PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Aflac's unaudited consolidated financial statements, including earnings, comprehensive income, balance sheets, shareholders' equity, and cash flows, with detailed notes on accounting policies, segments, and investments Consolidated Statements of Earnings Net earnings increased to $1,755 million in Q2 2024 and $3,634 million for the six months, primarily driven by higher net investment gains Consolidated Statements of Earnings (Three Months Ended June 30) | Metric (in millions, except per share) | 2024 | 2023 | | :------------------------------------- | :------ | :------ | | Net earned premiums | $3,325 | $3,573 | | Net investment income | $1,095 | $999 | | Net investment gains (losses) | $696 | $555 | | Total revenues | $5,138 | $5,172 | | Total benefits and expenses | $3,119 | $3,347 | | Earnings before income taxes | $2,019 | $1,825 | | Income taxes | $264 | $191 | | Net earnings | $1,755 | $1,634 | | Basic EPS | $3.11 | $2.72 | | Diluted EPS | $3.10 | $2.71 | Consolidated Statements of Earnings (Six Months Ended June 30) | Metric (in millions, except per share) | 2024 | 2023 | | :------------------------------------- | :------- | :------ | | Net earned premiums | $6,781 | $7,262 | | Net investment income | $2,095 | $1,942 | | Net investment gains (losses) | $1,647 | $678 | | Total revenues | $10,575 | $9,972 | | Total benefits and expenses | $6,385 | $6,805 | | Earnings before income taxes | $4,190 | $3,167 | | Income taxes | $556 | $345 | | Net earnings | $3,634 | $2,822 | | Basic EPS | $6.38 | $4.66 | | Diluted EPS | $6.35 | $4.64 | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income significantly increased to $3,565 million in Q2 2024 and $5,862 million for the six months, driven by favorable discount rate assumption changes Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :------------------------------------------------------- | :------ | :------ | | Net earnings | $1,755 | $1,634 | | Unrealized foreign currency translation gains (losses) | $(340) | $(439) | | Unrealized holding gains (losses) on fixed maturity securities | $(829) | $890 | | Effect of changes in discount rate assumptions | $3,698 | $(209) | | Total other comprehensive income (loss) before income taxes | $2,487 | $274 | | Other comprehensive income (loss), net of income taxes | $1,810 | $(60) | | Total comprehensive income (loss) | $3,565 | $1,574 | Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :------------------------------------------------------- | :------ | :------ | | Net earnings | $3,634 | $2,822 | | Unrealized foreign currency translation gains (losses) | $(838) | $(482) | | Unrealized holding gains (losses) on fixed maturity securities | $(727) | $3,468 | | Effect of changes in discount rate assumptions | $5,044 | $(3,745) | | Total other comprehensive income (loss) before income taxes | $3,265 | $(774) | | Other comprehensive income (loss), net of income taxes | $2,228 | $(909) | | Total comprehensive income (loss) | $5,862 | $1,913 | Consolidated Balance Sheets Total assets decreased to $120,168 million, while total liabilities decreased to $94,121 million, and shareholders' equity increased to $26,047 million as of June 30, 2024 Consolidated Balance Sheets (as of June 30, 2024, and December 31, 2023) | Metric (in millions) | June 30, 2024 | December 31, 2023 | | :------------------------------------------------------- | :------------ | :---------------- | | Assets: | | | | Total investments and cash | $107,629 | $113,560 | | Deferred policy acquisition costs | $8,550 | $9,132 | | Total assets | $120,168 | $126,724 | | Liabilities: | | | | Future policy benefits | $70,339 | $83,718 | | Total policy liabilities | $77,353 | $91,599 | | Total liabilities | $94,121 | $104,739 | | Shareholders' Equity: | | | | Retained earnings | $51,345 | $47,993 | | Accumulated other comprehensive income (loss) | $(3,292) | $(5,520) | | Total shareholders' equity | $26,047 | $21,985 | Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $26,047 million by June 30, 2024, driven by net earnings and positive discount rate assumption changes, partially offset by treasury stock purchases and dividends Consolidated Statements of Shareholders' Equity (Six Months Ended June 30, 2024) | Metric (in millions) | Dec 31, 2023 | Net Earnings | AOCI Changes | Dividends | Treasury Stock | Jun 30, 2024 | | :------------------------------------------------------- | :----------- | :----------- | :----------- | :-------- | :------------- | :----------- | | Common Stock | $136 | $0 | $0 | $0 | $0 | $136 | | Additional Paid-in Capital | $2,771 | $0 | $0 | $0 | $34 | $2,835 | | Retained Earnings | $47,993 | $3,634 | $0 | $(550) | $0 | $51,345 | | Accumulated Other Comprehensive Income (Loss) | $(5,520) | $0 | $2,228 | $0 | $0 | $(3,292) | | Treasury Stock | $(23,395) | $0 | $0 | $0 | $(1,550) | $(24,977) | | Total Shareholders' Equity | $21,985 | $3,634 | $2,228 | $(550)| $(1,550) | $26,047 | Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $1,104 million, while investing activities significantly increased to $2,294 million, resulting in a $1,754 million net increase in cash and cash equivalents Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :------------------------------------------------------- | :------ | :------ | | Net cash provided (used) by operating activities | $1,104 | $1,332 | | Net cash provided (used) by investing activities | $2,294 | $1,488 | | Net cash provided (used) by financing activities | $(1,576) | $(1,944) | | Effect of exchange rate changes on cash and cash equivalents | $(68) | $(99) | | Net change in cash and cash equivalents | $1,754 | $777 | | Cash and cash equivalents, end of period | $6,060 | $4,720 | Notes to the Consolidated Financial Statements These notes provide detailed disclosures on Aflac's accounting policies, segment performance, investment portfolio, derivatives, fair value measurements, and other financial components Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines Aflac's business operations in Japan and the U.S., detailing financial statement preparation under U.S. GAAP and pending accounting pronouncements - Aflac Incorporated primarily sells supplemental health and life insurance in Japan and the United States, operating through two reportable business segments: Aflac Japan and Aflac U.S.15 - Financial statements are prepared in accordance with U.S. GAAP, requiring significant estimates for investment and derivative valuation, deferred policy acquisition costs (DAC), future policy benefits, and income taxes16 - New Accounting Pronouncements: ASU 2023-09 (Income Tax Disclosures) and ASU 2023-07 (Segment Reporting) are pending adoption, effective for annual periods beginning after December 15, 2024, and fiscal years beginning after December 15, 2023 (interim periods after December 15, 2024), respectively. Neither is expected to impact the Company's financial position or results of operations, but may affect disclosures20212223 Note 2. BUSINESS SEGMENT INFORMATION Aflac operates two segments, Aflac Japan and Aflac U.S., with performance evaluated by 'pretax adjusted earnings,' showing Aflac Japan's continued dominance in assets - The Company's two reportable segments are Aflac Japan and Aflac U.S., with performance evaluated using 'pretax adjusted earnings' (a non-U.S. GAAP measure)2526 Segment Adjusted Revenues (Three Months Ended June 30) | Segment | 2024 (in millions) | 2023 (in millions) | | :---------------- | :----------------- | :----------------- | | Aflac Japan | $2,447 | $2,710 | | Aflac U.S. | $1,684 | $1,663 | | Corporate and other | $249 | $140 | | Total Adjusted Revenues | $4,380 | $4,513 | Segment Pretax Adjusted Earnings (Three Months Ended June 30) | Segment | 2024 (in millions) | 2023 (in millions) | | :---------------- | :----------------- | :----------------- | | Aflac Japan | $864 | $822 | | Aflac U.S. | $383 | $369 | | Corporate and other | $23 | $(52) | | Total Pretax Adjusted Earnings | $1,270 | $1,139 | Segment Total Assets (as of) | Segment | June 30, 2024 (in millions) | December 31, 2023 (in millions) | | :---------------- | :-------------------------- | :------------------------------ | | Aflac Japan | $92,708 | $101,541 | | Aflac U.S. | $21,755 | $21,861 | | Corporate and other | $5,705 | $3,322 | | Total Assets | $120,168 | $126,724 | Note 3. INVESTMENTS This note details Aflac's investment portfolio, including fixed maturity securities, equity securities, and loans, with analysis of fair values, credit losses, and VIEs Fixed Maturity Securities Available-for-Sale (June 30, 2024) | Category (in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :--------------------- | :------------- | :--------------------- | :---------------------- | :--------- | | Yen-denominated | $34,744 | $1,741 | $3,192 | $33,293 | | U.S. dollar-denominated | $29,859 | $4,230 | $1,123 | $32,966 | | Total | $64,603 | $5,971 | $4,315 | $66,259| Fixed Maturity Securities Held-to-Maturity (June 30, 2024) | Category (in millions) | Amortized Cost | Allowance for Credit Losses | Net Carrying Amount | Fair Value | | :--------------------- | :------------- | :-------------------------- | :------------------ | :--------- | | Yen-denominated | $15,690 | $5 | $15,685 | $16,570 | | Total | $15,690 | $5 | $15,685 | $16,570| Net Investment Gains (Losses) (Six Months Ended June 30) | Item (in millions) | 2024 | 2023 | | :------------------------------------- | :------ | :------ | | Sales and redemptions | $228 | $81 | | Equity securities | $87 | $(12) | | Credit losses | $(20) | $(31) | | Derivatives and other | $1,352 | $640 | | Total net investment gains (losses) | $1,647| $678 | - The Company's investment in Japan National Government bonds (JGBs or JGB-backed securities) decreased from $39,151 million (amortized cost) at December 31, 2023, to $34,111 million at June 30, 2024, representing a significant concentration45 - Allowance for credit losses for commercial mortgage and other loans decreased from $274 million at December 31, 2023, to $238 million at June 30, 2024. The Company identified additional Transitional Real Estate Loans (TREs) with an amortized cost of $267 million in anticipation of potential foreclosure or deed in lieu of foreclosure transactions, establishing a credit allowance of $33 million for $656 million of loans where collateral fair value was below amortized cost6293 - Total assets of consolidated Variable Interest Entities (VIEs) decreased from $16,298 million at December 31, 2023, to $15,760 million at June 30, 2024, primarily in commercial mortgage and other loans104 Note 4. DERIVATIVE INSTRUMENTS Aflac uses derivatives to manage foreign exchange and interest rate risks, with total notional amounts decreasing to $50,551 million and all counterparties being investment grade - Aflac uses various derivative instruments (foreign currency forwards/options, cross-currency interest rate swaps, interest rate swaps/swaptions, bond purchase commitments) to manage foreign exchange and interest rate risks115 Derivative Balance Sheet Classification (June 30, 2024) | Hedge Designation/Derivative Type | Notional Amount (in millions) | Asset Derivatives Fair Value (in millions) | Liability Derivatives Fair Value (in millions) | | :-------------------------------- | :---------------------------- | :----------------------------------------- | :--------------------------------------------- | | Cash flow hedges | $18 | $0 | $6 | | Fair value hedges | $0 | $0 | $0 | | Net investment hedge | $1,972 | $235 | $0 | | Non-qualifying strategies | $48,561 | $81 | $1,318 | | Total Derivatives | $50,551 | $316 | $1,324 | Impact of Derivatives and Hedging Instruments on Earnings (Three Months Ended June 30) | Item (in millions) | 2024 Net Investment Gains (Losses) | 2023 Net Investment Gains (Losses) | | :------------------------------------------------------- | :--------------------------------- | :--------------------------------- | | Cash flow hedges | $(1) | $(1) | | Fair value hedges | $0 | $(25) | | Net investment hedge (Foreign currency forwards/options) | $32 | $32 | | Non-qualifying strategies | $(306) | $(600) | | Total | $(275) | $(594) | - All derivative agreement counterparties were investment grade as of June 30, 2024. The Company mitigates credit risk through collateral posting requirements and master netting arrangements145146149 Note 5. FAIR VALUE MEASUREMENTS This note details Aflac's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability and valuation techniques - Fair value measurements are categorized into Level 1 (quoted prices in active markets for identical assets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)172173 Fair Value Hierarchy of Assets (June 30, 2024) | Asset Category (in millions) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :--------------------------- | :--------- | :--------- | :--------- | :--------------- | | Fixed maturity securities | $17,520 | $46,683 | $2,056 | $66,259 | | Equity securities | $571 | $0 | $157 | $728 | | Other investments | $3,380 | $0 | $0 | $3,380 | | Cash and cash equivalents | $6,060 | $0 | $0 | $6,060 | | Other assets (Derivatives) | $0 | $316 | $0 | $316 | | Total Assets | $27,531| $46,999| $2,213 | $76,743 | Fair Value Hierarchy of Liabilities (June 30, 2024) | Liability Category (in millions) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :------------------------------- | :------ | :--------- | :------ | :--------------- | | Other liabilities (Derivatives) | $0 | $1,324 | $0 | $1,324 | | Total Liabilities | $0 | $1,324 | $0 | $1,324 | - Level 3 valuations for fixed maturity securities and equity securities primarily rely on unobservable inputs such as credit spreads, offered quotes from brokers, and private financial information for private company investments217221222223 Note 6. DEFERRED POLICY ACQUISITION COSTS Total deferred policy acquisition costs (DAC) decreased to $8,550 million, primarily due to foreign currency translation impacts on Aflac Japan's DAC Deferred Policy Acquisition Costs (DAC) Rollforward (Six Months Ended June 30, 2024) | Metric (in millions) | Aflac Japan | Aflac U.S. | Total | | :----------------------------------- | :---------- | :--------- | :------ | | Balance at December 31, 2023 | $5,559 | $3,573 | $9,132 | | Capitalization | $214 | $294 | $508 | | Amortization expense | $(160) | $(264) | $(424) | | Foreign currency translation and other | $(666) | $0 | $(666) | | Balance at June 30, 2024 | $4,951 | $3,599 | $8,550| - DAC amortization is based on constant-level bases, such as face amount for U.S. life products and units in force for Japan health & life products, with future amortization impacted by persistency230 Note 7. POLICY LIABILITIES Net liability for future policy benefits decreased to $70,339 million, significantly influenced by changes in discount rate assumptions, particularly for Aflac Japan's Cancer segment - The liability for future policy benefits is calculated as the present value of expected future policy benefits minus the present value of expected future net premiums232 Net Liability for Future Policy Benefits (June 30, 2024) | Segment/Product (in millions) | Net Liability for Future Policy Benefits | | :---------------------------- | :--------------------------------------- | | Aflac Japan Cancer | $26,896 | | Aflac Japan Medical and other health | $8,576 | | Aflac Japan Life insurance | $19,092 | | Aflac U.S. Accident | $597 | | Aflac U.S. Disability | $744 | | Aflac U.S. Critical care | $6,842 | | Aflac U.S. Hospital indemnity | $789 | | Aflac U.S. Dental/vision | $260 | | Aflac U.S. Life insurance | $894 | | Aflac U.S. Other | $493 | | Corporate and other | $3,405 | | Deferred profit liability | $1,667 | | Deferred reinsurance gain liability | $820 | | Intercompany eliminations | $(4,089) | | Total | $70,339 | - Discount rates for policy liabilities are determined using upper-medium grade fixed-income instrument yields reflecting liability duration characteristics, updated each reporting period with estimation techniques for illiquid tenors250251252253254255 - For the six months ended June 30, 2024, the Company recognized $4.0 billion (net of tax) in other comprehensive income (loss) due to changes in discount rate assumptions for future policy benefits, compared to $(3.0) billion in 2023256 Other Policyholders' Funds (June 30, 2024 vs. December 31, 2023) | Item (in millions) | June 30, 2024 | December 31, 2023 | | :--------------------------------------- | :------------ | :---------------- | | Fixed annuities account balance, beginning of period | $5,939 | $6,423 | | Premiums received | $51 | $126 | | Transfers from WAYS conversions | $116 | $229 | | Surrenders and withdrawals | $(31) | $(59) | | Benefit payments | $(208) | $(419) | | Interest credited | $24 | $53 | | Foreign currency translation and other | $(711) | $(414) | | Fixed annuities account balance, end of period | $5,180 | $5,939 | | Other deposit type reserves | $259 | $230 | | Total | $5,439 | $6,169 | Note 8. REINSURANCE Aflac uses reinsurance to manage capacity and risk, with net earned premiums and benefits reflecting ceded and assumed activities Reconciliation of Premiums and Benefits (Six Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :------------------------------------------------------- | :------ | :------ | | Direct earned premiums | $6,834 | $7,361 | | Ceded to other companies | $(135) | $(210) | | Assumed from other companies | $82 | $111 | | Net earned premiums | $6,781| $7,262| | Direct benefits and claims, excluding reserve remeasurement | $4,077 | $4,438 | | Ceded benefits and change in reserves for future benefits | $(68) | $(172) | | Assumed from other companies | $30 | $88 | | Benefits and claims, excluding reserve remeasurement | $4,039| $4,354| | Reserve remeasurement (gains) losses | $(107) | $(107) | | Total benefits and claims, net | $3,932| $4,247| - As of June 30, 2024, the deferred reinsurance gain liability was $148 million, and the reinsurance recoverable was $162 million (net of $3 million allowance for credit losses). Reinsurance counterparties were rated A+278 Note 9. NOTES PAYABLE AND LEASE OBLIGATIONS Total notes payable and lease obligations increased to $7,430 million, reflecting new senior note issuances and a subordinated bond redemption, with all debt covenants met Notes Payable and Lease Obligations (in millions) | Item | June 30, 2024 | December 31, 2023 | | :--------------------------------------- | :------------ | :---------------- | | U.S. dollar-denominated senior notes | $2,704 | $2,702 | | Yen-denominated senior notes and subordinated debentures | $4,598 | $4,539 | | Yen-denominated loans | $663 | $752 | | Finance lease obligations | $5 | $6 | | Operating lease obligations | $103 | $118 | | Total notes payable and lease obligations | $7,430 | $7,364 | - In April 2024, ALIJ redeemed ¥30.0 billion of its .963% subordinated bonds due April 2049282 - In March 2024, the Parent Company issued ¥75.0 billion in five series of senior notes via private placement and ¥48.6 billion in three series of senior notes via public debt offering283284 - Interest expense related to notes payable was $96 million for both the six-month periods ended June 30, 2024 and 2023285 - The Company maintains various uncommitted and unsecured revolving credit facilities totaling over $1.8 billion equivalent, all undrawn as of June 30, 2024, and was in compliance with all debt covenants287288 Note 10. SHAREHOLDERS' EQUITY This note details changes in shareholders' equity, including common stock, treasury stock, and AOCI components, significantly impacted by discount rate assumption changes Common Stock and Treasury Stock Activity (Six Months Ended June 30) | Item (in thousands of shares) | 2024 | 2023 | | :---------------------------- | :---------- | :---------- | | Common stock - issued, beginning of period | 1,355,398 | 1,354,079 | | Exercise of stock options and issuance of restricted shares | 1,220 | 1,148 | | Common stock - issued, end of period | 1,356,618 | 1,355,227 | | Treasury stock, beginning of period | 776,919 | 738,823 | | Purchases of treasury stock | 19,044 | 21,163 | | Dispositions of treasury stock | (714) | (728) | | Treasury stock, end of period | 795,249 | 759,258 | | Shares outstanding, end of period | 561,369 | 595,969 | - During the first six months of 2024, the Company repurchased 18.6 million shares of its common stock for $1.6 billion. As of June 30, 2024, 59.2 million shares remained authorized for repurchase293518519 Changes in Accumulated Other Comprehensive Income (Six Months Ended June 30, 2024) | AOCI Component (in millions, net of tax) | Dec 31, 2023 | Other Comprehensive Income (Loss) before Reclassification | Reclassifications from AOCI | Jun 30, 2024 | | :--------------------------------------- | :----------- | :-------------------------------------------------------- | :-------------------------- | :----------- | | Unrealized Foreign Currency Translation Gains (Losses) | $(4,069) | $(1,022) | $0 | $(5,091) | | Unrealized Gains (Losses) on Fixed Maturity Securities | $1,139 | $(566) | $(172) | $401 | | Unrealized Gains (Losses) on Derivatives | $(22) | $(2) | $2 | $(22) | | Effect of Changes in Discount Rate Assumptions | $(2,560) | $3,985 | $0 | $1,425 | | Pension Liability Adjustment | $(8) | $4 | $(1) | $(5) | | Total AOCI | $(5,520) | $2,399 | $(171) | $(3,292) | Reclassifications Out of Accumulated Other Comprehensive Income (Six Months Ended June 30, 2024) | AOCI Component (in millions, net of tax) | Amount Reclassified | Affected Line Item in Statements of Earnings | | :--------------------------------------- | :------------------ | :------------------------------------------- | | Unrealized gains (losses) on available-for-sale securities | $172 | Net investment gains (losses) | | Unrealized gains (losses) on derivatives | $(2) | Net investment gains (losses) | | Amortization of defined benefit pension items | $1 | Acquisition and operating expenses | | Total reclassifications | $171 | | Note 11. SHARE-BASED COMPENSATION Aflac's Long-Term Incentive Plan allows for various share-based awards, with 33.6 million shares available for future grants and $60 million in unrecognized compensation cost - The Long-Term Incentive Plan allows for a maximum of 75 million shares, with 33.6 million shares available for future grants as of June 30, 2024315316 - Total unrecognized compensation cost for restricted stock awards and units was $60 million as of June 30, 2024, with $31 million related to performance-based awards, expected to be recognized over a weighted-average period of 1.8 years320 Restricted Stock Activity (Six Months Ended June 30, 2024) | Item (in thousands of shares) | Shares | Weighted-Average Grant-Date Fair Value Per Share | | :---------------------------- | :----- | :----------------------------------------------- | | Restricted stock at December 31, 2023 | 2,308 | $62.96 | | Granted in 2024 | 1,254 | $79.99 | | Canceled in 2024 | (17) | $69.33 | | Vested in 2024 | (1,421)| $46.83 | | Restricted stock at June 30, 2024 | 2,124| $73.04 | Note 12. BENEFIT PLANS Aflac maintains funded defined benefit plans in Japan and the U.S., with the U.S. plan frozen in 2024, impacting net periodic benefit costs - The U.S. defined benefit plan was frozen effective January 1, 2024, leading to a $49 million curtailment gain recognized in Q2 2023324 Components of Net Periodic Benefit Cost (Six Months Ended June 30) | Item (in millions) | Japan Pension 2024 | Japan Pension 2023 | U.S. Pension 2024 | U.S. Pension 2023 | Other Postretirement Benefits 2024 | Other Postretirement Benefits 2023 | | :----------------------------- | :----------------- | :----------------- | :---------------- | :---------------- | :--------------------------------- | :--------------------------------- | | Service cost | $7 | $7 | $0 | $7 | $0 | $0 | | Interest cost | $4 | $4 | $19 | $21 | $0 | $1 | | Expected return on plan assets | $(3) | $(3) | $(15) | $(18) | $0 | $0 | | Amortization of net actuarial loss | $0 | $0 | $(1) | $0 | $0 | $1 | | Curtailment (gain) loss | $0 | $0 | $0 | $(49) | $0 | $0 | | Net periodic (benefit) cost | $8 | $8 | $3 | $(39) | $0 | $2 | Note 13. COMMITMENTS AND CONTINGENT LIABILITIES Aflac has significant outsourcing commitments for cloud hosting, mainframe operations, and policy administration, while legal and regulatory matters are not expected to materially impact financial position - In June 2024, Aflac entered into a 3-year cloud hosting agreement with a remaining cost of $68 million332 - Aflac renewed a 5-year mainframe operations outsourcing agreement for Aflac Japan with a remaining cost of ¥48.2 billion ($299 million)333 - A new 6-year policy administration outsourcing agreement for Aflac Japan was entered into with a remaining cost of ¥6.8 billion ($42 million)334 - Guaranty fund assessments for the three- and six-month periods ended June 30, 2024 and 2023, were immaterial338 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's analysis of Aflac's financial performance, condition, and operations, including segment results, investments, and critical accounting estimates FORWARD-LOOKING INFORMATION Aflac's forward-looking statements are subject to various risks, including global economic conditions, investment performance, currency fluctuations, and regulatory changes - Forward-looking statements are subject to risks including global capital market conditions, investment defaults, interest rate fluctuations, business concentration in Japan, yen/dollar exchange rate volatility, and changes in accounting standards341 EXECUTIVE SUMMARY Aflac's Q2 2024 net earnings increased to $1.8 billion, driven by net investment gains, while shareholders' equity rose to $26.0 billion due to discount rate assumption changes Performance Highlights (Q2 2024 vs. Q2 2023) | Metric (in billions, except EPS) | Q2 2024 | Q2 2023 | | :------------------------------- | :------ | :------ | | Total revenues | $5.1 | $5.2 | | Net earnings | $1.8 | $1.6 | | Diluted EPS | $3.10 | $2.71 | | Pretax net investment gains | $696M | $555M | | Adjusted earnings | $1.0B | $954M | | Adjusted diluted EPS | $1.83 | $1.58 | Performance Highlights (Six Months 2024 vs. Six Months 2023) | Metric (in billions, except EPS) | 6M 2024 | 6M 2023 | | :------------------------------- | :------ | :------ | | Total revenues | $10.6 | $10.0 | | Net earnings | $3.6 | $2.8 | | Diluted EPS | $6.35 | $4.64 | | Pretax net investment gains | $1.6B | $678M | | Adjusted earnings | $2.0B | $1.9B | | Adjusted diluted EPS | $3.49 | $3.13 | - The average yen/dollar exchange rate for Q2 2024 was 155.70, 11.7% weaker than 137.53 in Q2 2023, negatively impacting adjusted EPS by $0.07351 - Shareholders' equity increased to $26.0 billion ($46.40 per share) at June 30, 2024, from $22.0 billion ($38.00 per share) at December 31, 2023, including a $1.4 billion cumulative increase from changes in discount rate assumptions352 RESULTS OF OPERATIONS Aflac's Q2 2024 adjusted earnings rose to $1,035 million, driven by effective pricing and investment results, despite yen weakness, with adjusted book value increasing to $29.3 billion - Management uses non-U.S. GAAP financial measures such as 'adjusted earnings' and 'adjusted book value' to assess underlying profitability and trends, excluding market-driven or infrequent items355357362 Reconciliation of Net Earnings to Adjusted Earnings (Three Months Ended June 30) | Metric (in millions, except EPS) | 2024 | 2023 | | :------------------------------- | :------ | :------ | | Net earnings | $1,755 | $1,634 | | Adjusted net investment (gains) losses | $(749) | $(651) | | Other and non-recurring (income) loss | $0 | $(35) | | Income tax (benefit) expense on items excluded | $29 | $5 | | Adjusted earnings | $1,035| $954 | | Current period foreign currency impact | $37 | N/A | | Adjusted earnings excluding current period foreign currency impact | $1,072| $954 | - The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 13.1% for Q2 2024 (vs. 10.4% in Q2 2023) and 13.3% for 6M 2024 (vs. 10.9% in 6M 2023). The expected effective tax rate on adjusted earnings for future periods is approximately 20%378 Reconciliation of Book Value to Adjusted Book Value (as of June 30, 2024) | Metric (in millions, except per share) | June 30, 2024 | December 31, 2023 | | :------------------------------------- | :------------ | :---------------- | | U.S. GAAP book value | $26,047 | $21,985 | | Total accumulated other comprehensive income | $(3,292) | $(5,520) | | Adjusted book value | $29,339 | $27,505 | | U.S. GAAP book value per common share | $46.40 | $38.00 | | Total accumulated other comprehensive income per common share | $(5.86) | $(9.54) | | Adjusted book value per common share | $52.26 | $47.55 | - Adjusted return on equity, excluding foreign currency impact, was 14.8% in Q2 2024, up from 13.9% in Q2 2023385 RESULTS OF OPERATIONS BY SEGMENT This section analyzes the operating results of Aflac Japan, Aflac U.S., and Corporate and other segments, highlighting drivers of pretax adjusted earnings changes AFLAC JAPAN SEGMENT Aflac Japan's pretax adjusted earnings increased by 5.1% in Q2 2024 (18.6% in yen terms), driven by higher adjusted net investment income and lower expenses, despite decreased net earned premiums Aflac Japan Summary of Operating Results (Three Months Ended June 30) | Metric (in millions) | 2024 (USD) | 2023 (USD) | 2024 (JPY) | 2023 (JPY) | | :---------------------------- | :--------- | :--------- | :--------- | :--------- | | Net earned premiums | $1,715 | $2,064 | ¥267 | ¥283 | | Adjusted net investment income | $725 | $637 | ¥113 | ¥88 | | Total adjusted revenues | $2,447 | $2,710 | ¥381 | ¥373 | | Total benefits and adjusted expenses | $1,583 | $1,888 | ¥247 | ¥259 | | Pretax adjusted earnings | $864 | $822 | ¥135 | ¥113 | - In yen terms, Aflac Japan's net earned premiums decreased due to internal reinsurance and limited-pay products reaching premium paid-up status392393 - Adjusted net investment income in yen increased due to yen weakening on U.S. dollar investments, lower hedge costs, and higher variable investment income392393 - Annualized premiums in force for Aflac Japan decreased 3.6% to ¥1.22 trillion as of June 30, 2024, primarily due to limited-pay products reaching premium paid-up status394 Aflac Japan New Annualized Premium Sales (Three Months Ended June 30) | Metric (in millions) | 2024 (USD) | 2023 (USD) | 2024 (JPY) | 2023 (JPY) | | :---------------------------- | :--------- | :--------- | :--------- | :--------- | | New annualized premium sales | $108 | $117 | ¥16.8 | ¥16.1 | | % change over prior period | (7.8)% | 19.7% | 4.5% | 26.6% | - The increase in yen-based new annualized premium sales was driven by the new life insurance product, Tsumitasu, launched in June 2024401 AFLAC U.S. SEGMENT Aflac U.S. pretax adjusted earnings increased by 3.8% in Q2 2024, driven by higher net earned premiums, increased adjusted net investment income, and improved expense efficiency Aflac U.S. Summary of Operating Results (Three Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :---------------------------- | :------ | :------ | | Net earned premiums | $1,455 | $1,425 | | Adjusted net investment income | $218 | $203 | | Total adjusted revenues | $1,684 | $1,663 | | Total benefits and adjusted expenses | $1,301 | $1,294 | | Pretax adjusted earnings | $383 | $369 | - Net earned premiums increased due to growth initiatives in group life and disability and consumer markets, and improved premium persistency418419 - Adjusted net investment income increased due to higher fixed rate, variable, and short-term income418419 - Total adjusted expenses decreased due to improved expense efficiency418419 - Annualized premiums in force increased 2.9% to $6.2 billion at June 30, 2024420 Aflac U.S. New Annualized Premium Sales (Three Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :---------------------------- | :------ | :------ | | New annualized premium sales | $331 | $324 | | % change over prior period | 2.0% | 6.4% | CORPORATE AND OTHER Corporate and other pretax adjusted earnings significantly increased, driven by higher reinsurance activity and investment income, partially offset by increased expenses Corporate and Other Summary of Operating Results (Three Months Ended June 30) | Metric (in millions) | 2024 | 2023 | | :---------------------------- | :------ | :------ | | Net earned premiums | $155 | $84 | | Adjusted net investment income | $91 | $52 | | Total adjusted revenues | $249 | $140 | | Total benefits and adjusted expenses | $227 | $192 | | Pretax adjusted earnings | $23 | $(52) | - Net earned premiums and adjusted net investment income increased primarily due to higher reinsurance activity from agreements established in Q4 2023 and a lower volume of federal historic rehabilitation and solar tax credit investments436437 INVESTMENTS Aflac's investment strategy focuses on long-term risk-adjusted returns, maintaining diversified portfolios with a strong credit rating distribution, and managing below-investment-grade exposures - Aflac's investment strategy aims for long-term risk-adjusted returns and stable income through disciplined asset and liability management, with diversified portfolios in Japan and the U.S.440 Investment Securities by Segment (June 30, 2024) | Investment Type (in millions) | Aflac Japan | Aflac U.S. | Corporate and Other | Total | | :---------------------------- | :---------- | :--------- | :------------------ | :---- | | Available-for-sale, fixed maturity securities | $48,365 | $12,773 | $5,121 | $66,259 | | Held-to-maturity, fixed maturity securities | $15,685 | $0 | $0 | $15,685 | | Equity securities | $458 | $2 | $268 | $728 | | Commercial mortgage and other loans | $9,463 | $2,183 | $205 | $11,795 | | Other investments | $5,510 | $616 | $936 | $7,102 | | Total investments and cash | $81,427 | $16,588| $9,614 | $107,629| - The Company's investments in Transitional Real Estate Loans (TREs) and Commercial Mortgage Loans (CMLs) have been affected by commercial real estate market conditions, leading to foreclosures and recognition of REO445446 Fixed Maturity Securities by Credit Rating (June 30, 2024) | Credit Rating | Amortized Cost % | Fair Value % | | :-------------- | :--------------- | :----------- | | AAA | 1.6% | 1.7% | | AA | 6.2% | 6.6% | | A | 67.6% | 65.4% | | BBB | 23.1% | 24.6% | | BB or lower | 1.5% | 1.7% | | Total | 100.0% | 100.0% | Below-Investment-Grade Investments (June 30, 2024) | Item (in millions) | Amortized Cost | Fair Value | | :---------------------------- | :------------- | :--------- | | Securities initially purchased as investment grade, but subsequently downgraded | $820 | $900 | | High yield corporate bonds | $410 | $507 | | Middle market loans | $3,999 | $3,953 | | Grand Total | $5,229 | $5,360 | HEDGING ACTIVITIES Aflac utilizes various hedging strategies, including foreign currency forwards, options, and interest rate swaps, to mitigate foreign exchange and interest rate risks across its Japan and Corporate segments - Aflac uses foreign currency forwards and options to hedge U.S. dollar-denominated investments in Aflac Japan back to yen, economically creating yen assets475 - The Parent Company designates yen-denominated liabilities and foreign currency derivatives as hedges of its net investment in Aflac Japan, with a partially hedged consolidated yen-denominated net asset position of $6.0 billion as of June 30, 2024480 Hedging Program Metrics (June 30, 2024) | Program/Derivative Type | Notional at End of Period (in billions) | Amortized Hedge Income (Cost) for Period (in millions) | | :---------------------- | :-------------------------------------- | :----------------------------------------------------- | | Aflac Japan FX Forwards | $0.0 | $0 | | Aflac Japan FX Options | $24.7 | $(7) | | Corporate FX Forwards | $2.0 | $34 | | Corporate FX Options | $0.0 | $0 | - Aflac Japan's unhedged U.S. dollar-denominated portfolio had a fair value of $73 million as of June 30, 2024477 DEFERRED POLICY ACQUISITION COSTS Total deferred policy acquisition costs (DAC) decreased by 6.4% to $8,550 million, primarily due to a 10.9% decrease in Aflac Japan's DAC Deferred Policy Acquisition Costs by Segment (in millions) | Segment | June 30, 2024 | December 31, 2023 | % Change | | :---------- | :------------ | :---------------- | :------- | | Aflac Japan | $4,951 | $5,559 | (10.9)% | | Aflac U.S. | $3,599 | $3,573 | 0.7% | | Total | $8,550 | $9,132 | (6.4)% | POLICY LIABILITIES Total policy liabilities decreased by 15.6% to $77,353 million, with Aflac Japan's liabilities seeing a 17.2% dollar-term decrease Policy Liabilities by Segment (in millions) | Segment | June 30, 2024 | December 31, 2023 | % Change | | :------------------- | :------------ | :---------------- | :------- | | Aflac Japan | $67,236 | $81,167 | (17.2)% | | Aflac U.S. | $11,124 | $11,600 | (4.1)% | | Corporate and other | $3,217 | $3,979 | (19.2)% | | Intercompany eliminations | $(4,224) | $(5,147) | (17.9)% | | Total | $77,353 | $91,599 | (15.6)%| - Aflac Japan's policy liabilities decreased 5.9% in yen during the six months ended June 30, 2024490 BENEFIT PLANS Aflac Japan and Aflac U.S. maintain various benefit plans, including funded defined benefit and non-qualified supplemental retirement plans, with further details in Note 12 - Aflac Japan and Aflac U.S. operate various benefit plans, including funded defined benefit plans and non-qualified supplemental retirement plans492 POLICYHOLDER PROTECTION Aflac Japan incurred no LIPPC assessment expense as the fund reached its required balance, and U.S. state guaranty fund assessments were immaterial - Aflac Japan did not recognize an expense for LIPPC assessments for the six-month periods ended June 30, 2024 and 2023, as the LIPPC reached its required balance493 - U.S. state guaranty fund assessments were immaterial for the three- and six-month periods ended June 30, 2024 and 2023494 LIQUIDITY AND CAPITAL RESOURCES Aflac maintains strong liquidity and capital, with $6.1 billion in cash and cash equivalents, robust regulatory ratios, and active management of cash flows and shareholder returns - At June 30, 2024, the Company held $6.1 billion in cash and cash equivalents, including the Parent Company's target minimum of $1.8 billion for capital buffer and liquidity support497 Remittances to Parent Company (Six Months Ended June 30) | Item (in millions) | 2024 | 2023 | | :------------------------------------- | :------ | :------ | | Management fees paid by subsidiaries | $81 | $75 | | Dividends declared or paid by subsidiaries | $2,111 | $1,971 | | Aflac Japan dividends declared or paid to Parent Company (in dollars) | $1,661 | $1,496 | Consolidated Cash Flows by Activity (Six Months Ended June 30) | Activity (in millions) | 2024 | 2023 | | :--------------------------------------- | :------ | :------ | | Operating activities | $1,104 | $1,332 | | Investing activities | $2,294 | $1,488 | | Financing activities | $(1,576) | $(1,944) | | Exchange effect on cash and cash equivalents | $(68) | $(99) | | Net change in cash and cash equivalents | $1,754| $777 | - Cash returned to shareholders through treasury stock purchases and dividends was $2.1 billion in 6M 2024, compared to $1.9 billion in 6M 2023516 - Aflac Japan's Solvency Margin Ratio (SMR) and Aflac U.S.'s Risk-based Capital (RBC) ratio remain high, reflecting strong capital positions. Japan's FSA will introduce an economic value-based solvency regime (ICS) for insurance companies in Japan, effective for Aflac Japan's 2025 fiscal year526527528 CRITICAL ACCOUNTING ESTIMATES Aflac's critical accounting estimates, including investment valuation, DAC, policy liabilities, and income taxes, involve significant judgment and impact a large portion of assets and liabilities - Critical accounting estimates include valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits, and income taxes534 - These estimates impact 92% of the Company's assets and 76% of its liabilities as of June 30, 2024534 - No changes in critical accounting estimates occurred during the six-month period ended June 30, 2024534 Item 3. Quantitative and Qualitative Disclosures about Market Risk Aflac is exposed to currency, interest rate, credit, and equity risks, with no material changes reported since the 2023 Annual Report - Aflac is exposed to currency risk, interest rate risk, credit risk, and equity risk536 - No material changes to market risk exposures were reported compared to the 2023 Annual Report536 Item 4. Controls and Procedures Aflac's disclosure controls were effective as of June 30, 2024, with an upgraded financial reporting system improving internal controls - Disclosure controls and procedures were deemed effective as of June 30, 2024537 - An upgrade to the financial accounting and reporting consolidation system in May 2024 led to new and revised internal controls, which management believes improved internal control over financial reporting538 PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Aflac repurchased 19.0 million shares of common stock for $83.39 average price in the first six months of 2024, with 59.2 million shares remaining authorized Issuer Purchases of Equity Securities (First Six Months of 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------------- | :------------------------------- | :--------------------------- | | January 1 - January 31 | 0 | $0.00 | | February 1 - February 29 | 5,308,570 | $78.58 | | March 1 - March 31 | 4,424,657 | $83.34 | | April 1 - April 30 | 2,674,130 | $83.18 | | May 1 - May 31 | 3,680,826 | $86.25 | | June 1 - June 30 | 2,956,250 | $88.72 | | Total | 19,044,433 | $83.39 | - As of June 30, 2024, 59,181,230 shares remained available for purchase under the Company's share repurchase authorizations539 Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or executive officers adopted or terminated Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements during the second quarter of 2024540 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files - Exhibits include corporate governance documents (Articles of Incorporation, Bylaws), CEO and CFO certifications, and XBRL interactive data files542 Glossary of Selected Terms This glossary defines key financial and operational metrics, including non-U.S. GAAP measures, used throughout the Quarterly Report on Form 10-Q - The glossary provides definitions for key financial and operational metrics, including non-U.S. GAAP measures like Adjusted Net Investment Income, Adjusted Earnings, Adjusted Book Value, and Adjusted Return on Equity544545554555556557558559560561 SIGNATURES The Form 10-Q report was signed on August 1, 2024, by the Executive Vice President and Chief Financial Officer, and the Senior Vice President, Financial Services and Chief Accounting Officer - The report was signed by Max K. Brodén, Executive Vice President and Chief Financial Officer, and Robin L. Blackmon, Senior Vice President, Financial Services and Chief Accounting Officer, on August 1, 2024563
Aflac(AFL) - 2024 Q2 - Quarterly Report