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POLICY LIABILITIES

9 Months Ended

Sep. 30, 2023

Future Policy Benefits

The liability for future policy benefits is determined as the present value of expected future 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. The present value of expected future net premiums and the present value of expected future policy benefits are presented gross of internal and external reinsurance.


	September 30, 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 future net 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	(166)		(473)		44		(12)		(16)		(51)		(494)		(142)		(9)		61		(9)
Effect of actual variances from expected experience	(261)		(90)		(34)		(9)		(44)		(6)		(154)		(48)		(13)		(9)		2
Adjusted beginning of period balance	17,794		15,632		7,294		1,221		2,700		1,718		4,402		1,175		209		851		111
Issuances	770		285		267		19		256		293		397		203		31		137		76
Interest accrual	312		255		94		15		77		46		137		34		6		23		4
Net premiums collected (1)	(1,182)		(959)		(778)		(85)		(356)		(292)		(440)		(187)		(30)		(101)		(12)
Foreign currency translation	(2,023)		(1,767)		(798)		(137)		0		0		0		0		0		0		0
Other	(1)		(1)		0		0		(5)		(6)		(5)		(3)		1		1		8
Ending balance at original discount rate	15,670		13,445		6,079		1,033		2,672		1,759		4,491		1,222		217		911		187
Effect of changes in discount rate assumptions	823		449		171		9		(283)		(162)		(630)		(150)		(23)		(105)		(15)
Balance at September 30, 2023	$	16,493	$	13,894	$	6,250	$	1,042	$	2,389	$	1,597	$	3,861	$	1,072	$	194	$	806	$	172
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	(148)		(510)		66		(27)		(11)		(59)		(592)		(194)		(14)		72		(13)
Effect of actual variances from expected experience	(314)		(102)		(43)		(7)		(61)		(21)		(188)		(68)		(17)		(12)		2
Adjusted beginning of period balance	47,215		26,954		32,823		5,906		3,319		2,556		12,066		2,038		501		1,838		613
Issuances	787		295		272		24		265		305		408		211		33		140		76
Interest accrual	1,116		461		472		76		95		72		396		64		15		50		24
Benefit payments	(2,245)		(883)		(1,090)		(154)		(340)		(349)		(668)		(207)		(44)		(81)		(35)
Foreign currency translation	(5,327)		(3,064)		(3,681)		(664)		0		0		0		0		0		0		0
Other	0		0		0		0		0		0		1		0		3		5		9
Ending balance at original discount rate	41,546		23,763		28,796		5,188		3,339		2,584		12,203		2,106		508		1,952		687
Effect of changes in discount rate assumptions	5,663		(170)		(868)		(332)		(375)		(233)		(1,743)		(259)		(58)		(344)		(35)
Balance at September 30, 2023	47,209		23,593		27,928		4,856		2,964		2,351		10,460		1,847		450		1,608		652
Net liability for future policy benefits	30,716		9,699		21,678		3,814		575		754		6,599		775		256		802		480
Less: reinsurance recoverable	1,952		1,422		0		0		0		0		0		0		0		11		0
Net liability for future policy benefits after reinsurance recoverable	$	28,764	$	8,277	$	21,678	$	3,814	$	575	$	754	$	6,599	$	775	$	256	$	791	$	480

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


	September 30, 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)	1.8 %	2.3 %	1.7 %	2.0 %	5.4 %	5.4 %	5.4 %	5.4 %	5.4 %	5.4 %	5.4 %
Weighted-average liability duration (years)	13.1	25.2	16.4	17.5	8.3	5.5	11.3	9.3	8.0	13.9	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)	September 30, 2023			December 31, 2022
Balances included in future policy benefits rollforward:
Aflac Japan
Cancer		$	30,716		$	35,468
Medical and other health		9,699			10,705
Life insurance		21,678			24,469
Other		3,814			4,326
Aflac U.S.
Accident		575			564
Disability		754			810
Critical care		6,599			7,003
Hospital indemnity		775			854
Dental/vision		256			277
Life insurance		802			802
Other		480			512
Corporate and other		2,375			686
Deferred profit liability - limited-payment contracts		1,669			1,740
Deferred profit liability - reinsurance		590			692
Intercompany eliminations (1)		(2,334)			(667)
Total		$	78,448		$	88,241

(1) Elimination entry necessary due to the internal reinsurance transaction 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.

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 September 30, 2023 and 2022, the Company recognized $4.2 billion and $2.4 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. For the nine-month periods ended September 30, 2023 and 2022, the Company recognized $1.2 billion and $11.8 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 nine-month periods ended September 30, 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.

For the three- and nine-month periods ended September 30, 2023 and 2022, the variance of actual experience from expected experience was primarily due to favorable variances in morbidity assumptions as compared to actual experience. During the three-month periods ended September 30, 2023 and 2022, the Company's adjustment for actual variances from expected experience resulted in reserve remeasurement gains of $54 million and $18 million in the consolidated statements of earnings, respectively. During the nine-month periods ended September 30, 2023 and 2022, the Company's adjustment for actual variances from expected experience resulted in reserve remeasurement gains of $161 million and $77 million in the consolidated statements of earnings, respectively. There were no changes to the inputs or methods used in measuring the liability for future policy benefits during the nine-month periods ended September 30, 2023 and 2022.

The Company performs an annual review of its assumptions during the third quarter. In 2023, the Company's annual review process resulted in favorable changes to its morbidity and termination assumptions, largely due to reflecting more recent favorable U.S. morbidity experience. These assumption updates, together with the variance of actual from expected experience, resulted in reserve remeasurement gains of $312 million in the consolidated statement of earnings for the nine-month period ended September 30, 2023. 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 September 30,				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Net earned premiums:
Aflac Japan
Cancer	$	1,004	$	1,106	$	3,154	$	3,640
Medical and other health	640		690		2,018		2,253
Life insurance	371		377		1,183		1,360
Other	38		39		113		124
Aflac U.S.
Accident	320		324		973		990
Disability	315		293		941		882
Critical care	436		434		1,317		1,319
Hospital indemnity	180		178		547		546
Dental/vision	53		50		160		148
Life insurance	122		99		351		297
Other	13		9		31		29
Corporate and other	83		35		258		112
Reinsurance ceded	(99)		(99)		(309)		(321)
Total	$	3,476	$	3,535	$	10,737	$	11,379

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 September 30,				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Interest expense:
Aflac Japan
Cancer	$	243	$	242	$	804	$	868
Medical and other health	63		59		206		210
Life insurance	115		112		378		397
Other	19		18		61		63
Aflac U.S.
Accident	6		6		18		18
Disability	8		9		26		27
Critical care	86		87		259		259
Hospital indemnity	10		11		30		31
Dental/vision	3		3		9		10
Life insurance	8		9		27		26
Other	7		7		20		20

Total	$	568	$	563	$	1,838	$	1,929

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.


	September 30, 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		$	73,299		$	82,368		$	75,529		$	84,246
Medical and other health		48,031			49,223			50,720			50,778
Life insurance		15,926			52,692			16,946			53,271
Other		2,223			9,249			2,322			9,433
Aflac U.S.
Accident		9,246			4,595			9,481			4,636
Disability		5,800			3,215			5,858			3,267
Critical care		20,099			20,748			21,069			22,113
Hospital indemnity		5,005			3,058			5,164			3,338
Dental/vision		1,168			726			1,208			759
Life insurance		2,692			3,208			2,375			2,787
Other		509			1,251			333			1,147
Total		$	183,998		$	230,333		$	191,005		$	235,775


	September 30, 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		$	45,569		$	47,209		$	53,278		$	54,766
Medical and other health		29,117			23,593			34,693			27,419
Life insurance		10,780			27,928			12,951			31,954
Other		1,438			4,856			1,697			5,582
Aflac U.S.
Accident		6,144			2,964			6,510			3,098
Disability		4,319			2,351			4,468			2,445
Critical care		11,752			10,460			12,659			11,489
Hospital indemnity		3,301			1,847			3,483			2,074
Dental/vision		768			450			821			488
Life insurance		1,797			1,608			1,663			1,526
Other		316			652			228			622
Total		$	115,301		$	123,918		$	132,451		$	141,463

Loss expense as a result of net premium ratio capping for the three- and nine-month periods ended September 30, 2023 and 2022 was immaterial.

Other Policyholders' Funds

As of September 30, 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)	September 30, 2023		December 31, 2022
Other policyholders' funds:
Fixed annuities account balance, beginning of period (1)	$	6,423	$	7,410
Premiums received	90		150
Transfers from WAYS conversions	162		214
Surrenders and withdrawals	(40)		(52)
Benefit payments	(296)		(367)
Interest credited	37		57
Foreign currency translation and other	(724)		(989)
Fixed annuities account balance, end of period	5,652		6,423
Other deposit type reserves	232		220
Total	$	5,884	$	6,643

(1) Aflac Japan fixed annuities

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

September 30, 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%

$5,652

$5,564

0.5% - 2.3%

$6,423

$6,326

(1) Aflac Japan fixed annuities

(2) Weighted-average crediting rate of 1.5% at September 30, 2023 and December 31, 2022.

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 for additional information on policy liabilities.