XML 26 R15.htm IDEA: XBRL DOCUMENT

POLICY LIABILITIES

3 Months Ended

Mar. 31, 2023

Future Policy Benefits

The liability for future policy benefits is determined as the present value of future benefits to be paid to or on the behalf of policyholders and certain related expenses less the present value of future net premiums receivable under the Company's insurance contracts, where 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 net premiums and the present value of expected future policy benefits by reporting segment and disaggregated by product type.


	March 31, 2023
	Aflac Japan								Aflac U.S.
(In millions)	Cancer		Medical and Other Health		Life Insurance		Other		Accident		Disability		Critical Care		Hospital Indemnity		Dental/Vision		Life Insurance		Other
Present value of expected premiums:
Balance at December 31, 2022	$	19,298	$	16,714	$	7,485	$	1,256	$	2,534	$	1,635	$	4,486	$	1,220	$	211	$	724	$	110
Beginning balance at original discount rate	18,221		16,195		7,284		1,242		2,760		1,775		5,050		1,365		231		799		118
Effect of changes in cash flow assumptions	0		0		0		0		0		0		0		0		0		0		0
Effect of actual variances from expected experience	(120)		(25)		(14)		(2)		(48)		(20)		(104)		(39)		(7)		(4)		(1)
Adjusted beginning of period balance	18,101		16,170		7,270		1,240		2,712		1,755		4,946		1,326		224		795		117
Issuances	229		104		111		8		117		120		192		103		10		49		14
Interest accrual	111		92		33		5		25		15		46		11		2		7		1
Net premiums earned (1)	(420)		(344)		(286)		(31)		(118)		(95)		(147)		(62)		(10)		(33)		(4)
Foreign currency translation	(109)		(100)		(44)		(8)		0		0		0		0		0		0		0
Other	0		0		0		0		0		0		0		0		2		4		9
Ending balance at original discount rate	17,912		15,922		7,084		1,214		2,736		1,795		5,037		1,378		228		822		137
Effect of changes in discount rate assumptions	1,542		1,045		319		42		(173)		(112)		(444)		(117)		(15)		(60)		(6)
Balance at March 31, 2023	$	19,454	$	16,967	$	7,403	$	1,256	$	2,563	$	1,683	$	4,593	$	1,261	$	213	$	762	$	131
Present value of expected future policy benefits:
Balance at December 31, 2022	$	54,766	$	27,419	$	31,954	$	5,582	$	3,098	$	2,445	$	11,489	$	2,074	$	488	$	1,526	$	622
Beginning balance at original discount rate	47,677		27,566		32,800		5,940		3,391		2,636		12,846		2,300		532		1,778		624
Effect of changes in cash flow assumptions	0		0		0		0		0		0		0		0		0		0		0
Effect of actual variances from expected experience	(136)		(24)		(14)		0		(55)		(24)		(120)		(48)		(9)		(6)		(2)
Adjusted beginning of period balance	47,541		27,542		32,786		5,940		3,336		2,612		12,726		2,252		523		1,772		622
Issuances	232		108		112		9		124		127		201		111		12		53		13
Interest accrual	396		163		166		27		31		23		133		21		5		16		8
Benefit payments	(825)		(367)		(493)		(61)		(115)		(118)		(224)		(69)		(15)		(29)		(11)
Foreign currency translation	(295)		(171)		(201)		(35)		0		0		0		0		0		0		0
Other	0		0		0		0		0		0		0		0		2		4		9
Ending balance at original discount rate	47,049		27,275		32,370		5,880		3,376		2,644		12,836		2,315		527		1,816		641
Effect of changes in discount rate assumptions	8,750		1,164		344		(110)		(227)		(149)		(1,019)		(176)		(33)		(210)		15
Balance at March 31, 2023	55,799		28,439		32,714		5,770		3,149		2,495		11,817		2,139		494		1,606		656
Net liability for future policy benefits	36,345		11,472		25,311		4,514		586		812		7,224		878		281		844		525
Less: reinsurance recoverable	0		1,643		0		0		0		0		0		0		0		10		0
Net liability for future policy benefits after reinsurance recoverable	$	36,345	$	9,829	$	25,311	$	4,514	$	586	$	812	$	7,224	$	878	$	281	$	834	$	525

(1) Net premiums earned represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.


	December 31, 2022
	Aflac Japan								Aflac U.S.
(In millions)	Cancer		Medical and Other Health		Life Insurance		Other		Accident		Disability		Critical Care		Hospital Indemnity		Dental/Vision		Life Insurance		Other
Present value of expected premiums:
Balance at December 31, 2021	$	25,893	$	21,174	$	10,847	$	1,586	$	3,283	$	1,862	$	6,023	$	1,467	$	264	$	834	$	153
Beginning balance at original discount rate	22,470		18,681		10,064		1,461		2,999		1,760		5,391		1,380		241		780		135
Effect of changes in cash flow assumptions	(639)		317		(494)		25		(52)		5		(38)		42		10		(1)		(12)
Effect of actual variances from expected experience	(284)		61		(81)		(10)		(152)		(43)		(421)		(111)		(20)		(16)		6
Adjusted beginning of period balance	21,547		19,059		9,489		1,476		2,795		1,722		4,932		1,311		231		763		129
Issuances	947		639		221		62		355		384		537		273		33		146		0
Interest accrual	459		364		146		22		105		57		193		45		9		27		5
Net premiums earned (1)	(1,734)		(1,376)		(1,229)		(123)		(496)		(382)		(612)		(261)		(42)		(131)		(17)
Foreign currency translation	(2,997)		(2,488)		(1,343)		(195)		0		0		0		0		0		0		0
Other	(1)		(3)		0		0		1		(6)		0		(3)		0		(6)		1
Ending balance at original discount rate	18,221		16,195		7,284		1,242		2,760		1,775		5,050		1,365		231		799		118
Effect of changes in discount rate assumptions	1,077		519		201		14		(226)		(140)		(564)		(145)		(20)		(75)		(8)
Balance at December 31, 2022	$	19,298	$	16,714	$	7,485	$	1,256	$	2,534	$	1,635	$	4,486	$	1,220	$	211	$	724	$	110
Present value of expected future policy benefits:
Balance at December 31, 2021	$	72,747	$	36,021	$	42,720	$	7,322	$	3,949	$	2,871	$	15,388	$	2,552	$	616	$	1,843	$	837
Beginning balance at original discount rate	56,807		31,398		39,002		6,787		3,594		2,670		13,079		2,300		549		1,694		645
Effect of changes in cash flow assumptions	(721)		352		(550)		96		(70)		5		(43)		40		13		(1)		(15)
Effect of actual variances from expected experience	(333)		83		(91)		(10)		(177)		(48)		(465)		(130)		(23)		(21)		7
Adjusted beginning of period balance	55,753		31,833		38,361		6,873		3,347		2,627		12,571		2,210		539		1,672		637
Issuances	960		646		222		68		364		397		550		282		34		149		0
Interest accrual	1,599		642		670		106		128		94		539		85		21		62		32
Benefit payments	(3,050)		(1,375)		(1,248)		(202)		(456)		(483)		(823)		(277)		(62)		(103)		(45)
Foreign currency translation	(7,585)		(4,180)		(5,205)		(905)		0		0		0		0		0		0		0
Other	0		0		0		0		8		1		9		0		0		(2)		0
Ending balance at original discount rate	47,677		27,566		32,800		5,940		3,391		2,636		12,846		2,300		532		1,778		624
Effect of changes in discount rate assumptions	7,089		(147)		(846)		(358)		(293)		(191)		(1,357)		(226)		(44)		(252)		(2)
Balance at December 31, 2022	54,766		27,419		31,954		5,582		3,098		2,445		11,489		2,074		488		1,526		622
Net liability for future policy benefits	35,468		10,705		24,469		4,326		564		810		7,003		854		277		802		512
Less: reinsurance recoverable	0		1,579		0		0		0		0		0		0		0		9		0
Net liability for future policy benefits after reinsurance recoverable	$	35,468	$	9,126	$	24,469	$	4,326	$	564	$	810	$	7,003	$	854	$	277	$	793	$	512

(1) Net premiums earned represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.

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.


	March 31, 2023
	Aflac Japan				Aflac U.S.
	Cancer	Medical and Other Health	Life Insurance	Other	Accident	Disability	Critical Care	Hospital Indemnity	Dental/Vision	Life Insurance	Other
Weighted-average interest, original discount rate (1)	3.9 %	2.6 %	2.1 %	1.8 %	3.9 %	4.2 %	4.6 %	4.4 %	4.3 %	3.7 %	5.4 %
Weighted-average interest, current discount rate (1)	1.7 %	2.2 %	1.7 %	2.0 %	5.0 %	5.0 %	5.1 %	5.1 %	5.0 %	5.0 %	5.1 %
Weighted-average liability duration (years)	13.7	26.7	17.3	18.0	8.5	5.6	11.8	9.6	8.0	12.9	9.5

(1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information.


	December 31, 2022
	Aflac Japan				Aflac U.S.
	Cancer	Medical and Other Health	Life Insurance	Other	Accident	Disability	Critical Care	Hospital Indemnity	Dental/Vision	Life Insurance	Other
Weighted-average interest, original discount rate (1)	4.1 %	2.6 %	2.1 %	1.8 %	3.8 %	4.2 %	4.6 %	4.4 %	4.3 %	3.7 %	5.4 %
Weighted-average interest, current discount rate (1)	1.6 %	2.2 %	1.6 %	1.9 %	4.8 %	4.7 %	4.8 %	4.8 %	4.8 %	4.8 %	4.8 %
Weighted-average liability duration (years)	13.7	26.9	17.3	18.2	8.5	5.6	12.0	9.4	8.1	13.1	9.6

(1) The weighted-average interest rates are calculated using the reserve balances as the weights. No adjustments were made to observable market information.

The following table presents a reconciliation of the disaggregated rollforwards above to the ending future policy benefits presented in the Consolidated Balance Sheets. The deferred profit liability for limited-payment contracts and the deferred profit liability for reinsurance is presented together with the liability for future policy benefits in the Consolidated Balance Sheets and has been included as a reconciling item in the table below.


(In millions)	March 31, 2023			December 31, 2022
Balances included in future policy benefits rollforward:
Aflac Japan
Cancer		$	36,345		$	35,468
Medical and other health		11,472			10,705
Life insurance		25,311			24,469
Other		4,514			4,326
Aflac U.S.
Accident		586			564
Disability		812			810
Critical care		7,224			7,003
Hospital indemnity		878			854
Dental/vision		281			277
Life insurance		844			802
Other		525			512
Corporate and other		31			19
Deferred profit liability - limited-payment contracts		1,788			1,740
Deferred profit liability - reinsurance		682			692
Total		$	91,293		$	88,241

Discount rates are determined using upper-medium grade (low-credit-risk) fixed-income instrument yields that reflect the duration characteristics of the liability. Locked-in discount rates are determined as a weighted average of monthly upper-medium grade (low-credit-risk) fixed-income instrument forward curves, where the weights are the annualized premiums issued for each month of the cohort. 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.

More specifically, the Company constructs a 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) (which is expected 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. dollar 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.

For the three-month periods ended March 31, 2023 and 2022, the Company recognized $(2.8) billion and $4.2 billion in other comprehensive income (loss) net of tax, respectively, due to changes in the future policy benefits estimate from updating the discount rate assumptions. There were no changes to the methods used to determine the discount rates during the three-month periods ended March 31, 2023 and 2022.

For the year ended December 31, 2022, the Company recognized $13.7 billion in other comprehensive income (loss) net of tax, due to changes in the future policy benefits estimate from updating the discount rate assumptions. There were no changes to the methods used to determine the discount rates during the year ended December 31, 2022.

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 will 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 will 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.

During the three-month periods ended March 31, 2023 and 2022, the Company's adjustment for actual variances from expected experience resulted in reserve remeasurement gains of $53 million and $34 million in the consolidated statement of earnings, respectively. 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, assumptions and methods used in measuring the liability for future policy benefits during the three-month periods ended March 31, 2023 and 2022.

In 2022, the Company's annual review process resulted in favorable changes to its morbidity assumptions due to favorable claims experience, primarily. This, together with the variance of actual experience from expected experience, resulted in reserve remeasurement gains of $215 million in the consolidated statement of earnings for the year ended December 31, 2022.

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.


	Three Months Ended March 31,
(In millions)		2023		2022
Net earned premiums:
Aflac Japan
Cancer		$	1,132	$	1,336
Medical and other health		689		828
Life insurance		399		524
Other		39		44
Aflac U.S.
Accident		329		337
Disability		309		296
Critical care		443		446
Hospital indemnity		184		185
Dental/vision		53		49
Life insurance		115		99
Other		10		10
Corporate and other		90		42
Reinsurance ceded		(104)		(117)
Total		$	3,688	$	4,079

The following table summarizes the amount of interest expense related to insurance contracts recognized in total benefits and claims, net in the Consolidated Statements of Earnings by reporting segment and disaggregated by product type.


	Three Months Ended March 31,
(In millions)		2023		2022
Interest expense:
Aflac Japan
Cancer		$	285	$	329
Medical and other health		71		80
Life insurance		133		149
Other		22		24
Aflac U.S.
Accident		6		5
Disability		8		9
Critical care		87		86
Hospital indemnity		10		10
Dental/vision		3		3
Life insurance		9		8
Other		7		7
Corporate and other		0		0
Total		$	641	$	710

The following tables summarize the amount of undiscounted expected future gross premiums and expected future benefits and expenses and discounted (discounted at the current period discount rate) expected future gross premiums and expected future benefits and expenses by reporting segment and disaggregated by product type. 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.


	March 31, 2023						December 31, 2022
(In millions)	Gross Premiums			Benefits and Expenses			Gross Premiums			Benefits and Expenses
Undiscounted expected future gross premiums and expected future benefits and expenses:
Aflac Japan
Cancer		$	74,863		$	83,549		$	75,529		$	84,246
Medical and other health		50,153			50,573			50,720			50,778
Life insurance		16,690			52,993			16,946			53,271
Other		2,309			9,379			2,322			9,433
Aflac U.S.
Accident		9,467			4,621			9,481			4,636
Disability		5,889			3,286			5,858			3,267
Critical care		21,134			22,085			21,069			22,113
Hospital indemnity		5,213			3,360			5,164			3,338
Dental/vision		1,194			754			1,208			759
Life insurance		2,466			2,871			2,375			2,787
Other		359			1,165			333			1,147
Total		$	189,737		$	234,636		$	191,005		$	235,775


	March 31, 2023						December 31, 2022
(In millions)	Gross Premiums			Benefits and Expenses			Gross Premiums			Benefits and Expenses
Discounted expected future gross premiums and expected future benefits and expenses:
Aflac Japan
Cancer		$	53,806		$	55,799		$	53,278		$	54,766
Medical and other health		35,030			28,439			34,693			27,419
Life insurance		12,875			32,714			12,951			31,954
Other		1,712			5,770			1,697			5,582
Aflac U.S.
Accident		6,625			3,149			6,510			3,098
Disability		4,554			2,495			4,468			2,445
Critical care		13,013			11,817			12,659			11,489
Hospital indemnity		3,592			2,139			3,483			2,074
Dental/vision		826			494			821			488
Life insurance		1,756			1,606			1,663			1,526
Other		252			656			228			622
Total		$	134,041		$	145,078		$	132,451		$	141,463

Loss expense as a result of net premium ratio capping for the three-month periods ended March 31, 2023 and 2022 was immaterial.

Other Policyholders' Funds

As of March 31, 2023 and December 31, 2022, the largest component of the other policyholders' funds liability was the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums.

The following table presents the changes in other policyholders’ funds.


(In millions)	March 31, 2023		December 31, 2022
Other policyholders' funds:
Fixed annuities account balance, beginning of period (1)	$	6,423	$	7,410
Premiums received	39		150
Transfers from WAYS conversions	58		214
Surrenders and withdrawals	(14)		(52)
Benefit payments	(104)		(367)
Interest credited	14		57
Foreign currency translation and other	(40)		(989)
Fixed annuities account balance, end of period	6,376		6,423
Other deposit type reserves	292		220
Total	$	6,668	$	6,643

(1) Aflac Japan fixed annuities

The following table presents other policyholders’ funds balances by range of guaranteed crediting rates.

March 31, 2023

December 31, 2022

(In millions)

Range of Guaranteed Minimum Crediting Rates (2)

At Guaranteed Minimum

Cash Surrender Value

Range of Guaranteed Minimum Crediting Rates (2)

At Guaranteed Minimum

Cash Surrender Value

Fixed annuities (1)

0.5% - 2.3%

$6,376

$6,281

0.5% - 2.3%

$6,423

$6,326

(1) Aflac Japan fixed annuities

(2) Weighted-average crediting rate of 1.5% at March 31, 2023 and December 31, 2022, respectively.

Aflac Japan’s fixed annuities have guaranteed fixed crediting rates which results in the policyholders' funds balances being able to cover all guaranteed benefit amounts. The reserves are adequate to fully fund future benefits at any given time.

See Note 1 of the Notes to the Consolidated Financial Statements for additional information on policy liabilities.