AFLAC INC (AFL)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a safe harbor to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. Aflac Incorporated (the Parent Company) and its subsidiaries (collectively with the Parent Company, the Company) desire to take advantage of these provisions. This report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein, and in any other statements made by Company officials in communications with the financial community and contained in documents filed with or furnished to the Securities and Exchange Commission (SEC). Forward-looking statements are not based on historical information and relate to future operations, strategies, financial results or other developments. Furthermore, forward-looking information is subject to numerous assumptions, risks and uncertainties. In particular, statements containing words such as the ones listed below or similar words, as well as specific projections of future results, generally qualify as forward-looking. The Company undertakes no obligation to update such forward-looking statements, except as may be required by law.

The Company cautions readers that the following factors, in addition to other factors mentioned from time to time, could cause actual results to differ materially from those contemplated by the forward-looking statements:

•difficult conditions in global capital markets and the economy, including inflation

•defaults and credit downgrades of investments

•global fluctuations in interest rates and exposure to significant interest rate risk

•concentration of business in Japan

•limited availability of acceptable Japanese yen-denominated investments

•foreign currency fluctuations in the yen/dollar exchange rate

•differing interpretations applied to investment valuations

•significant valuation judgments in determination of expected credit losses recorded on the Company's investments

•decreases in the Company's financial strength or debt ratings

•decline in creditworthiness of other financial institutions

•the Company's ability to attract and retain qualified sales associates, brokers, employees, and distribution partners

•deviations in actual experience from pricing and reserving assumptions

•ability to continue to develop and implement improvements in information technology systems and on successful execution of revenue growth and expense management initiatives

•interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality, integrity or privacy of sensitive data residing on such systems, and uncertainty regarding the impact of the incident involving unauthorized access to the Company’s network in June 2025

•subsidiaries' ability to pay dividends to the Parent Company

•inherent limitations to risk management policies and procedures

•operational risks of third-party vendors

•tax rates applicable to the Company may change

•failure to comply with restrictions on policyholder privacy and information security

•extensive regulation and changes in law or regulation by governmental authorities

•competitive environment and ability to anticipate and respond to market trends

•catastrophic events, including, but not limited to, epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, major public health issues, terrorism or other acts of violence, and damage incidental to such events

•ability to protect the Aflac brand and the Company's reputation

•ability to effectively manage key executive succession

•changes in accounting standards

•level and outcome of litigation or regulatory inquiries

•allegations or determinations of worker misclassification in the United States

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MD&A OVERVIEW

MD&A is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the six-month periods ended June 30, 2026 and 2025, respectively. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, the following discussion should be read in conjunction with the consolidated financial statements and notes that are included in the Company's annual report on Form 10-K for the year ended December 31, 2025 (2025 Annual Report). In this MD&A, amounts may not foot due to rounding.

This MD&A is divided into the following sections:

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EXECUTIVE SUMMARY

Company Overview

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) provide financial protection to millions of policyholders and customers in Japan and the United States (U.S.). The Company’s principal business is supplemental health and life insurance products with the goal to provide customers the best value in supplemental insurance products in Japan and the U.S. The Company's insurance business consists of two reporting segments: Aflac Japan and Aflac U.S. The Parent Company’s primary insurance subsidiaries are Aflac Life Insurance Japan Ltd. in Japan (Aflac Japan) and American Family Life Assurance Company of Columbus (Aflac); Continental American Insurance Company (CAIC), branded as Aflac Group Insurance (AGI); American Family Life Assurance Company of New York (Aflac New York); Tier One Insurance Company (TOIC) and Aflac Benefits Solutions, Inc. (ABS), which provides a platform for Aflac Dental and Vision in the U.S. (collectively, Aflac U.S.). The Parent Company, other operating business units that are not individually reportable, reinsurance activities, including reinsurance activity of Aflac Re Bermuda Ltd. (Aflac Re), and other business activities not included in Aflac Japan or Aflac U.S., as well as intercompany eliminations, are included in Corporate and other.

Performance Highlights

Total revenues were $4.1 billion in the second quarter of 2026, compared with $4.2 billion in the second quarter of 2025.

Net earnings were $825 million, or $1.63 per diluted share, in the second quarter of 2026, compared with $599 million, or $1.11 per diluted share, in the second quarter of 2025.

Net earnings in the second quarter of 2026 included net investment losses of $153 million, compared with net investment losses of $421 million in the second quarter of 2025. Net investment losses in the second quarter of 2026 included $238 million of net losses from sales and redemptions; an increase in credit loss allowances of $77 million; $11 million of impairments; offset by an $87 million gain from an increase in the fair value of equity securities; and $86 million of net gains from certain derivative and foreign currency gains or losses.

Total revenues were $8.5 billion in the first six months of 2026, compared with $7.6 billion in the first six months of 2025, primarily due to net investment losses of $104 million in the first six months of 2026 compared with net investment losses of $1.4 billion in the first six months of 2025.

Net earnings were $1.8 billion, or $3.61 per diluted share, in the first six months of 2026, compared with $628 million, or $1.16 per diluted share, in the first six months of 2025.

Net earnings in the first six months of 2026 included net investment losses of $104 million, compared with net investment losses of $1.4 billion in the first six months of 2025. Net investment losses in the first six months of 2026 included $254 million of net losses from sales and redemptions; an increase in credit loss allowances of $138 million; $35 million of impairments; offset by $250 million of net gains from certain derivative and foreign currency gains or losses; and a $73 million gain from an increase in the fair value of equity securities.

Adjusted earnings(1) in the second quarter of 2026 were $883 million, or $1.75 per diluted share, compared with $957 million, or $1.78 per diluted share, in the second quarter of 2025. The average yen/dollar exchange rate(2) for the three-month period ended June 30, 2026 was 159.45, or 9.3% weaker than the average rate of 144.60 for the same period in 2025. The weaker yen/dollar exchange rate negatively impacted adjusted earnings per diluted share by $.05.

Adjusted earnings(1) in the first six months of 2026 were $1.8 billion, or $3.50 per diluted share, compared with $1.9 billion, or $3.43 per diluted share, in the first six months of 2025. The average yen/dollar exchange rate(2) for the six-month period ended June 30, 2026 was 158.14, or 6.2% weaker than the average rate of 148.32 for the same period in 2025. The weaker yen/dollar exchange rate negatively impacted adjusted earnings per diluted share by $.07.

Shareholders’ equity was $30.3 billion, or $60.35 per share, at June 30, 2026, compared with $29.5 billion, or $56.85 per share, at December 31, 2025.

Shareholders’ equity at June 30, 2026 included a cumulative increase of $10.4 billion from the effect of changes in discount rate assumptions on insurance reserves, compared with a corresponding cumulative increase of $8.0 billion at December 31, 2025, and a net unrealized loss on investment securities and derivatives of $2.8 billion, compared with a net unrealized loss of $1.8 billion at December 31, 2025. Shareholders’ equity at June 30, 2026 also included an unrealized foreign currency translation loss of $5.0 billion, compared with an unrealized foreign currency translation loss of $4.8 billion at December 31, 2025. The annualized return on average shareholders’ equity in the second quarter of 2026 was 10.9%.

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Shareholders’ equity excluding accumulated other comprehensive income (adjusted book value(1)) was $27.6 billion, or $55.01 per share, at June 30, 2026, compared with $28.0 billion, or $54.06 per share, at December 31, 2025. Adjusted book value excluding foreign currency remeasurement(1) was $20.7 billion, or $41.22 per share, at June 30, 2026, compared with $22.1 billion, or $42.66 per share, at December 31, 2025. The annualized adjusted return on equity excluding foreign currency remeasurement(1) in the second quarter of 2026 was 16.6%.

In the first six months of 2026, Aflac Incorporated repurchased $2.0 billion, or 17.5 million of its common shares. At June 30, 2026, the Company had 96.8 million remaining shares authorized for repurchase.

(1) See the Results of Operations section of this MD&A for a definition of this non-U.S. GAAP financial measure.

(2) Yen/dollar exchange rates are based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

Cyber Incidents

As previously disclosed, the Company identified an incident involving unauthorized access to a limited number of its systems in the U.S. on June 12, 2025 (the June 2025 U.S. Cyber Incident). The Company remains in communication with regulators and other relevant authorities.

Based on the informati

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY

Performance Highlights

For the full year of 2025, total revenues were down 9.3% to $17.2 billion, compared with $18.9 billion for the full year of 2024, primarily due to net investment losses of $572 million in 2025 compared with net investment gains of $1.3 billion in 2024. Net earnings were $3.6 billion, or $6.82 per diluted share, for the full year of 2025, compared with $5.4 billion, or $9.63 per diluted share, for the full year of 2024.

Net earnings in 2025 included net investment losses of $572 million, compared with net investment gains of $1.3 billion in 2024. Net investment losses in 2025 included $467 million of net losses from certain derivative and foreign currency gains or losses; an increase in credit loss allowances of $191 million and $6 million of impairments; offset by a $72 million gain from an increase in the fair value of equity securities and $20 million of net gains from sales and redemptions.

The average yen/dollar exchange rate(1) in 2025 was 149.32, or 1.1% stronger than the rate of 150.97 in 2024.

Adjusted earnings(2) for the full year of 2025 were $4.0 billion, or $7.49 per diluted share, compared with $4.1 billion, or $7.21 per diluted share, in 2024. The stronger yen/dollar exchange rate positively impacted adjusted earnings per diluted share by $.04.

In 2025, Aflac Incorporated repurchased $3.5 billion, or 33.0 million of its common shares. At December 31, 2025, the Company had 114.3 million remaining shares authorized for repurchase.

Shareholders’ equity was $29.5 billion, or $56.85 per share, at December 31, 2025, compared with $26.1 billion, or $47.45 per share, at December 31, 2024. Shareholders’ equity at December 31, 2025 included a cumulative increase of $8.0 billion from the effect of changes in discount rate assumptions on insurance reserves, compared with a corresponding cumulative increase of $2.0 billion at December 31, 2024, and a net unrealized loss on investment securities and derivatives of $1.8 billion, compared with a net unrealized gain of $4 million at December 31, 2024. Shareholders’ equity at December 31, 2025 also included an unrealized foreign currency translation loss of $4.8 billion, compared with an unrealized foreign currency translation loss of $5.0 billion at December 31, 2024. The annualized return on average shareholders’ equity in 2025 was 13.1%.

Shareholders’ equity excluding accumulated other comprehensive income (adjusted book value(2)) was $28.0 billion, or $54.06 per share, at December 31, 2025, compared with $29.1 billion, or $52.87 per share, at December 31, 2024. Adjusted book value excluding foreign currency remeasurement(2) was $22.1 billion, or $42.66 per share, at December 31, 2025, compared with $23.4 billion, or $42.46 per share, at December 31, 2024. The annualized adjusted return on equity excluding foreign currency remeasurement(2) in 2025 was 17.6%.

(1) Yen/dollar exchange rates are based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).

(2) See the Results of Operations section of this MD&A for a definition of this non-U.S. GAAP financial measure.

Cyber Incident

As previously disclosed, the Company identified an incident involving unauthorized access to a limited number of its systems in the U.S. on June 12, 2025. The Company promptly initiated its cybersecurity incident response protocols and believes it contained the unauthorized access within hours. The Company's systems were not affected by ransomware, and the Company remained able to serve its policyholders and underwrite policies, review claims, and otherwise service customers as usual.

The Company is aware of the exfiltration of certain data including claims information, health information, social security numbers and/or other personal information relating to a substantial number of customers, beneficiaries, employees, agents, and other individuals in the Company’s U.S. business. In December 2025, the Company completed a detailed review of the potentially impacted files and determined that personal information associated with approximately 22.65 million individuals was involved, and began notifying impacted individuals and regulatory authorities as required by applicable laws.

Based on the information currently available, as of the date of this report, the Company does not believe that the incident is reasonably likely to have a material impact on the Company’s financial condition or results of operations. The Company continues to assess the financial impact of the cybersecurity incident, including how much of the financial impact will be covered by insurance. As a result of the cybersecurity incident, the Company has incurred certain costs and may,

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

depending on future developments, incur additional costs, including but not limited to: costs to provide credit monitoring, identity theft protection, and Medical Shield to impacted individuals and maintain a call center related to the provision of such services; incident response costs; expenses arising from potential litigation, governmental investigations, or enforcement actions; expenses related to compliance, finance, and legal advisory services; elevated cybersecurity insurance premiums; and costs incurred in meeting evolving legal and regulatory requirements concerning cybersecurity governance, monitoring, and disclosure. The costs associated with the incident to date, including the cost to investigate and respond to the incident as well as related legal and other professional services, resulted in a slight increase to the Company's expenses and are recorded in the insurance and other expenses line in the consolidated statement of earnings.

INDUSTRY TRENDS

The Company is impacted by financial markets, economic conditions, regulatory oversight and a variety of trends that affect the industries where it competes.

Financial and Economic Environment

The Company’s business and results of operations are materially affected by conditions in the global capital markets and the economy generally. Stressed conditions, volatility and disruptions in global capital markets, particular markets, or financial asset classes can have an adverse effect on the Company, in part because the Company has a large investment portfolio and its insurance liabilities and derivatives are sensitive to changing market factors. See Item 1A. Risk Factors for the risk factor entitled, "Difficult conditions in global capital markets and the economy could have a material adverse effect on the Company's investments, capital position, revenue, profitability, and liquidity and harm the Company's business."

Demographics

Aflac Japan Segment

With Japan’s aging population and the rise in healthcare costs, supplemental health care insurance products remain attractive. Additionally, as Japan enters an era of 100-year lifespans, customers' needs for asset formation and retirement coverage, including nursing care, are increasing. Japan’s existing customers and potential customers seek products that are easily understood, affordable and accessible via digital platforms.

Aflac U.S. Segment

Customer demographics continue to shift, generating new opportunities across various consumer groups, including millennials and diverse cultural communities. As customer expectations and preferences change, trends indicate that both existing and potential customers seek affordable options that are easily understood and accessible via digital platforms. Furthermore, the insurance industry continues to be impacted by the financial security requirements and healthcare demands of the aging baby boomer generation.

Regulatory Environment

See Item 1. Business - Aflac Japan Government Regulation and Aflac U.S. Government Regulation for a discussion of regulatory developments that may impact the Company and the associated risks.

Competitive Environment

See Item 1. Business - Aflac Japan Competitive Markets and Aflac U.S. Competitive Markets for a discussion of the competitive environment and the basis on which the Company competes in each of its segments.

2026 OUTLOOK

The Company’s strategy to drive long-term shareholder value is to pursue growth and maintain solid pretax profit margins while exercising tactical capital deployment. The Company's approach to pursue growth is through product development and distribution expansion, along with enhanced efficiency through technological upgrades and operational refinement.

The Company's objectives in 2026 include preserving solid pretax profit margins with increased sales production achieved through the ongoing promotional efforts for products launched in 2025 in Aflac Japan and continued growth initiatives across both its Aflac Japan and Aflac U.S. segments. The Company believes this strategy positions it for future growth

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

and efficiency while defending and leveraging its market-leading position, powerful brand recognition and varied distribution in Japan and the U.S.

In November 2025, the board of directors announced a 5.2% increase in the quarterly cash dividend, effective with the first quarter of 2026. The Company intends to maintain strong capital ratios in Aflac Japan and Aflac U.S. in support of its commitment to shareholder dividends while remaining tactical in its deployment of capital in the form of share repurchases and opportunistic investments. The Company's target range for economic solvency ratio (ESR) is 170% to 230% for Aflac Japan and a target combined RBC range of 350% to 450%, over time, for Aflac U.S., which are consistent with the Company's risk management practices.

Aflac Japan Segment

For 2026, the Company expects Aflac Japan to generate a benefit ratio in the range of 60% to 63% driven by favorable trends in morbidity experience, new product launches featuring lower benefit ratios, and the premium shift over recent years from first sector savings products to third sector cancer and medical products, as well as first sector protection products. The Company expects Aflac Japan to generate an expense ratio in the range of 20% to 23% reflecting continued growth and strategic initiatives. The Company also expects that benefit and expense ratios will continue to experience some level of revenue pressure due to the impact of paid-up policies and internal reinsurance transactions.

Aflac U.S. Segment

For 2026, the Company expects Aflac U.S. to generate a benefit ratio in the range of 48% to 52% driven by growth in life, disability, and dental and vision insurance products, all of which typically carry higher benefit ratios. The Company expects Aflac U.S. to generate an expense ratio in the range of 36% to 39%. However, continued revenue growth associated with these products is expected to decrease expense ratios over time.

Corporate and other

The Company's objectives for Corporate and other in 2026 include achieving solid pretax adjusted earnings, assuming that U.S. interest rates remain stable and excluding the impact of tax credit investments, as tax benefits are recognized in a corresponding lower income tax expense.

For important disclosures applicable to statements made in this 2026 Outlook, please see the statement on Forward-Looking Information at the beginning of Item 1. Business, the Risk Factors identified in Item 1A. and this Item 7. MD&A.

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

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