BUSINESS SEGMENT AND FOREIGN INFORMATION

12 Months Ended

Dec. 31, 2019

BUSINESS SEGMENT AND FOREIGN INFORMATION

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

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



(In millions)	2019			2018				2017
Revenues:
Aflac Japan:
Net earned premiums:
Cancer		$	6,031		$	5,849			$	5,612
Medical and other health		3,582			3,516				3,379
Life insurance		3,159			3,397				3,761
Net investment income, less amortized hedge costs ^(1),(2)		2,496			2,403				2,235
Other income		45			41				41
Total Aflac Japan		15,313			15,206				15,028
Aflac U.S.:
Net earned premiums:
Accident/disability		2,665			2,611				2,537
Cancer		1,309			1,311				1,308
Other health		1,548			1,508				1,445
Life insurance		286			278				273
Net investment income		720			727				721
Other income		22			8				5
Total Aflac U.S.		6,550			6,443				6,289
Corporate and other ⁽³⁾		393			339				272
Total adjusted revenues		22,256			21,988				21,589
Realized investment gains (losses) ^(1),(2),(3)		51			(230		)		78
Total revenues		$	22,307		$	21,758			$	21,667

⁽¹⁾Amortized hedge costs of $257, $236 and $228 in 2019, 2018 and 2017, respectively, related to certain foreign currency exposure management strategies have been reclassified from realized investment gains (losses) and reported as a deduction from net investment income when analyzing operations.

⁽²⁾ Net interest cash flows from derivatives associated with certain investment strategies of $(17) in 2019 and an immaterial amount in 2018 have been reclassified from realized investment gains (losses) and included in adjusted earnings as a component of net investment income.

⁽³⁾Amortized hedge income of $89 in 2019 and $36 in 2018 related to certain foreign currency exposure management strategies has been reclassified from realized investment gains (losses) and reported as an increase to net investment income when analyzing operations.



(In millions)	2019				2018				2017
Pretax earnings:
Aflac Japan ^(1),(2)		$	3,261			$	3,208			$	3,054
Aflac U.S.		1,272				1,285				1,245
Corporate and other ^(3),(4)		(72		)		(139		)		(212		)
Pretax adjusted earnings ⁽⁵⁾		4,461				4,354				4,087
Realized investment gains (losses) ^{(1),(2),(3),(4)}		(15		)		(297		)		0
Other income (loss) ⁽⁶⁾		(1		)		(74		)		(69		)
Total earnings before income taxes		$	4,445			$	3,983			$	4,018
Income taxes applicable to pretax adjusted earnings		$	1,147			$	1,129			$	1,370
Effect of foreign currency translation on after-tax adjusted earnings		15				28				(41		)

⁽⁴⁾A gain of $66 in 2019, $67 in 2018 and $77 in 2017, related to the interest rate component of the change in fair value of foreign currency swaps on notes payable have been reclassified from realized investment gains (losses) and included in adjusted earnings when analyzing operations.

⁽⁵⁾ Includes $135, $122 and $122 of interest expense on debt in 2019, 2018 and 2017

⁽⁶⁾ Includes expense of $13 in 2017 for the early extinguishment of debt

Assets as of December 31 were as follows:



(In millions)	2019			2018
Assets:
Aflac Japan		$	127,523		$	118,342
Aflac U.S.		20,945			19,100
Corporate and other		4,300			2,964
Total assets		$	152,768		$	140,406

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.



	2019				2018				2017
Statements of Earnings:
Weighted-average yen/dollar exchange rate ⁽¹⁾		109.07				110.39				112.16
Yen percent strengthening (weakening)		1.2		%		1.6		%		(3.1		)%
Exchange effect on pretax adjusted earnings (in millions)		$	20			$	38			$	(63	)



	2019				2018
Balance Sheets:
Yen/dollar exchange rate at December 31⁽¹⁾		109.56				111.00
Yen percent strengthening (weakening)		1.3		%		1.8		%
Exchange effect on total assets (in millions)		$	1,225			$	1,362
Exchange effect on total liabilities (in millions)		1,533				1,270

⁽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)	2019			2018			2017
Management fees		$	75		$	136		$	93
Allocated expenses		4			24			109
Profit remittances		2,070			808			1,150
Total transfers from Aflac Japan		$	2,149		$	968		$	1,352

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)	2019			2018
Property and equipment:
Land		$	168		$	168
Buildings		473			456
Equipment and furniture		549			400
Total property and equipment		1,190			1,024
Less accumulated depreciation		609			581
Net property and equipment		$	581		$	443

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, 2019, $258 million, or 31.2% of total receivables, were related to Aflac Japan's operations, compared with $334 million, or 39.2%, at December 31, 2018.