maintenance and development services for Aflac Japan The first agreement has a remaining term of four years with an aggregate remaining cost of 14 7 billion 93 million using the December 31 2024 exchange rate The second agreement provides for policy administrative services for Aflac Japan The second agreement has a remaining term of four years with an aggregate remaining cost of 6 8 billion 43 million using the December 31 2024 exchange rate The third agreement provides for comprehensive project related support services for Aflac Japan The third agreement has a remaining term of two years with an aggregate remaining cost of 2 3 billion 15 million using the December 31 2024 exchange rate
The Company has two outsourcing agreements with information technology and data services companies to provide application maintenance and development services for Aflac Japan The first agreement has a remaining term of less than a year with an aggregate remaining cost of 1 1 billion 7 million using the December 31 2024 exchange rate The second agreement has a remaining term of less than a year with an aggregate remaining cost of 1 8 billion 11 million using the December 31 2024 exchange rate
The Company has an enterprise agreement with an information technology and data services company to license software for Aflac Japan The agreement has a remaining term of two years with an aggregate remaining cost of 1 5 billion 10 million using the December 31 2024 exchange rate
The Company has an outsourcing agreement with an information technology and software company to provide application maintenance and development services for Aflac Japan The agreement has a remaining term of one year with an aggregate remaining cost of 9 billion 6 million using the December 31 2024 exchange rate
The Company has an outsourcing agreement with an information technology and data services company to provide cloud hosting services for the Company The agreement has a remaining term of three years with an aggregate remaining cost of 54 million
The Company has a comprehensive agreement with a cloud based software company to license software for Aflac Japan The agreement has a remaining term of five years with an aggregate remaining cost of 8 0 billion 51 million using the December 31 2024 exchange rate
The Company is a defendant in various lawsuits and receives various regulatory inquiries considered to be in the normal course of business Members of the Company s senior legal and financial management teams review litigation and regulatory inquiries on a quarterly and annual basis The final results of any litigation or regulatory inquiries cannot be predicted with certainty Although some of this litigation is pending in states where large punitive damages bearing little relation to the actual damages sustained by plaintiffs have been awarded in recent years the Company believes the outcome of pending litigation will not have a material adverse effect on its financial position results of operations or cash flows
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
The Company s management with the participation of the Company s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company s disclosure controls and procedures as such term is defined in Rules 13a 15 e and 15d 15 e under the Exchange Act as of the end of the period covered by this annual report the Evaluation Date Based on such evaluation the Company s Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date the Company s disclosure controls and procedures are effective
There have not been any changes in the Company s internal control over financial reporting as such term is defined in Rules 13a 15 f and 15d 15 f under the Exchange Act during the last fiscal quarter of 2024 that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
During the fourth quarter of 2024 the following directors or executive officers adopted or terminated a contract instruction or written plan for the purchase or sale of the Parent Company s securities intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or a non Rule 10b5 1 trading arrangement as defined in Regulation S K Item 408 c
On December 4 2024 Masatoshi Koide President and Representative Director of Aflac Japan adopted a Rule 10b5 1 trading plan that provides for the sale of 50 of performance based restricted stock shares to be released upon approval of the Company s board of directors and will terminate no later than June 30 2025 The estimated number of gross shares of Aflac Incorporated common stock to be acquired is 21 805 however the actual number of shares may vary based on achievement of designated performance metrics
On December 4 2024 Joseph L Moskowitz a member of the Company s board of directors adopted a Rule 10b5 1 trading plan that provides for the sale of 4 000 shares of Aflac Incorporated common stock and will terminate no later than November 10 2025
On December 5 2024 Charles D Lake II Chairman and Representative Director of Aflac Japan and President of Aflac International adopted a Rule 10b5 1 trading plan that provides for the sale of 55 95 of performance based restricted stock shares to be released upon approval of the Company s board of directors and will terminate no later than June 30 2025 The estimated number of gross shares of Aflac Incorporated common stock to be acquired is 20 614 however the actual number of shares may vary based on achievement of designated performance metrics
Pursuant to General Instruction G to Form 10 K Items 10 through 14 are incorporated by reference from the Company s definitive Notice and Proxy Statement relating to the Company s 2025 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission on or about March 20 2025 pursuant to Regulation 14A under the Exchange Act The Audit Committee Report and Compensation Committee Report to be included in such proxy statement shall be deemed to be furnished in this report and shall not be incorporated by reference into any filing under the Securities Act of 1933 as a result of such furnishing in Items 10 and 11 respectively
Proposal 1 Election of Directors Delinquent Section 16 a Reports Audit and Risk Committee Audit and Risk Committee Report Director Nominating Process Code of Business Conduct and Ethics andInsider Trading Policy and Compliance Procedures
Director Compensation Compensation Committee Compensation Committee Report Compensation Discussion and Analysis 2024 Summary Compensation Table 2024 Grants of Plan Based Awards 2024 Outstanding Equity Awards at Fiscal Year End 2024 Option Exercises and Stock Vested Pension Benefits Nonqualified Deferred Compensation Potential Payments Upon Termination or Change in Control Compensation Committee Interlocks and Insider Participation and Equity Granting Policies
In reviewing the agreements included as exhibits to this annual report please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements The agreements contain representations and warranties by each of the parties to the applicable agreement These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and
There are no instruments with respect to long term debt not being registered in which the total amount of securities authorized exceeds 10 of the total assets of Aflac Incorporated and its subsidiaries on a consolidated basis The Company agrees to furnish a copy of any long term debt instrument to the Securities and Exchange Commission upon request
Second Supplemental Indenture dated as of December 17 2009 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 6 900 Senior Note due 2039 incorporated by reference from Form 8 K dated December 14 2009 Exhibit 4 1
Third Supplemental Indenture dated as of August 9 2010 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 6 45 Senior Note due 2040 incorporated by reference from Form 8 K dated August 4 2010 Exhibit 4 1
Twelfth Supplemental Indenture dated as of September 19 2016 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 2 875 Senior Note due 2026 incorporated by reference from Form 8 K dated September 19 2016 Exhibit 4 1
Thirteenth Supplemental Indenture dated as of September 19 2016 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 4 000 Senior Note due 2046 incorporated by reference from Form 8 K dated September 19 2016 Exhibit 4 2
Fourteenth Supplemental Indenture dated as of January 25 2017 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 932 Senior Note due 2027 incorporated by reference from Form 8 K dated January 25 2017 Exhibit 4 1
Fifteenth Supplemental Indenture dated as of October 18 2018 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 159 Senior Note due 2030 incorporated by reference from Form 8 K dated October 18 2018 Exhibit 4 1
Sixteenth Supplemental Indenture dated as of October 18 2018 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 488 Senior Note due 2033 incorporated by reference from Form 8 K dated October 18 2018 Exhibit 4 2
Seventeenth Supplemental Indenture dated as of October 18 2018 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 750 Senior Note due 2038 incorporated by reference from Form 8 K dated October 18 2018 Exhibit 4 3
Eighteenth Supplemental Indenture dated as of October 31 2018 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 4 750 Senior Note due 2049 incorporated by reference from Form 8 K dated October 31 2018 Exhibit 4 1
Nineteenth Supplemental Indenture dated as of December 17 2019 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 500 Senior Note due 2029 incorporated by reference from Form 8 K dated December 17 2019 Exhibit 4 1
Twentieth Supplemental Indenture dated as of December 17 2019 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 843 Senior Note due 2031 incorporated by reference from Form 8 K dated December 17 2019 Exhibit 4 2
Twenty First Supplemental Indenture dated as of December 17 2019 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 934 Senior Note due 2034 incorporated by reference from Form 8 K dated December 17 2019 Exhibit 4 3
Twenty Second Supplemental Indenture dated as of December 17 2019 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 122 Senior Note due 2039 incorporated by reference from Form 8 K dated December 17 2019 Exhibit 4 4
Twenty Third Supplemental Indenture dated as of March 12 2020 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 300 Senior Note due 2025 incorporated by reference from Form 8 K dated March 12 2020 Exhibit 4 1
Twenty Fourth Supplemental Indenture dated as of March 12 2020 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 550 Senior Note due 2030 incorporated by reference from Form 8 K dated March 12 2020 Exhibit 4 2
Twenty Fifth Supplemental Indenture dated as of March 12 2020 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 750 Senior Note due 2032 incorporated by reference from Form 8 K dated March 12 2020 Exhibit 4 3
Twenty Sixth Supplemental Indenture dated as of March 12 2020 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 830 Senior Note due 2035 incorporated by reference from Form 8 K dated March 12 2020 Exhibit 4 4
Twenty Seventh Supplemental Indenture dated as of April 1 2020 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 3 600 Senior Note due 2030 incorporated by reference from Form 8 K dated April 1 2020 Exhibit 4 1
Twenty Eighth Supplemental Indenture dated as of March 8 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 125 Senior Sustainability Note due 2026 incorporated by reference from Form 8 K dated March 8 2021 Exhibit 4 1
Twenty Ninth Supplemental Indenture dated as of April 15 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 633 Senior Note due 2031 incorporated by reference from Form 8 K dated April 15 2021 Exhibit 4 1
Thirtieth Supplemental Indenture dated as of April 15 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 0 844 Senior Note due 2033 incorporated by reference from Form 8 K dated April 15 2021 Exhibit 4 2
Thirty First Supplemental Indenture dated as of April 15 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 039 Senior Note due 2036 incorporated by reference from Form 8 K dated April 15 2021 Exhibit 4 3
Thirty Second Supplemental Indenture dated as of April 15 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 264 Senior Note due 2041 incorporated by reference from Form 8 K dated April 15 2021 Exhibit 4 4
Thirty Third Supplemental Indenture dated as of April 15 2021 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 560 Senior Note due 2051 incorporated by reference from Form 8 K dated April 15 2021 Exhibit 4 5
Thirty Fourth Supplemental Indenture dated as of September 14 2022 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 075 Senior Note due 2029 incorporated by reference from Form 8 K dated September 14 2022 Exhibit 4 1
Thirty Fifth Supplemental Indenture dated as of September 14 2022 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 320 Senior Note due 2032 incorporated by reference from Form 8 K dated September 14 2022 Exhibit 4 2
Thirty Sixth Supplemental Indenture dated as of September 14 2022 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 594 Senior Note due 2037 incorporated by reference from Form 8 K dated September 14 2022 Exhibit 4 3
Thirty Seventh Supplemental Indenture dated as of September 14 2022 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 2 144 Senior Note due 2052 incorporated by reference from Form 8 K dated September 14 2022 Exhibit 4 4
Thirty Eighth Supplemental Indenture dated as of March 21 2024 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 048 Senior Note due 2029 incorporated by reference from Form 8 K dated March 21 2024 Exhibit 4 1
Thirty Ninth Supplemental Indenture dated as of March 21 2024 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 412 Senior Note due 2031 incorporated by reference from Form 8 K dated March 21 2024 Exhibit 4 2
Fortieth Supplemental Indenture dated as of March 21 2024 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 1 682 Senior Note due 2034 incorporated by reference from Form 8 K dated March 21 2024 Exhibit 4 3
Subordinated Indenture dated as of September 26 2012 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee incorporated by reference from Form 8 K dated September 26 2012 Exhibit 4 1
Second Supplemental Indenture dated as of October 23 2017 between Aflac Incorporated and The Bank of New York Mellon Trust Company N A as trustee including the form of 2 108 Subordinated Debenture due 2047 incorporated by reference from Form 8 K dated October 23 2017 Exhibit 4 1
Third Amendment to the Aflac Incorporated Supplemental Executive Retirement Plan as amended and restated effective January 1 2009 incorporated by reference from Form 8 K dated June 13 2023 Exhibit 10 1
Second Amendment to the Aflac Incorporated Executive Deferred Compensation Plan as amendedand restated effective January 1 2020 incorporated by reference from Form 10 Q for September 30 2022 Exhibit 10 1
Form of Non Employee Director Stock Option Agreement NQSO under the 2004 Aflac Incorporated Long Term Incentive Plan as amended and restated March 14 2012 incorporated by reference from Form 10 Q for March 31 2016 Exhibit 10 13
U S Form of Employee Stock Option Agreement Non Qualifying Stock Option under the 2004 Aflac Incorporated Long Term Incentive Plan as amended and restated March 14 2012 incorporated by reference from Form 10 Q for March 31 2016 Exhibit 10 21
Japan Form of Employee Stock Option Agreement Non Qualifying Stock Option under the 2004 Aflac Incorporated Long Term Incentive Plan as amended and restated March 14 2012 incorporated by reference from Form 10 Q for March 31 2016 Exhibit 10 22
U S Form of Employee Stock Option Agreement Incentive Stock Option under the 2004 Aflac Incorporated Long Term Incentive Plan as amended and restated March 14 2012 incorporated by reference from Form 10 Q for March 31 2016 Exhibit 10 23
Form of Non Employee Director Stock Option Agreement Non Qualifying Stock Option under the Aflac Incorporated Long Term Incentive Plan as amended and restated February 14 2017 incorporated by reference from Form 10 Q for June 30 2017 Exhibit 10 33
Form of Non Employee Director Restricted Stock Award Agreement under the Aflac Incorporated Long Term Incentive Plan as amended and restated February 14 2017 incorporated by reference from Form 10 Q for June 30 2017 Exhibit 10 34
U S Form of Employee Restricted Stock Award Agreement under the Aflac Incorporated Long Term Incentive Plan as amended and restated February 14 2017 incorporated by reference from Form 8 K dated February 11 2022 Exhibit 10 1
Japan Form of Employee Restricted Stock Award Agreement under the Aflac Incorporated Long Term Incentive Plan as amended and restated February 14 2017 incorporated by reference from Form 8 K dated February 11 2022 Exhibit 10 2
Basic Agreement regarding the Strategic Alliance Based on Capital Relationship dated December 19 2018 by and among Japan Post Holdings Co Ltd Aflac Incorporated and Aflac Life Insurance Japan Ltd incorporated by reference from Form 8 K dated December 19 2018 Exhibit 10 1
Shareholders Agreement dated February 28 2019 by and between Aflac Incorporated Japan Post Holdings Co Ltd J A Alliance Holdings Corporation solely in its capacity as trustee of J A Alliance Trust and General Incorporated Association J A Alliance incorporated by reference from Form 10 Q for March 31 2019 Exhibit 10 50
Consent of independent registered public accounting firm KPMG LLP to Form S 8 Registration Statement Nos 333 135327 333 161269 333 202781 and 333 245702 with respect to the Aflac Incorporated Executive Deferred Compensation Plan
Consent of independent registered public accounting firm KPMG LLP to Form S 3 Registration Statement No 333 271561 with respect to the resale of Aflac Incorporated common stock by J A Alliance Holdings Corporation in its capacity as the trustee of J A Alliance Trust
The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Aflac Incorporated and Subsidiaries included in Part II Item 8 of this report
In March 2024 the Parent Company issued five series of senior notes totaling 75 0 billion through a private placement The first series which totaled 18 3 billion bears interest at a fixed rate of 1 600 per annum payable semi annually and will mature in March 2034 The second series which totaled 15 0 billion bears interest at a fixed rate of 1 740 per annum payable semi annually and will mature in March 2036 The third series which totaled 16 5 billion bears interest at a fixed rate of 1 920 per annum payable semi annually and will mature in March 2039 The fourth series which totaled 5 7 billion bears interest at a fixed rate of 2 160 per annum payable semi annually and will mature in March 2044 The fifth series which totaled 19 5 billion bears interest at a fixed rate of 2 400 per annum payable semi annually and will mature in March 2054 These notes are redeemable at the Parent Company s option i in whole at any time or ii in part from time to time in an amount not less than 5 of the aggregate principal amount then outstanding of the notes to be redeemed
In March 2024 the Parent Company issued three series of senior notes totaling 48 6 billion through a public debt offering under its U S shelf registration statement The first series which totaled 13 0 billion bears interest at a fixed rate of 1 048 per annum payable semi annually and will mature in March 2029 The second series which totaled 27 9 billion bears interest at a fixed rate of 1 412 per annum payable semi annually and will mature in March 2031 The third series which totaled 7 7 billion bears interest at a fixed rate of 1 682 per annum payable semi annually and will mature in March 2034 These notes are redeemable at the Parent Company s option at any time in whole but not in part upon the occurrence of certain changes affecting U S taxation as specified in the indenture governing the terms of the issuance In addition the notes maturing in March 2029 March 2031 and March 2034 are redeemable at the Parent Company s option in whole or in part from time to time on or after December 21 2028 December 31 2030 and September 21 2033 respectively at a redemption price equal to the aggregate principal amount of the applicable series to be redeemed plus accrued and unpaid interest on the principal amount to be redeemed to but excluding the date of redemption
At December 31 2024 the Parent Company s outstanding freestanding derivative contracts were swaps foreign currency forwards and options The cross currency swap agreements relate to certain of the Parent Company s U S dollar denominated senior notes to effectively convert a portion of the interest on the notes from U S dollar to Japanese yen The foreign currency forwards and options are designated as derivative hedges of the foreign currency exposure of the Company s net investment in Aflac Japan The Parent Company also enters into foreign currency forward contracts with Aflac Re to economically manage the currency mismatch between Aflac Re s assets which are mostly denominated in U S dollars and its liabilities which are mostly denominated in yen The Parent Company does not use derivative financial instruments for trading purposes nor does it engage in leveraged derivative transactions For further information regarding these derivatives see Notes 1 and 4 of the Notes to the Consolidated Financial Statements
The Parent Company and its eligible U S subsidiaries file a consolidated U S federal income tax return Income tax liabilities or benefits are recorded by each principal subsidiary based upon separate return calculations and any difference between the consolidated provision and the aggregate amounts recorded by the subsidiaries is reflected in the Parent Company financial statements For further information on income taxes see Note 10 of the Notes to the Consolidated Financial Statements
Net Investment Income adjusted for i amortized hedge cost income related to foreign currency exposure management strategies and certain derivative activity and ii net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies which are reclassified from net investment gains and losses to net investment income The Company considers adjusted net investment income important because it provides a more comprehensive understanding of the costs and income associated with the Company s investments and related hedging strategies The metric is used in segment reporting as a component of segment profitability
The amount of gross premium that a policyholder must pay over a full year in order to keep coverage The growth of net earned premiums defined below is directly affected by the change in premiums in force and by the change in weighted average yen dollar exchange rates
The total number of writing agents who have produced greater than 0 00 during the production week excluding any manual adjustments divided by the number of weeks in the time period The Company believes this metric allows sales management to monitor progress and needs as well as serve as a leading indicator of future production capacity
An economic value based soundness indicator that demonstrates whether the insurance company has sufficient capital to cover future risks Assets and liabilities are evaluated at economic value the risk amount incurred in a stressed
is a financial measure that appears on the Company s consolidated statements of earnings and in its segment reporting This measure reflects collected or due premiums that have been earned ratably on policies in force during the reporting period reduced by premiums that have been ceded to third parties and increased by premiums assumed through reinsurance
sometimes referred to as new sales or sales An operating measure that is not reflected on the Company s financial statements New annualized premium sales generally represent annual premiums on policies and riders the Company sold and incremental increases from policy conversions that would be collected over a 12 month period assuming the policies remain in force for that entire period For Aflac Japan new annualized premium sales are determined by applications submitted during the reporting period For Aflac U S new annualized premium sales are determined by applications that are issued during the reporting period Policy conversions are defined as the positive difference in the annualized premium when a policy upgrades in the current reporting period The Company believes that this metric is a key indicator of the Company s future source of earnings
Gross yields earned on purchases of fixed maturities loan receivables and equities Purchases exclude capitalized interest securities lending repurchase agreements short term cash activity and alternatives New money yield for equities is based on the assumed dividend yield at the time of purchase The new money yield for Aflac Japan excludes the
Used to evaluate the Company s financial condition and profitability Examples include 1 Ratios to total adjusted revenues which present expenses as a percentage of total revenues and 2 Ratios to total premium including benefit ratio
Percentage of premiums remaining in force at the end of a period usually one year and presented on a trailing 12 month basis For example 95 persistency would mean that 95 of the premiums in force at the beginning of the period were still in force at the end of the period The Company believes that this metric is a key driver of in force levels which is a key measure of the size of the Company s business and future sources of earnings
Net investment income as a percentage of average invested assets during the period Management uses this metric to demonstrate how the Company s actual net investment income results represent an overall return on the portfolio to provide a more comparative metric as the size of the Company s investment portfolio changes over time
Statutory adjusted capital divided by statutory required capital This insurance ratio is based on rules prescribed by the National Association of Insurance Commissioners NAIC and provides an indication of the amount of statutory capital the insurance company maintains relative to the inherent risks in the insurer s operations
Solvency margin total divided by one half of the risk total This insurance ratio is prescribed by the Japan Financial Services Agency FSA and is used for all life insurance companies in Japan to measure the adequacy of the company s ability to pay policyholder claims in the event actual risks exceed expected levels
Earnings determined according to accounting rules prescribed by the National Association of Insurance Commissioners NAIC as modified by the insurance department in the insurance company s state of domicile These statutory accounting rules are
Japan segment operating earnings for the period excluding hedge costs in yen divided by Japan segment operating earnings for the period excluding hedge costs in dollars Management uses this metric to evaluate and determine consolidated results on foreign currency effective basis
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	AFLAC INC Vist SEC web-site
Category	ACCIDENT & HEALTH INSURANCE
Trading Symbol	AFL