REINSURANCE

3 Months Ended

Mar. 31, 2023

The Company periodically enters into fixed quota-share coinsurance agreements in the normal course of business. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

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 preliminary consideration for assuming the reinsurance risk, and final settlement is expected in the second quarter of 2023. 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.

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $682 million and $692 million as of March 31, 2023 and December 31, 2022, respectively, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $1.1 billion and $912 million as of March 31, 2023 and December 31, 2022, respectively.

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


	Three Months Ended March 31,
(In millions)		2023	2022
Direct earned premiums				$	3,738	$	4,115
Ceded to other companies:
Ceded Aflac Japan closed blocks				(82)		(98)
Other				(25)		(19)
Assumed from other companies:
Retrocession activities				34		41
Other				23		40
Net earned premiums				$	3,688	$	4,079

Direct benefits and claims, excluding reserve remeasurement				$	2,256	$	2,334
Reserve remeasurement (gains) losses				(53)		(34)
Total direct benefits and claims				2,203		2,300
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks				(100)		(88)
Eliminations				14		5
Other				(18)		(5)
Assumed from other companies:
Retrocession activities				5		37
Eliminations				10		(5)
Other				36		239
Total benefits and claims, net				$	2,150	$	2,483

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2023 related to accounting for long-duration insurance contracts.

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

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015, with reserves of approximately ¥120 billion as of March 31, 2023. This reinsurance facility agreement was renewed in 2022 and is effective until December 31, 2023. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac's Standard and Poor's (S&P) rating drops below BBB-. As of March 31, 2023, the Company has not executed a reinsurance treaty under this committed reinsurance facility.