BUSINESS SEGMENT AND FOREIGN INFORMATION

12 Months Ended

Dec. 31, 2018

BUSINESS SEGMENT AND FOREIGN INFORMATION

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

The Company does not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, the Company evaluates and manages its business segments using a financial performance measure called pretax adjusted earnings. Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding realized investment gains and losses, except for amortized hedge costs related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect Aflac’s underlying business performance. The Company excludes income taxes related to operations to arrive at pretax adjusted earnings. Information regarding operations by segment for the years ended December 31 follows:



(In millions)	2018				2017			2016
Revenues:
Aflac Japan:
Net earned premiums:
Cancer		$	5,849			$	5,612		$	5,639
Medical and other health		3,516				3,379			3,429
Life insurance		3,397				3,761			4,469
Net investment income, less amortized hedge costs		2,403				2,235			2,368
Other income		41				41			40
Total Aflac Japan		15,206				15,028			15,945
Aflac U.S.:
Net earned premiums:
Accident/disability		2,611				2,537			2,469
Cancer		1,311				1,308			1,299
Other health		1,508				1,445			1,415
Life insurance		278				273			271
Net investment income		727				721			703
Other income		8				5			10
Total Aflac U.S.		6,443				6,289			6,167
Corporate and other		339				272			275
Total adjusted revenues		21,988				21,589			22,387
Realized investment gains (losses)^(1),(2),(3)		(230		)		78			172
Total revenues		$	21,758			$	21,667		$	22,559

⁽¹⁾Amortized hedge costs related to hedging U.S. dollar-denominated investments held in Aflac Japan were $236, $228 and $186 for 2018, 2017 and 2016, respectively, and have been reclassified from realized investment gains (losses) and reported as a deduction from net investment income when analyzing segment operations.

⁽²⁾Amortized hedge costs in Aflac Japan were partially offset by derivatives entered into as part of corporate activities and resulted in a benefit of $36 for 2018, which has been reclassified from realized investment gains (losses) and reported as an increase in net investment income when analyzing operations.

⁽³⁾ An immaterial amount of net interest cash flows from derivatives associated with certain investment strategies in 2018, were reclassified from realized investment gains (losses) into net investment income when analyzing operations.



(In millions)	2018				2017				2016
Pretax earnings:
Aflac Japan		$	3,208			$	3,054			$	3,148
Aflac U.S.		1,285				1,245				1,208
Corporate and other		(139		)		(212		)		(239		)
Pretax adjusted earnings		4,354				4,087				4,117
Realized investment gains (losses)^{(1),(2),(3),(4)}		(297		)		0				87
Other income (loss)⁽⁵⁾		(74		)		(69		)		(137		)
Total earnings before income taxes		$	3,983			$	4,018			$	4,067
Income taxes applicable to pretax adjusted earnings		$	1,129			$	1,370			$	1,426
Effect of foreign currency translation on after-tax adjusted earnings		28				(41		)		141

⁽¹⁾Amortized hedge costs related to hedging U.S. dollar-denominated investments held in Aflac Japan were $236, $228 and $186 for 2018, 2017 and 2016, respectively, and have been reclassified from realized investment gains (losses) and reported as a deduction from pretax adjusted earnings when analyzing segment operations.

⁽⁴⁾Excluding a gain of $67 in 2018, $77 in 2017 and $85 in 2016, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is included in adjusted earnings when analyzing segment operations

⁽⁵⁾ Includes expense of $13 in 2017 and $137 in 2016 for the early extinguishment of debt

Assets as of December 31 were as follows:



(In millions)	2018			2017
Assets:
Aflac Japan		$	118,342		$	114,402
Aflac U.S.		19,100			19,893
Corporate and other		2,964			2,922
Total assets		$	140,406		$	137,217

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



	2018				2017				2016
Statements of Earnings:
Weighted-average yen/dollar exchange rate⁽¹⁾		110.39				112.16				108.70
Yen percent strengthening (weakening)		1.6		%		(3.1		)%		11.3		%
Exchange effect on pretax operating earnings (in millions)		$	38			$	(63	)		$	218



	2018				2017
Balance Sheets:
Yen/dollar exchange rate at December 31⁽¹⁾		111.00				113.00
Yen percent strengthening (weakening)		1.8		%		3.1		%
Exchange effect on total assets (in millions)		$	1,362			$	2,593
Exchange effect on total liabilities (in millions)		1,270				2,848

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

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



(In millions)	2018			2017			2016
Management fees		$	136		$	93		$	79
Allocated expenses		24			109			106
Profit remittances		808			1,150			1,286
Total transfers from Aflac Japan		$	968		$	1,352		$	1,471

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



(In millions)	2018			2017
Property and equipment:
Land		$	168		$	168
Buildings		456			441
Equipment and furniture		400			372
Total property and equipment		1,024			981
Less accumulated depreciation		581			547
Net property and equipment		$	443		$	434

Receivables: Receivables consist primarily of monthly insurance premiums due from individual policyholders or their employers for payroll deduction of premiums, net of an allowance for doubtful accounts. At December 31, 2018, $334 million, or 39.2% of total receivables, were related to Aflac Japan's operations, compared with $334 million, or 40.4%, at December 31, 2017.