Aflac AFL

The Company has investments in variable interest entities (VIEs). Criteria for evaluating VIEs for consolidation focus on determining VIEs, which consist of fixed maturity securities, loan receivables, limited partnerships and derivative instruments. The Company is the primary beneficiary of the VIE if the Company has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (1) (2) the obligation to absorb losses of the VIE or (2) the right to receive benefits from the VIE. The If the Company determines that it is the primary beneficiary of certain VIEs, and therefore the VIE, it consolidates these entities in its consolidated financial statements. While the consolidated Consolidated VIEs generally operate within a defined set of contractual terms, there are certain powers that are retained by the Company that are considered significant in the conclusion that the Company is the primary beneficiary. These powers vary by structure but generally include the initial selection of the underlying collateral; the ability to obtain the underlying collateral in the event of default; and, the ability to appoint or dismiss key parties in the structure. In particular, the Company's powers surrounding the underlying collateral were considered to be the most significant powers because these most significantly impact the economics of the VIE. The Company has no obligation to provide any continuing financial support to any of the entities in which it is the primary beneficiary. The Company's maximum loss is limited to its original investment and, in certain cases, to any unfunded commitment held in the VIE. Neither the Company nor any of its creditors have the ability to obtain the underlying collateral, nor does the Company have control over the instruments held in the VIEs, unless there is an event of default. For those entities where the Company is the primary beneficiary, the consolidated entity's assets are segregated on the balance sheet by the caption "consolidated variable interest entities," and consist of fixed maturity securities, loan receivables, limited partnerships and derivative instruments. entities" in the consolidated balance sheets.

Due to the size of Aflac Japan, where functional currency is the Japanese yen, fluctuations in the foreign exchange rate between the Japanese yen and the U.S. dollar can have had, and may continue to have, a significant effect on the Company's reported financial position and results of operations. Aflac Japan's premiums and a significant portion of its investment income are received in Japanese yen, and its claims and almost all expenses are paid in Japanese yen. Aflac Japan purchases In accordance with U.S. GAAP, the Company translates its Japanese yen-denominated assets and U.S. dollar-denominated assets, which may be hedged to yen, to support yen-denominated policy liabilities. Certain unhedged U.S. dollar denominated assets and liabilities held by Aflac Japan are re-measured to yen with the volatility reported in earnings. Furthermore, the yen-denominated balance sheet of Aflac Japan is translated financial statement accounts into U.S. dollars for financial reporting purposes with the resulting foreign exchange impact reflected currency translation adjustments included in equity. Accordingly, fluctuations in the yen/dollar exchange rate can have a significant effect on the Company's reported financial position and results of operations. Yen Japanese yen weakening has the effect of suppressing current year results in relation to the prior year, while including the resulting negative impact on equity. Japanese yen strengthening has the effect of magnifying current year results in relation to the prior year. In addition, year, including the weakening of the yen relative to the U.S. dollar will generally adversely affect the value of the Company's yen-denominated investments in U.S. dollar terms. When the yen strengthens in relation to the U.S. dollar, the yen value of Aflac Japan's unhedged U.S. dollar-denominated investments decreases, resulting in a decrease in Aflac Japan regulatory capital. Further, unhedged U.S. dollar-denominated securities held by Aflac Japan are exposed to foreign exchange fluctuations, which also positive impact Aflac Japan regulatory capital. As a result, periods of unusually volatile currency exchange rates could result in limitations on dividends available to the Parent Company. equity.

Discount rates used to calculate net premiums are locked in at policy inception and represent the basis to recognize interest expense accreted on insurance reserves included in benefits and claims, excluding reserve remeasurement in the consolidated statements of earnings. Discount rates used to measure the carrying value of LFPB in the consolidated balance sheets are updated each reporting period, and the differences between the liability balances calculated using the These locked-in discount rates and the updated discount rates are recognized in accumulated other comprehensive income (loss). The determined separately for each issue-year cohort as a single discount rate methodology is designed to prioritize observable inputs based on market data available in that reflects the local debt markets where duration characteristics of the respective policies were issued in corresponding insurance contracts and will remain unchanged after the currency in which the policies are denominated. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company uses various estimation techniques consistent with the fair value guidance in ASC 820 - Fair Value Measurement, which include, but are not limited to: (i) for tenors where there is less observable market data and/or the observable market data is available for similar instruments, estimating tenor-specific single-A credit spreads and calendar year of issue.