AFLAC INC

RESULTS OF OPERATIONS

The Company earns its revenues principally from insurance premiums and investments. The Company’s operating expenses primarily consist of insurance benefits provided and reserves established for anticipated future insurance benefits, general business expenses, commissions and other costs of selling and servicing its products. Profitability for the Company depends principally on its ability to price its insurance products at a level that enables the Company to earn a margin over the costs associated with providing benefits and administering those products. Profitability also depends on, among other items, actuarial and policyholder behavior experience on insurance products, and the Company's ability to attract and retain customer assets, generate and maintain favorable investment results, effectively deploy capital and utilize tax capacity, and manage expenses.

This document includes references to the Company’s financial performance measures which are not calculated in accordance with United States generally accepted accounting principles (U.S. GAAP) (non-U.S. GAAP). The financial measures exclude items that the Company believes may obscure the underlying fundamentals and trends in insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with insurance operations.

Due to the size of Aflac Japan, where the functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. A significant portion of the Company’s business is conducted in yen and never converted into dollars but translated into dollars for U.S. GAAP reporting purposes, which results in foreign currency impact to earnings, cash flows and book value on a U.S. GAAP basis. Management evaluates the Company's financial performance both including and excluding the impact of foreign currency translation to monitor, respectively, cumulative currency impacts and the currency-neutral operating performance over time. The average yen/dollar exchange rate is based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

The Company defines the non-U.S. GAAP financial measures included in this document as follows:

•Adjusted earnings are adjusted revenues less benefits and adjusted expenses. Adjusted earnings per share (basic or diluted) are the adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding adjusted net investment gains and losses. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the Company’s insurance operations and that do not reflect the Company's underlying business performance. Management uses adjusted earnings and adjusted earnings per diluted share to evaluate the financial performance of the Company’s insurance operations on a consolidated basis and believes that a presentation of these financial measures is vitally important to an understanding of the underlying profitability drivers and trends of the Company’s insurance business. The most comparable U.S. GAAP financial measures for adjusted earnings and adjusted earnings per share (basic or diluted) are net earnings and net earnings per share, respectively.

•Adjusted net investment gains and lossesare net investment gains and losses adjusted for i) amortized hedge cost/income related to foreign currency exposure management strategies and certain derivative activity, ii) net interest cash flows from foreign currency and interest rate derivatives associated with certain investment strategies, which are both reclassified to net investment income, and iii) the impact of interest cash flows from derivatives associated with notes payable, which is reclassified to interest expense as a component of total adjusted expenses. The Company considers adjusted net investment gains and losses important as it represents the remainder amount that is considered outside management’s control, while excluding the components that are within management’s control and are accordingly reclassified to net investment income and interest expense. The most comparable U.S. GAAP financial measure for adjusted net investment gains and losses is net investment gains and losses.

•Amortized hedge costs/income represent costs/income incurred or recognized as a result of using foreign currency derivatives to hedge certain foreign exchange risks in the Company's Japan segment or in Corporate and other. These amortized hedge costs/ income are estimated at the inception of the derivatives based on the specific terms of each contract and are recognized on a straight-line basis over the term of the hedge. The Company believes that amortized hedge costs/income measure the periodic currency risk management costs/income related to hedging certain foreign currency exchange risks and are an important component of net investment income. There is no comparable U.S. GAAP financial measure for amortized hedge costs/ income.

•Adjusted earnings excluding current period foreign currency impact are computed using the average foreign currency exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by foreign currency exchange rate changes. Adjusted earnings per diluted share excluding current period foreign currency impact is adjusted earnings excluding current period foreign currency impact divided by the weighted average outstanding diluted shares for the period presented. The Company considers adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact important because a significant portion of the Company's business is conducted in Japan and foreign exchange rates are outside management’s control; therefore, the Company believes it is important to understand the impact of translating foreign currency (primarily Japanese yen) into U.S. dollars. The most comparable U.S. GAAP financial measures for adjusted earnings excluding current period foreign currency impact and adjusted earnings per diluted share excluding current period foreign currency impact are net earnings and net earnings per share, respectively.

•Adjusted book valueis the U.S. GAAP book value (representing total shareholders’ equity), less AOCI as recorded on the U.S. GAAP balance sheet. Adjusted book value per common share is adjusted book value at the period end divided by the ending outstanding common shares for the period presented. The Company considers adjusted book value and adjusted book value per common share important as they exclude AOCI, which fluctuates due to market movements that are outside management’s control. The most comparable U.S. GAAP financial measures for adjusted book value and adjusted book value per common share are total book value and total book value per common share, respectively.

•Adjusted return on equity excluding foreign currency impactis adjusted earnings excluding the current period foreign currency impact divided by average shareholders’ equity, excluding AOCI. The Company considers adjusted return on equity excluding foreign currency impact important as it excludes changes in foreign currency and components of AOCI, which fluctuate due to market movements that are outside management's control. The most comparable U.S. GAAP financial measure for adjusted return on equity excluding foreign currency impact is return on average equity (ROE) as determined using net earnings and average total shareholders’ equity.

•U.S. dollar-denominated investment income excluding foreign currency impact represents amounts excluding foreign currency impact on U.S. dollar-denominated investment income using the average foreign currency exchange rate for the comparable prior year period. The Company considers U.S. dollar-denominated investment income excluding foreign currency impact important as it eliminates the impact of foreign currency changes on the Aflac Japan segment results, which are outside management’s control. The most comparable U.S. GAAP financial measure for U.S. dollar-denominated investment income excluding foreign currency impact is the corresponding net investment income amount from the U.S. dollar denominated investments translated to yen.

The following table is a reconciliation of items impacting adjusted earnings and adjusted earnings per diluted share to the most directly comparable U.S. GAAP financial measures of net earnings and net earnings per diluted share, respectively, for the years ended December 31.

Reconciliation of Net Earnings to Adjusted Earnings

(1) See reconciliation of net investment (gains) losses to adjusted net investment (gains) losses below.

(2) Includes release of $452 in deferred taxes in 2022.

(3) Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.

Reconciling Items

Net Investment Gains and Losses

The following table is a reconciliation of items impacting adjusted net investment (gains) losses to the most directly comparable U.S. GAAP financial measures of net investment (gains) losses for the years ended December 31.

Reconciliation of Net Investment (Gains) Losses to Adjusted Net Investment (Gains) Losses

The Company's investment strategy is to invest primarily in fixed maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s profitability. This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure. The Company does not purchase securities with the intent of generating investment gains or losses. However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing. The realization of investment gains and losses is independent of the underwriting and administration of the Company's insurance products.

Net investment gains and losses excluded from adjusted earnings include the following:

•Securities Transactions

•Credit Losses

•Changes in the Fair Value of Equity Securities

•Certain Derivative and Foreign Currency Activities.

Securities Transactions, Credit Losses and Changes in the Fair Value of Equity Securities

Securities transactions include gains and losses from sales and redemptions of investments where the amount received is different from the amortized cost of the investment. Credit losses include losses for held-to-maturity fixed maturity securities, available-for-sale fixed maturity securities, loan receivables, loan commitments and reinsurance recoverables. Changes in the fair value of equity securities are the result of gains or losses driven by fluctuations in market prices.

Certain Derivative and Foreign Currency Activities

The Company's derivative activities include:

•foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio, with options used on a standalone basis and/or in a collar strategy;

•foreign currency forwards and options used to economically hedge certain portions of forecasted cash flows denominated in yen and hedge the Company's long term exposure to a weakening yen;

•cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and subordinated debentures;

•foreign currency swaps that are associated with variable interest entity (VIE) bond purchase commitments, and investments in special-purpose entities, including VIEs where the Company is the primary beneficiary;

•interest rate swaps used to economically hedge interest rate fluctuations in certain variable-rate investments;

•interest rate swaptions used to hedge changes in the fair value associated with interest rate fluctuations for certain U.S. dollar-denominated available-for-sale fixed-maturity securities; and

•bond purchase commitments at the inception of investments in consolidated VIEs.

Gains and losses are recognized as a result of valuing these derivatives, net of the effects of hedge accounting. The Company also excludes from adjusted earnings the accounting impacts of remeasurement associated with changes in the foreign currency exchange rate.

For additional information regarding net investment gains and losses, including details of reported amounts for the periods presented, see Notes 3 and 4 of the Notes to the Consolidated Financial Statements.

Other and Non-recurring Items

The U.S. insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. The system can result in periodic charges to the Company as a result of insolvencies/bankruptcies that occur with other companies in the life insurance industry. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. These charges neither relate to the ordinary course of the Company’s business nor reflect the Company’s underlying business performance, but result from external situations not controlled by the Company. The Company excludes any charges associated with U.S. guaranty fund assessments and the corresponding tax benefit or expense from adjusted earnings.

In Japan, the government also requires the insurance industry to contribute to a policyholder protection corporation that provides funds for the policyholders of insolvent insurers; however, these costs are calculated and administered differently than in the U.S. In Japan, these costs are not directly related to specific insolvencies or bankruptcies, but are rather a regular operational cost for an insurance company. Based on this structure, the Company does not remove the Japan policyholder protection expenses from adjusted earnings.

The Company considers the costs associated with the early redemption of its debt to be unrelated to the underlying fundamentals and trends in its insurance operations. Additionally, these costs are driven by changes in interest rates subsequent to the issuance of the debt, and the Company considers these interest rate changes to represent economic conditions not directly associated with its insurance operations. In May 2021, the Parent Company used a portion of the net proceeds from its April 2021 issuance of various series of senior notes to redeem $700 million of its 3.625% senior notes due June 2023. The pretax expense due to the early redemption of these notes was $48 million.

In June 2023, the Company amended the U.S. defined benefit plan to freeze future benefits under the plan for all participants effective January 1, 2024, which resulted in the Company recognizing a curtailment gain of approximately $49 million in 2023. The curtailment gain is both unusual and non-recurring and is unrelated to other recurring benefit costs associated with the plan; therefore, the Company has excluded the curtailment gain from adjusted earnings.

In 2023, other items excluded from adjusted earnings included an impairment for certain finite-lived intangible assets of approximately $11 million as a result of the Company exiting the third-party administration business acquired in connection with the purchase of Aflac Benefit Solutions, Inc. in 2019. The impairment of these intangible assets are not related to the ongoing operations of the business and occur infrequently; therefore, the Company has excluded the impairment from adjusted earnings.

In 2021, other items excluded from adjusted earnings included integration costs related to the Company's acquisition of Zurich North America's U.S. Corporate Life and Pensions business; these costs primarily consisted of expenditures for legal, accounting, consulting, integration of systems and processes and other similar services. These integration costs were excluded from adjusted earnings for one year following the acquisition and amounted to $26 million for the year ended December 31, 2021.

Income Taxes

The Company's combined U.S. and Japanese effective income tax rate on pretax earnings was 11.5% in 2023, 9.3% in 2022 and 18.7% in 2021. In 2023, the combined effective tax rate differed from the U.S. statutory rate primarily due to historic and solar tax credits and the exclusion of foreign currency translation gains and losses held in the Delaware Statutory Trust. In 2022, the combined effective tax rate differed from the U.S. statutory rate primarily due to the impact of the tax accounting method change discussed below, as well as historic and solar tax credits. In 2021, the combined effective tax rate differed from the U.S. statutory rate primarily due to historic and solar tax credits. Total income taxes were $603 million in 2023, $451 million in 2022 and $977 million in 2021. Japanese income taxes on Aflac Japan's results account for most of the Company's consolidated income tax expense.

Aflac Japan holds certain U.S. dollar-denominated assets in a Delaware Statutory Trust (DST). These assets are mostly comprised of various U.S. dollar-denominated commercial mortgage loans. The functional currency of the DST for U.S. tax purposes was historically the Japanese yen. In 2022, the Company requested a change in tax accounting method through the Internal Revenue Service's automatic consent procedures to change the functional currency of the DST for U.S. tax purposes to the U.S. dollar. As a result, foreign currency translation gains or losses on assets held in the DST are no longer recognized for U.S. tax purposes. The Company historically recorded a deferred tax liability for foreign currency translation gains on the DST assets, which was released in the third quarter of 2022 as a result of the functional currency change. The release of the deferred tax liability resulted in the Company recognizing an income tax benefit of $174 million in 2023 and $452 million in 2022.

In August 2022, the Inflation Reduction Act of 2022 (IRA) was signed into U.S. law, which among other things, imposed a 1% excise tax on the Company’s repurchases of its common stock. Effective January 1, 2023, charges associated with the excise tax are recognized in equity consistent with other costs related to treasury stock.

For additional information, see Note 10 of the Notes to the Consolidated Financial Statements and the Critical Accounting Estimates - Income Taxes section of this MD&A.

The Company expects that its effective tax rate on adjusted earnings for future periods will be approximately 20%. The effective tax rate continues to be subject to future tax law changes both in the U.S. and in foreign jurisdictions. See the risk factor entitled "Tax rates applicable to the Company may change" in Part I, Item 1A. Risk Factors for additional information.

Foreign Currency Translation

Aflac Japan’s premiums and a significant portion of its investment income are received in yen, and its claims and most expenses are paid in yen. Aflac Japan purchases yen-denominated assets and U.S. dollar-denominated assets, which may be hedged to yen, to support yen-denominated policy liabilities. Yen-denominated income statement accounts are translated to U.S. dollars using the weighted average Japanese yen/U.S. dollar foreign exchange rate for the reporting period, except realized gains and losses on securities transactions which are translated at the exchange rate on the trade date of each transaction. Yen-denominated balance sheet accounts are translated to U.S. dollars using the spot Japanese yen/U.S. dollar foreign exchange rate at the end of the reporting period.

Reconciliation of Book Value to Adjusted Book Value

The following table is a reconciliation of items impacting adjusted book value and adjusted book value per diluted share to the most directly comparable U.S. GAAP financial measures of book value and book value per diluted share, respectively, for the years ended December 31.

Reconciliation of Return on Equity to Adjusted Return on Equity

(Excluding the Impact of Foreign Currency)

The following table is a reconciliation of items impacting adjusted return on equity excluding the impact of foreign currency to the most directly comparable U.S. GAAP financial measure of return on equity for the years ended December 31.

(1)U.S. GAAP return on equity is calculated by dividing net earnings (annualized) by average shareholders' equity.

(2)See separate reconciliation of net earnings to adjusted earnings above.

(3)Impact of foreign currency is calculated by restating all foreign currency components of the income statement to the weighted average foreign currency exchange rate for the comparable prior year period. The impact is the difference of the restated adjusted earnings compared to reported adjusted earnings. For comparative purposes, only current period income is restated using the weighted average prior period exchange rate, which eliminates the foreign currency impact for the current period. This allows for equal comparison of this financial measure.

RESULTS OF OPERATIONS BY SEGMENT

U.S. GAAP financial reporting requires that a company report financial and descriptive information about operating segments in its annual and interim period financial statements. Furthermore, the Company is required to report a measure of segment profit or loss, certain revenue and expense items, and segment assets. The Company's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan is the principal contributor to consolidated earnings. In addition, the Parent Company, other business units that are not individually reportable, and business activities, including reinsurance activities, not included in Aflac Japan or Aflac U.S. are included in Corporate and other. See Item 1. Business for a summary of each segment's products and distribution channels.

Consistent with U.S. GAAP guidance for segment reporting, pretax adjusted earnings is the Company's U.S. GAAP measure of segment performance. The Company believes that a presentation of this measure is vitally important to an understanding of the underlying profitability drivers and trends of its business. Additional performance measures used to evaluate the financial condition and performance of the Company's segments are listed below.

•Operating Ratios

•New Annualized Premium Sales

•New Money Yield

•Return on Average Invested Assets

•Average Weekly Producer

•Premium Persistency

For additional information on the Company’s performance measures included in this MD&A, see the Glossary of Selected Terms found directly following Part IV. See Note 2 of the Notes to the Consolidated Financial Statements for the reconciliation of segment results to the Company's consolidated U.S. GAAP results and additional information.

AFLAC JAPAN SEGMENT

Aflac Japan Pretax Adjusted Earnings

Changes in Aflac Japan's pretax adjusted earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac Japan for the years ended December 31 followed by a discussion of the significant drivers of changes in yen operating results compared to the previous year.

Aflac Japan Summary of Operating Results

(2) Net interest cash flows from derivatives associated with certain investment strategies of $(294), $(86) and $(33) in 2023, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In 2023, net earned premiums decreased primarily due to approximately ¥37 billion related to internal reinsurance transactions with Aflac Re and approximately ¥32 billion in limited-pay products reaching premium paid-up status. Adjusted net investment income increased in 2023, as compared to 2022, primarily due to an increase in floating rate income earned from U.S. dollar-denominated investments, which was driven by higher yields, partially offset by lower income from make whole payments and an increase in amortized hedge cost. In 2023, total adjusted revenues decreased primarily due to the decrease in net earned premiums and partially offset by an increase in adjusted net investment income. In 2023, total benefits and claims decreased primarily due to lower third sector incurred claims and annual assumption updates as well as an approximately ¥26 billion decrease due to internal reinsurance transactions with Aflac Re. Total adjusted expenses decreased in 2023 primarily due to approximately ¥9 billion of impacts related to internal reinsurance transactions with Aflac Re and decreases related to expense control efforts. In 2023, pretax adjusted earnings increased primarily due to the decrease in total benefits and claims and total adjusted expenses, partially offset by the decrease in total adjusted revenues.

In 2022, net earned premiums decreased primarily due to limited-pay products reaching premium paid-up status and terminations net of new issues. Adjusted net investment income increased in 2022 primarily due to higher floating rate income earned from U.S. dollar-denominated investments that were driven by stronger dollar exchange rates, increasing interest rates, and higher income from make whole payments received on called securities, which were partially offset by lower income from alternative assets and higher hedge costs. In 2022, total adjusted revenues decreased primarily due to the decrease in net earned premiums. In 2022, total benefits and claims decreased primarily due to a larger reserve release related to "deemed hospitalization" benefits. Total adjusted expenses decreased primarily due to lower general operating expenses. In 2022, pretax adjusted earnings increased primarily due to the decrease in total benefits and claims and total adjusted expenses, partially offset by the decrease in total adjusted revenues.

When comparing 2021 results prior to and subsequent to adoption of LDTI, net earned premiums decreased primarily due to approximately a ¥60 billion increase in the deferred profit liability on limited-pay products as a result of the reclassification of the change in deferred profit liability from the benefits and claims, net line item to the net earned premiums line item. Total benefits and claims decreased approximately ¥31 billion, which included a ¥7 billion reserve remeasurement gain. See Note 1 of the Notes to the Consolidated Financial Statements for more information regarding the adoption of LDTI.

Annualized premiums in force at December 31, 2023, were ¥1.25 trillion, compared with ¥1.30 trillion in 2022 and ¥1.36 trillion in 2021. The decrease in annualized premiums in force in yen of 4.2% in 2023 was driven primarily by limited-pay products reaching premium paid-up status. The decrease in annualized premiums in force in yen of 4.4% in 2022 and 4.7% in 2021 was driven primarily by limited-pay products reaching premium paid-up status and lower sales as a result of pandemic conditions. Annualized premiums in force, translated into dollars at respective year-end exchange rates, were $8.8 billion in 2023, $9.8 billion in 2022 and $11.8 billion in 2021. As of December 31, 2023, Aflac Japan exceeded 22 million individual policies in force in Japan, with more than 14 million cancer policies in force in Japan.

Aflac Japan's investment portfolios include U.S. dollar-denominated securities and reverse-dual currency securities (yen-denominated debt securities with dollar coupon payments). In years when the yen strengthens in relation to the dollar, translating Aflac Japan's U.S. dollar-denominated investment income into yen lowers growth rates for net investment income, total adjusted revenues, and pretax adjusted earnings in yen terms. In years when the yen weakens, translating U.S. dollar-denominated investment income into yen magnifies growth rates for net investment income, total adjusted revenues, and pretax adjusted earnings in yen terms.

The following table illustrates the effect of translating Aflac Japan's U.S. dollar-denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had foreign currency exchange rates remained unchanged from the prior year. Amounts excluding foreign currency impact on U.S. dollar-denominated investment income were determined using the average foreign currency exchange rate for the comparable prior year period. See non-U.S. GAAP financial measures defined above.

Aflac Japan Percentage Changes Over Prior Year

(Yen Operating Results)

For the Years Ended December 31,

The following table presents a summary of operating ratios in yen terms for Aflac Japan for the years ended December 31.

In 2023, the total benefits and claims to total premiums ratio decreased primarily due to a decrease in the third sector benefit ratio from annual updates to reserve assumptions, internal reinsurance activity, and the continued change in the mix of first and third sector business. The total adjusted expense ratio decreased in 2023, primarily due to the decrease in total adjusted revenues and an offsetting decrease in total adjusted expenses due to the internal reinsurance transactions with Aflac Re and expense control efforts. In total, the pretax adjusted profit margin increased in 2023, primarily due to the lower benefit ratio, the lower expense ratio and an offsetting decrease in total adjusted revenues.

In 2022, the total benefits and claims to total premiums ratio decreased slightly primarily due to a larger reserve release related to "deemed hospitalization" benefits. The total adjusted expense ratio was essentially flat in 2022. In total, the pretax adjusted profit margin increased in 2022 primarily due to the lower benefit ratio, the lower expense ratio and an offsetting decrease in total adjusted revenues.

The following table presents Aflac Japan's premium persistency on a 12-month rolling basis as of December 31.

Aflac Japan Sales

The following table presents Aflac Japan's new annualized premium sales for the years ended December 31.

In 2023, the increase in new annualized premium sales on a yen basis was primarily driven by sales of Aflac Japan's new cancer insurance product and updated first sector products, all of which were launched in the second half of 2022 and at Japan Post, Dai-ichi Life and other financial institutions in the first half of 2023, and sales of Aflac Japan's new medical insurance product launched in September 2023.

In 2022, new annualized premium sales on a yen basis were essentially flat, compared with 2021, reflecting constrained sales in the first half of the year due to ongoing pandemic conditions offset by a new cancer product launch in certain distribution channels and first sector product updates in the second half of the year.

The following table details the contributions to Aflac Japan's new annualized premium sales by major insurance product for the years ended December 31.

(1)Includes term and whole life

The foundation of Aflac Japan's product portfolio has been, and continues to be, third sector products, which include cancer, medical, income support, and other products such as nursing care and work leave insurance. With continued cost pressure on Japan’s health care system, the Company expects the need for third sector products will continue to rise in the future and that the medical and cancer insurance products Aflac Japan provides will continue to be an important part of its product portfolio. Moreover, in November 2022, Aflac Japan refreshed its first sector savings-type products WAYS and Child Endowment and began to actively promote sales of these products after having curtailed sales of both products beginning in 2013. The refreshment of these first sector products position Aflac Japan for potential future long-term sales opportunities by marketing these products to a younger demographic as well as potential cross-selling opportunities of Aflac Japan's third sector products.

Sales of Aflac Japan cancer insurance products in the Japan Post Group channel experienced a material decline beginning in August 2019. Japan Post Group resumed proactive sales of cancer insurance policies in April 2021 and Aflac Japan continues to strengthen the strategic alliance. In April 2023, Japan Post Group began selling Aflac Japan's new cancer insurance product that was first launched in other channels in August 2022. In April 2022, approximately 10,000 employees of Japan Post Co. were transferred to Japan Post Insurance. Japan Post Group has informed Aflac Japan that the transferred employees' responsibilities will include sales of Japan Post Insurance products and Aflac Japan cancer products but will not include sales of other financial products. For additional information, see the risk factor entitled "Sales of the Company's products and services are dependent on its ability to attract, retain and support a network of qualified sales associates, brokers and employees in the U.S. and sales associates and other distribution partners in Japan," in Part I, Item 1A. Risk Factors.

Aflac Japan continues to promote digital and web-based sales to groups and use of its system that enables smart device-based insurance application by allowing the customer and an Aflac Japan operator to see the same screen through their smart devices. Further, Aflac Japan continues to utilize its virtual sales tool that enables online consultations and policy applications to be completed entirely online.

The following table details the contributions to Aflac Japan's new annualized premium sales by agency type for the years ended December 31.

(1)Includes Japan Post Group, Dai-ichi Life and Daido Life

In 2023, Aflac Japan recruited 24 new sales agencies. At December 31, 2023, Aflac Japan was represented by approximately 7,000 sales agencies, with approximately 113,000 licensed sales associates employed by those agencies. The number of sales agencies has declined in recent years due to Aflac Japan's focus on supporting agencies with strong management frameworks, high productivity and more producing agents.

At December 31, 2023, Aflac Japan had agreements to sell its products at 360 banks, approximately 90% of the total number of banks in Japan.

Strategic Alliance with Japan Post Holdings

As previously reported, on December 19, 2018, the Parent Company and Aflac Japan entered into a Basic Agreement with Japan Post Holdings Co., Ltd., a Japanese corporation (Japan Post Holdings). Pursuant to the terms of the Basic Agreement, among other items, Japan Post Holdings and Aflac Japan agreed to reconfirm existing initiatives regarding cancer insurance and to consider new joint initiatives. In June 2021, the Parent Company, Aflac Japan and Japan Post Group agreed to pursue several specific initiatives toward building a "'Co-creation Platform' to support customers and local communities," consistent with Japan Post Group's medium-term management plan announced in May 2021. The initiatives are directed at, among other items, the promotion of Aflac Japan cancer insurance, digital transformation within the Japan Post Group, and certain diversity efforts.

As previously reported, on February 28, 2019, the Parent Company entered into a Shareholders Agreement with Japan Post Holdings, J&A Alliance Holdings Corporation, a Delaware corporation, solely in its capacity as trustee of J&A Alliance Trust, a New York voting trust (Trust), and General Incorporated Association J&A Alliance, a Japanese general incorporated association (the Shareholders Agreement). According to a Form 13F filed by Japan Post Holdings with the SEC on January 5, 2024, Japan Post Holdings owned 52.3 million Aflac Incorporated common shares as of December 31, 2023.

On May 1, 2023, the Parent Company filed a registration statement on Form S-3 that registered the sale of its common stock from time to time by J&A Alliance Holdings Corporation in its capacity as trustee of the Trust. The filing was made strictly pursuant to a contractual requirement contained in the Shareholders Agreement. The Trust has agreed not to own more than the greater of 10% of the Parent Company’s outstanding shares or such shares representing 22.5% of the voting rights in the Parent Company.

In light of the fact that the shares acquired by the Trust, like all Aflac Incorporated common shares, will be eligible for 10-for-1 voting rights after being held for 48 consecutive months, the Shareholders Agreement further provides for voting restrictions that effectively limit the trustee’s voting rights to no more than 20% of the voting rights in the Parent Company and further restrict the trustee’s voting rights with respect to certain change in control transactions. Japan Post Holdings will not have a board seat on the Parent Company’s board of directors and will not have rights to control, manage or intervene in the management of the Parent Company.

The foregoing is subject to and qualified in its entirety by reference to the full text of the Basic Agreement, a copy of which is attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 19, 2018, and the Shareholders Agreement, a copy of which is attached as Exhibit 10.50 to the Company’s Quarterly Report on Form 10-Q filed April 26, 2019, the terms of which exhibits are incorporated herein by reference.

Aflac Japan Investments

The level of investment income in yen is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, the effect of yen/dollar exchange rates on U.S. dollar-denominated investment income, and other factors.

As part of the Company's portfolio management and asset allocation process, Aflac Japan invests in yen and U.S. dollar-denominated investments. Yen-denominated investments primarily consist of JGBs, public and private fixed maturity securities and public equity securities. Aflac Japan's U.S. dollar-denominated investments include fixed maturity investments and growth assets, including alternative investments in limited partnerships or similar investment vehicles. Aflac Japan has been investing in both publicly traded and privately originated U.S. dollar-denominated investment-grade and below-investment-grade fixed maturity securities and loan receivables, and has entered into foreign currency forwards and options to hedge the currency risk on the fair value of a portion of the U.S. dollar investments.

The following table details the investment purchases for Aflac Japan for the years ended December 31.

See the Investments section of this MD&A for further discussion of these investment programs, and see Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements for additional information regarding loans and loan receivables.

Funds available for investment include cash flows from operations, investment income, and funds generated from maturities, redemptions, securities lending, and other securities transactions. Securities lending is also used from time to time to accelerate the availability of funds for investment. Purchases of securities from period to period are determined based on multiple objectives including appropriate portfolio diversification, the relative value of a potential investment and availability of investment opportunities, liquidity, credit and other risk factors while adhering to the Company's investment policy guidelines.

The following table presents the results of Aflac Japan's investment yields for the years ended and as of December 31

(1) Includes fixed maturity securities, commercial mortgage and other loans, equity securities, and excludes alternative investments in limited partnerships

(2) Reported on a gross yield basis; excludes investment expenses, external management fees, and amortized hedge costs

(3) Net of investment expenses and amortized hedge costs, year-to-date number reflected on a quarterly average basis

The increase in the Aflac Japan new money yield in 2023 was primarily due to increases in U.S. and Japan interest rates. The increase in the Aflac Japan new money yield in 2022 was primarily due to increases in U.S. interest rates.

See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Investments and Hedging Activities sections of this MD&A for additional information on the Company's investments and hedging strategies.

AFLAC U.S. SEGMENT

Aflac U.S. Pretax Adjusted Earnings

Changes in Aflac U.S. pretax adjusted earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac U.S. for the years ended December 31 followed by a discussion of the significant drivers of changes in operating results compared to the previous year.

Aflac U.S. Summary of Operating Results

(1)Net interest cash flows from derivatives associated with certain investment strategies of $(34), $(4) and $2 in 2023, 2022 and 2021, respectively, have been reclassified from net investment gains (losses) and included in adjusted earnings as a component of net investment income.

In 2023, Aflac U.S. net earned premiums increased primarily due to higher net earned premiums from growth initiatives, including group life and disability, network dental and vision, and consumer markets businesses. Adjusted net investment income increased in 2023 primarily due to increases in U.S. interest rates which increased yields on the Company's floating rate and short term investment portfolios. In 2023, total adjusted revenues increased primarily due to the increase in net earned premiums and adjusted net investment income. Total benefits and claims decreased in 2023 primarily due to a reserve remeasurement gain related to assumption updates and favorable experience. In 2023, total adjusted expenses increased due to an increase in employee-related expenses, a $31 million write-off of certain capitalized software development costs, as well as a slight increase in expenses related to ongoing investments in the U.S. platform. Pretax adjusted earnings increased in 2023, driven primarily by lower benefits and claims and the increase in adjusted revenues, partially offset by higher adjusted expenses.

In 2022, Aflac U.S. net earned premiums decreased, primarily due to lower persistency. Adjusted net investment income in 2022 was basically flat. In 2022, total adjusted revenues were flat. In 2022, total benefits and claims decreased primarily due to a reserve remeasurement gain related to assumption updates and favorable experience. In 2022, total adjusted expenses increased due to ongoing investments in the U.S. platform. The increase in pretax adjusted earnings in 2022 was driven primarily by lower benefits and claims offset by higher adjusted expenses and slightly lower revenue.

When comparing 2021 results prior to and subsequent to adoption of LDTI, total benefits and claims increased approximately $192 million due to a change in LFPB. See Note 1 of the Notes to the Consolidated Financial Statements for more information on the adoption of LDTI.

Annualized premiums in force increased 3.3% in 2023, were essentially flat in 2022 and decreased 1.6% in 2021. Annualized premiums in force at December 31 were $6.2 billion in 2023, compared with $6.0 billion in both 2022 and 2021.

The following table presents a summary of operating ratios for Aflac U.S. for the years ended December 31.

In 2023, the total benefits and claims to total premiums ratio decreased primarily due to reserve remeasurement gains related to assumption updates and favorable experience. The total adjusted expense ratio increased in 2023, primarily due to an increase in employee-related expenses, the $31 million write-off of certain capitalized software development costs, as well as a slight increase in expenses related to ongoing investments in the U.S. platform. In total, the pretax adjusted profit margin increased in 2023, primarily due to the lower benefit ratio.

In 2022, the total benefits and claims to total premiums ratio decreased primarily due to reserve remeasurement gains. The adjusted expense ratio increased in 2022, primarily due to higher planned spending reflecting ongoing investments in the U.S. platform. In total, the pretax adjusted profit margin was essentially flat in 2022.

The following table presents premium persistency for Aflac U.S. on a 12-month rolling basis as of December 31.

Aflac U.S. Sales

The following table presents Aflac's U.S. new annualized premium sales for the years ended December 31.

New annualized premium sales for accident insurance decreased 3.6%; disability sales increased 4.8%; critical care insurance sales (including cancer insurance) increased 7.6%; hospital indemnity insurance sales decreased .6%; dental/vision sales increased 15.4%; and life sales increased 22.2% in 2023, compared with 2022. The increase in sales for Aflac U.S. in 2023 and 2022 reflects continued improvement from investment in growth initiatives as well as productivity gains.

The following table details the contributions to Aflac's U.S. new annualized premium sales by major insurance product category for the years ended December 31.

(1)Includes cancer, critical illness and hospital intensive care products

In 2023, the Aflac U.S. sales force included an average of approximately 6,200 U.S. agents, including brokers, who were actively producing business on a weekly basis. The Company believes that this average weekly producer equivalent metric allows sales management to monitor progress and needs, as well as serve as a leading indicator of future production capacity.

In July 2023, the U.S. Department of Labor, U.S. Department of the Treasury and U.S. Department of Health and Human Services issued a proposed joint rule that, as written, would impose significant limitations on the structure of benefits for hospital indemnity and other fixed indemnity plans, including those sold by Aflac U.S. The current benefit structure for these products allows the Company to vary the amount of benefits by the services or items received, severity of illness or injury, or any other characteristics particular to a course of treatment. If finalized in its current form, the proposed rule would eliminate Aflac U.S.’s ability to vary the amount of benefits provided by these products. In addition, the proposed rule also proposes to change the tax treatment of all fixed indemnity products. Under the proposal, if premiums are paid on a pretax basis (either by the employer or by employee pretax salary reduction), then the entire amount of the benefit would be taxable income regardless of the amount of the employee’s unreimbursed medical expenses. Currently, only the benefits received in excess of unreimbursed medical or medical-related costs are subject to tax. The comment period for the proposed rule closed on September 11, 2023. Aflac U.S. has filed comments opposing the proposed rule. The timing and substance of the final regulations, if any, is not known, and any such final rule could be the subject of litigation.

Aflac U.S. Investments

The level of investment income is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, and other factors.

As part of the Company's portfolio management and asset allocation process, Aflac U.S. invests in fixed maturity investments and growth assets, including public equity securities and alternative investments in limited partnerships. Aflac U.S. has been investing in both publicly traded and privately originated investment-grade and below-investment-grade fixed maturity securities and loan receivables.

The following table details the investment purchases for Aflac U.S. as of December 31.

Funds available for investment include cash flows from operations, investment income, and funds generated from maturities, redemptions, and other securities transactions. Purchases of securities from period to period are determined based on multiple objectives, including appropriate portfolio diversification, the relative value of a potential investment and availability of investment opportunities, liquidity, credit and other risk factors while adhering to the Company's investment policy guidelines.

The following table presents the results of Aflac's U.S. investment yields for the years ended and as of December 31.

(1)Includes fixed maturity securities, commercial mortgage and other loans, equity securities, and excludes alternative investments in limited partnerships

(2)Reported on a gross yield basis; excludes investment expenses and external management fees

(3) Net of investment expenses, year-to-date number reflected on a quarterly average basis

The increase in the Aflac U.S. new money yield in 2023 and 2022 was primarily due to increases in U.S. interest rates. See Note 3 of the Notes to the Consolidated Financial Statements and the Market Risks of Financial Instruments - Credit Risk subsection of Item 7A. for additional information regarding the sector concentrations of the Company's investments.

CORPORATE AND OTHER

Changes in the pretax adjusted earnings of Corporate and other are primarily affected by internal reinsurance activity and net investment income. The following table presents a summary operating results for Corporate and other for the years ended December 31 followed by a discussion of the significant drivers of changes in operating results compared to the previous year.

Corporate and Other Summary of Operating Results

(1) The change in value of federal historic rehabilitation and solar investments in partnerships of $343, $91 and $138 in 2023, 2022 and 2021, respectively, is included as a reduction to net investment income. Tax credits on these investments of $334, $83 and $115 in 2023, 2022 and 2021, respectively, have been recorded as an income tax benefit in the consolidated statements of earnings. See Note 3 of the Notes to the Consolidated Financial Statements for additional information on these investments.

In 2023, net earned premiums increased due to the internal reinsurance transactions between Aflac Japan and Aflac Re. Adjusted net investment income decreased in 2023 primarily due to $252 million related to a higher volume of tax credit investments, as tax benefits are recognized in a corresponding lower income tax expense, partially offset by an increase driven by higher investment returns, $74 million related to internal reinsurance transactions between Aflac Japan and Aflac Re, and a $53 million increase in amortized hedge income. Total adjusted revenues increased in 2023 primarily due to higher total premiums offset by lower adjusted net investment income. In 2023, total benefits and claims increased primarily due to $181 million related to the internal reinsurance transactions between Aflac Japan and Aflac Re and $163 million related to a novation agreement under which Aflac Re assumed the duties, obligations and liabilities through a reinsurance of business ALIJ previously ceded to an external reinsurer, and partially offset by lower incurred claims. Total adjusted expenses increased in 2023 primarily due to higher expenses associated with the internal reinsurance transactions between Aflac Japan and Aflac Re. Pretax adjusted earnings decreased in 2023 primarily due to the increase in total adjusted revenue, which was offset by higher benefits and claims and the increase in total adjusted expenses.

In 2022, net earned premiums decreased primarily due to significant yen weakening. Adjusted net investment income increased primarily driven by higher investment returns, $47 million from a lower volume of tax credit investments, and an $11 million increase in amortized hedge income. Total adjusted revenues increased primarily due to higher adjusted net investment income. In 2022, total benefits and claims decreased due to lower incurred claims. Total adjusted expenses increased in 2022 primarily due to higher employee-related expenses. Pretax adjusted earnings increased in 2022 primarily due to the increase in total adjusted revenue, the decrease in total benefits and claims, and was partially offset by the increase in total adjusted expenses.

The Parent Company invests in partnerships that specialize in rehabilitating historic structures or the installation of solar equipment in order to receive federal historic rehabilitation and solar tax credits. These investments are classified as limited partnerships and included in other investments in the consolidated balance sheets. The change in value of each investment is recorded as a reduction to net investment income. Tax credits generated by these investments are recorded as an income tax benefit in the consolidated statements of earnings.