AFLAC INCORPORATED
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended June 30, 2008
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from                      to                     
Commission File Number: 001-07434
(AFLAC LOGO)
Aflac Incorporated
 
(Exact name of registrant as specified in its charter)
     
Georgia   58-1167100
 
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
1932 Wynnton Road, Columbus, Georgia   31999
 
(Address of principal executive offices)   (ZIP Code)
706.323.3431
 
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ Yes   o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
     
Large accelerated filer   þ
  Accelerated filer   o
Non-accelerated filer   o (Do not check if a smaller reporting company)
  Smaller reporting company   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   oYes   þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class   August 4, 2008
Common Stock, $.10 Par Value   476,212,034 shares
 
 

 


 

AFLAC INCORPORATED AND SUBSIDIARIES
Table of Contents
             
        Page
  FINANCIAL INFORMATION:        
 
           
  Financial Statements.        
 
           
 
  Review by Independent Registered Public Accounting Firm     1  
 
           
 
  Report of Independent Registered Public Accounting Firm     2  
 
           
 
  Consolidated Statements of Earnings     3  
 
    Three Months Ended June 30, 2008, and 2007        
 
    Six Months Ended June 30, 2008, and 2007        
 
           
 
  Consolidated Balance Sheets     4  
 
    June 30, 2008 and December 31, 2007        
 
           
 
  Consolidated Statements of Shareholders’ Equity     6  
 
    Six Months Ended June 30, 2008, and 2007        
 
           
 
  Consolidated Statements of Cash Flows     7  
 
    Six Months Ended June 30, 2008, and 2007        
 
           
 
  Consolidated Statements of Comprehensive Income     9  
 
    Three Months Ended June 30, 2008, and 2007        
 
    Six Months Ended June 30, 2008, and 2007        
 
           
 
  Notes to the Consolidated Financial Statements     10  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations.     24  
 
           
  Quantitative and Qualitative Disclosures About Market Risk.     53  
 
           
  Controls and Procedures.     53  
 
           
  OTHER INFORMATION:        
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds.     54  
 
           
  Submission of Matters to a Vote of Security Holders.     55  
 
           
  Exhibits.     57  
Items other than those listed above are omitted because they are not required or are not applicable.

i


Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Review by Independent Registered Public Accounting Firm
     The June 30, 2008, and 2007, financial statements included in this filing have been reviewed by KPMG LLP, an independent registered public accounting firm, in accordance with established professional standards and procedures for such a review.
     The report of KPMG LLP commenting upon its review is included on page 2.

1


Table of Contents

Report of Independent Registered Public Accounting Firm
The shareholders and board of directors of Aflac Incorporated:
We have reviewed the consolidated balance sheet of Aflac Incorporated and subsidiaries as of June 30, 2008, and the related consolidated statements of earnings and comprehensive income for the three-month and six-month periods ended June 30, 2008, and 2007, and the consolidated statements of shareholders’ equity and cash flows for the six-month periods ended June 30, 2008, and 2007. These consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheet of Aflac Incorporated and subsidiaries as of December 31, 2007, and the related consolidated statements of earnings, shareholders’ equity, cash flows and comprehensive income for the year then ended (not presented herein); and in our report dated February 28, 2008, we expressed an unqualified opinion on those consolidated financial statements.
(KPMG LLP)
Atlanta, Georgia
August 8, 2008

2


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Statements of Earnings
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions, except for share and per-share amounts - Unaudited)   2008   2007   2008   2007
 
Revenues:
                               
Premiums, principally supplemental health insurance
  $ 3,684     $ 3,162     $ 7,319     $ 6,318  
Net investment income
    637       572       1,264       1,138  
Realized investment gains (losses)
    (1 )     15       (8 )     27  
Other income
    16       15       28       32  
 
Total revenues
    4,336       3,764       8,603       7,515  
 
Benefits and expenses:
                               
Benefits and claims
    2,575       2,266       5,113       4,524  
Acquisition and operating expenses:
                               
Amortization of deferred policy acquisition costs
    184       155       376       309  
Insurance commissions
    362       326       720       655  
Insurance expenses
    432       351       845       688  
Interest expense
    7       6       14       14  
Other operating expenses
    36       25       69       54  
 
Total acquisition and operating expenses
    1,021       863       2,024       1,720  
 
Total benefits and expenses
    3,596       3,129       7,137       6,244  
 
Earnings before income taxes
    740       635       1,466       1,271  
Income taxes
    257       220       509       440  
 
Net earnings
  $ 483     $ 415     $ 957     $ 831  
 
Net earnings per share:
                               
Basic
  $ 1.02     $ .85     $ 2.01     $ 1.70  
Diluted
    1.00       .84       1.98       1.68  
 
Common shares used in computing earnings per share (In thousands):
                               
Basic
    474,383       487,900       476,261       489,219  
Diluted
    480,828       494,227       482,623       495,435  
 
Cash dividends per share
  $ .24     $ .205     $ .48     $ .39  
 
See the accompanying Notes to the Consolidated Financial Statements.

3


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Balance Sheets
                 
    June 30,   December 31,
    2008   2007
(In millions)   (Unaudited)        
 
Assets:
               
Investments and cash:
               
Securities available for sale, at fair value:
               
Fixed maturities (amortized cost $31,741 in 2008 and $29,399 in 2007)
  $ 31,476     $ 30,511  
Perpetual debentures (amortized cost $4,426 in 2008 and $4,272 in 2007)
    3,970       4,095  
Equity securities (cost $17 in 2008 and $16 in 2007)
    22       22  
Securities held to maturity, at amortized cost:
               
Fixed maturities (fair value $17,997 in 2008 and $16,191 in 2007)
    19,709       16,819  
Perpetual debentures (fair value $4,094 in 2008 and $3,934 in 2007)
    4,259       3,985  
Other investments
    69       61  
Cash and cash equivalents
    1,387       1,563  
 
Total investments and cash
    60,892       57,056  
Receivables, primarily premiums
    777       732  
Receivables for securities transactions
    225        
Accrued investment income
    607       561  
Deferred policy acquisition costs
    7,194       6,654  
Property and equipment, at cost less accumulated depreciation
    529       496  
Other
    328       306  
 
Total assets
  $ 70,552     $ 65,805  
 
See the accompanying Notes to the Consolidated Financial Statements.
(continued)

4


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Balance Sheets (continued)
                 
    June 30,   December 31,
    2008   2007
(In millions, except for share and per-share amounts)   (Unaudited)        
 
Liabilities and shareholders’ equity:
               
Liabilities:
               
Policy liabilities:
               
Future policy benefits
  $ 50,147     $ 45,675  
Unpaid policy claims
    2,643       2,455  
Unearned premiums
    745       693  
Other policyholders’ funds
    2,346       1,853  
 
Total policy liabilities
    55,881       50,676  
Notes payable
    1,539       1,465  
Income taxes
    2,053       2,531  
Payables for return of cash collateral on loaned securities
    1,540       808  
Other
    1,640       1,530  
Commitments and contingent liabilities (Note 9)
               
 
Total liabilities
    62,653       57,010  
 
Shareholders’ equity:
               
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2008 and 1,000,000 shares in 2007; issued 659,601 shares in 2008 and 658,604 shares in 2007
    66       66  
Additional paid-in capital
    1,132       1,054  
Retained earnings
    11,366       10,637  
Accumulated other comprehensive income:
               
Unrealized foreign currency translation gains
    292       129  
Unrealized gains (losses) on investment securities
    (214 )     874  
Pension liability adjustment
    (69 )     (69 )
Treasury stock, at average cost
    (4,674 )     (3,896 )
 
Total shareholders’ equity
    7,899       8,795  
 
Total liabilities and shareholders’ equity
  $ 70,552     $ 65,805  
 
Shareholders’ equity per share
  $ 16.59     $ 18.08  
 
See the accompanying Notes to the Consolidated Financial Statements.

5


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Statements of Shareholders’ Equity
                 
    Six Months Ended June 30,
(In millions, except for per-share amounts - Unaudited)   2008   2007
 
Common stock:
               
Balance, beginning of period
  $ 66     $ 66  
Exercise of stock options
           
 
Balance, end of period
    66       66  
 
Additional paid-in capital:
               
Balance, beginning of period
    1,054       895  
Exercise of stock options, including income tax benefits
    33       41  
Share-based compensation
    18       19  
Gain on treasury stock reissued
    27       23  
 
Balance, end of period
    1,132       978  
 
Retained earnings:
               
Balance, beginning of period
    10,637       9,304  
Net earnings
    957       831  
Dividends to shareholders
    (228 )     (101 )
 
Balance, end of period
    11,366       10,034  
 
Accumulated other comprehensive income:
               
Balance, beginning of period
    934       1,426  
Change in unrealized foreign currency translation gains (losses) during period, net of income taxes
    163       (72 )
Change in unrealized gains (losses) on investment securities during period, net of income taxes
    (1,088 )     (571 )
Pension liability adjustment during period, net of income taxes
          2  
 
Balance, end of period
    9       785  
 
Treasury stock:
               
Balance, beginning of period
    (3,896 )     (3,350 )
Purchases of treasury stock
    (805 )     (355 )
Cost of shares issued
    27       32  
 
Balance, end of period
    (4,674 )     (3,673 )
 
Total shareholders’ equity
  $ 7,899     $ 8,190  
 
See the accompanying Notes to the Consolidated Financial Statements.

6


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
                 
    Six Months Ended June 30,
(In millions - Unaudited)   2008   2007
 
Cash flows from operating activities:
               
Net earnings
  $ 957     $ 831  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Change in receivables and advance premiums
    14       9  
Increase in deferred policy acquisition costs
    (231 )     (203 )
Increase in policy liabilities
    1,612       1,569  
Change in income tax liabilities
    108       231  
Realized investment (gains) losses
    8       (27 )
Other, net
    (14 )     (81 )
 
Net cash provided by operating activities
    2,454       2,329  
 
Cash flows from investing activities:
               
Proceeds from investments sold or matured:
               
Securities available for sale:
               
Fixed maturities sold
    426       320  
Fixed maturities matured or called
    858       1,189  
Perpetual debentures sold
    127       166  
Costs of investments acquired:
               
Securities available for sale:
               
Fixed maturities
    (2,385 )     (2,268 )
Securities held to maturity:
               
Fixed maturities
    (1,510 )     (1,432 )
Cash received as collateral on loaned securities, net
    701       303  
Other, net
    (31 )     (20 )
 
Net cash used by investing activities
  $ (1,814 )   $ (1,742 )
 
See the accompanying Notes to the Consolidated Financial Statements.
(continued)

7


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
                 
    Six Months Ended June 30,
(In millions - Unaudited)   2008   2007
 
Cash flows from financing activities:
               
Purchases of treasury stock
  $ (805 )   $ (355 )
Proceeds from borrowings
          242  
Principal payments under debt obligations
    (2 )     (245 )
Dividends paid to shareholders
    (218 )     (182 )
Change in investment-type contracts, net
    133       103  
Treasury stock reissued
    20       23  
Other, net
    31       39  
 
Net cash used by financing activities
    (841 )     (375 )
 
Effect of exchange rate changes on cash and cash equivalents
    25       (9 )
 
Net change in cash and cash equivalents
    (176 )     203  
Cash and cash equivalents, beginning of period
    1,563       1,203  
 
Cash and cash equivalents, end of period
  $ 1,387     $ 1,406  
 
Supplemental disclosures of cash flow information:
               
Income taxes paid
  $ 362     $ 255  
Interest paid
    13       11  
Noncash financing activities:
               
Capitalized lease obligations
    2       1  
Treasury shares issued for:
               
Associate stock bonus
    23       20  
Shareholder dividend reinvestment
    10       10  
Shared-based compensation grants
    2       2  
 
See the accompanying Notes to the Consolidated Financial Statements.

8


Table of Contents

Aflac Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions - Unaudited)   2008   2007   2008   2007
 
Net earnings
  $ 483     $ 415     $ 957     $ 831  
 
Other comprehensive income (loss) before income taxes:
                               
Foreign currency translation adjustments:
                               
Change in unrealized foreign currency translation gains (losses) during period
    (43 )     (2 )     34       (11 )
Unrealized gains (losses) on investment securities:
                               
Unrealized holding gains (losses) during period
    (710 )     (753 )     (1,667 )     (860 )
Reclassification adjustment for realized (gains) losses included in net earnings
    1       (15 )     8       (27 )
Unrealized gains (losses) on derivatives:
                               
Unrealized holding gains (losses) during period
    2       2       2       1  
Pension liability adjustment during period
    3       3       (1 )     3  
 
Total other comprehensive income (loss) before income taxes
    (747 )     (765 )     (1,624 )     (894 )
Income tax expense (benefit) related to items of other comprehensive income (loss)
    (129 )     (193 )     (699 )     (253 )
 
Other comprehensive income (loss), net of income taxes
    (618 )     (572 )     (925 )     (641 )
 
Total comprehensive income (loss)
  $ (135 )   $ (157 )   $ 32     $ 190  
 
See the accompanying Notes to the Consolidated Financial Statements.

9


Table of Contents

Aflac Incorporated and Subsidiaries
Notes to the Consolidated Financial Statements
(Interim period data — Unaudited)
1. BASIS OF PRESENTATION
     We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). The preparation of financial statements in conformity with GAAP requires us to make estimates when recording transactions resulting from business operations based on currently available information. The most significant items on our balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments, deferred policy acquisition costs, and liabilities for future policy benefits and unpaid policy claims. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders. As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is inherent in these estimates, we believe the amounts provided are adequate.
     The consolidated financial statements include the accounts of Aflac Incorporated (the Parent Company), its majority-owned subsidiaries and those entities required to be consolidated under applicable accounting standards. All material intercompany accounts and transactions have been eliminated.
     In the opinion of management, the accompanying unaudited consolidated financial statements of Aflac Incorporated and subsidiaries (the “Company”) contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of June 30, 2008, and December 31, 2007, and the consolidated statements of earnings and comprehensive income for the three- and six-month periods ended June 30, 2008, and 2007, and consolidated statements of shareholders’ equity and cash flows for the six-month periods ended June 30, 2008, and 2007. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report to shareholders for the year ended December 31, 2007.
     New Accounting Pronouncements: In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 163, Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60 (SFAS 163). This Statement clarifies accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2008. Because we do not issue financial guarantee insurance contracts, we do not expect the adoption of this standard to have an effect on our financial position or results of operations.
     In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS 162 is effective 60 days

10


Table of Contents

following the Securities and Exchange Commission’s pending approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not expect the adoption of this standard to have any effect on our financial position or results of operations.
     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (SFAS 161). FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. This Statement amends and expands the disclosure requirements of Statement 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. To meet those objectives, this Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not expect the adoption of this standard to have any effect on our financial position or results of operations.
     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (SFAS 160). The purpose of SFAS 160 is to improve relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, with earlier adoption prohibited. We do not expect the adoption of this standard to have any effect on our financial position or results of operations.
     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 allows entities to choose to measure many financial instruments and certain other items at fair value. The majority of the provisions of this standard apply only to entities that elect the fair value option (FVO). The FVO may be applied to eligible items on an instrument-by-instrument basis; is irrevocable unless a new election date occurs; and may only be applied to an entire financial instrument, and not portions thereof. This standard requires a business enterprise to report unrealized gains and losses on items for which the FVO has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with earlier application permitted under limited circumstances. In connection with our adoption of SFAS 159 as of January 1, 2008, we did not elect the FVO for any of our financial assets or liabilities. Accordingly, the adoption of this standard did not have any impact on our financial position or results of operations.
     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data corroborated by independent sources while unobservable inputs reflect market assumptions that are not observable in an active market or are developed internally. These

11


Table of Contents

two types of inputs create three valuation hierarchy levels. Level 1 valuations reflect quoted market prices for identical assets or liabilities in active markets. Level 2 valuations reflect quoted market prices for similar assets or liabilities in an active market, quoted market prices for identical or similar assets or liabilities in non-active markets or model derived valuations in which all significant valuation inputs are observable in active markets. Level 3 valuations reflect valuations in which one or more of the significant valuation inputs are not observable in an active market.
     This standard applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. Where applicable, this standard codifies related guidance within GAAP. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We adopted the provisions of SFAS 157 as of January 1, 2008. The adoption of this standard did not have any impact on our financial position or results of operations.
     Recent accounting guidance not discussed above is not applicable to our business.
     For additional information on new accounting pronouncements and their impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.

12


Table of Contents

2. BUSINESS SEGMENT INFORMATION
     The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell individual supplemental health and life insurance.
     Operating business segments that are not individually reportable are included in the “Other business segments” category. We do not allocate corporate overhead expenses to business segments. We evaluate and manage our business segments using a financial performance measure called pretax operating earnings. Our definition of operating earnings excludes the following items from net earnings on an after-tax basis: realized investment gains/losses, the impact from SFAS 133, and nonrecurring items. We then exclude income taxes related to operations to arrive at pretax operating earnings. Information regarding operations by segment follows:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions)   2008   2007   2008   2007
 
Revenues:
                               
Aflac Japan:
                               
Earned premiums
  $ 2,620     $ 2,190     $ 5,205     $ 4,385  
Net investment income
    508       442       1,004       878  
Other income
    14       10       13       19  
 
Total Aflac Japan
    3,142       2,642       6,222       5,282  
 
Aflac U.S.:
                               
Earned premiums
    1,064       972       2,114       1,933  
Net investment income
    125       124       248       246  
Other income
    2       3       5       5  
 
Total Aflac U.S.
    1,191       1,099       2,367       2,184  
 
Other business segments
    10       9       20       18  
 
Total business segment revenues
    4,343       3,750       8,609       7,484  
Realized investment gains (losses)
    (1 )     15       (8 )     27  
Corporate
    14       23       44       53  
Intercompany eliminations
    (20 )     (24 )     (42 )     (49 )
 
Total revenues
  $ 4,336     $ 3,764     $ 8,603     $ 7,515  
 

13


Table of Contents

                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions)   2008   2007   2008   2007
 
Pretax earnings:
                               
Aflac Japan
  $ 573     $ 461     $ 1,127     $ 926  
Aflac U.S.
    190       171       380       340  
Other business segments
    2             (1 )      
 
Total business segments
    765       632       1,506       1,266  
Interest expense, noninsurance operations
    (6 )     (5 )     (13 )     (10 )
Corporate and eliminations
    (13 )     (5 )     (19 )     (11 )
 
Pretax operating earnings
    746       622       1,474       1,245  
Realized investment gains (losses)
    (1 )     15       (8 )     27  
Impact from SFAS 133
    (5 )     (2 )           (1 )
 
Total earnings before income taxes
  $ 740     $ 635     $ 1,466     $ 1,271  
 
Income taxes applicable to pretax operating earnings
  $ 259     $ 215     $ 511     $ 431  
Effect of foreign currency translation on operating earnings
    38       (10 )     63       (15 )
 
     Assets were as follows:
                 
    June 30,   December 31,
(In millions)   2008   2007
 
Assets:
               
Aflac Japan
  $ 59,024     $ 54,153  
Aflac U.S.
    11,044       10,415  
Other business segments
    129       117  
 
Total business segments
    70,197       64,685  
Corporate
    9,430       10,364  
Intercompany eliminations
    (9,075 )     (9,244 )
 
Total assets
  $ 70,552     $ 65,805  
 
3. INVESTMENTS
     The following table presents our realized investment gains and losses that resulted from securities sold or redeemed in the normal course of business.
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions, except for per-share amounts)   2008   2007   2008   2007
 
Realized investments gains (losses), before tax
  $ (1 )   $ 15     $ (8 )   $ 27  
Realized investments gains (losses), net of tax
    (1 )     9       (5 )     18  
Realized investments gains (losses) per diluted share, net of tax
          .02       (.01 )     .04  
 

14


Table of Contents

     Impairment charges were immaterial during the six months ended June 30, 2008 and 2007.
     The net effect on shareholders’ equity of unrealized gains and losses from investment securities at the following dates was:
                 
    June 30,   December 31,
(In millions)   2008   2007
 
Unrealized gains (losses) on securities available for sale
  $ (716 )   $ 941  
Unamortized unrealized gains on securities transferred to held to maturity
    341       343  
Deferred income taxes
    161       (410 )
 
Shareholders’ equity, net unrealized gains (losses) on investment securities
  $ (214 )   $ 874  
 
     The unrealized gains on securities available for sale declined during the period, such that we now reflect a net unrealized loss as of June 30, 2008. We believe the declines in unrealized gains and the increases in unrealized losses primarily resulted from a widening of credit spreads globally, increases in interest rates globally and foreign exchange rates.
     Our total investment in the banks and financial institutions sector including those classified as perpetual debentures as of June 30, 2008, is $23,975 million, or 42% of our total investment portfolio at fair value ($25,925 million, or 43% at amortized cost) compared with $23,348 million, or 43% of our total investment portfolio at fair value ($23,941 million, or 44% at amortized cost) as of December 31, 2007. We invest in the top financial institutions globally because we believe this sector has a very desirable risk profile. The banks and financial institutions sector is a highly regulated industry and plays a strategic role in the global economy. While this is our largest sector concentration, we achieve some degree of diversification through a geographically diverse universe of credit exposures.
     The following table shows the composition of our investments in an unrealized loss position in the banks and financial institutions sectors by fixed maturity securities and perpetual debentures. The table reflects those securities in that sector that are in an unrealized loss position as a percentage of our total investment portfolio in an unrealized loss position and their respective unrealized losses as a percentage of total unrealized losses.
                                 
    June 30,
2008
  December 31,
2007
 
    Percentage of   Percentage of   Percentage of   Percentage of
    Total Investments in   Total   Total Investments in   Total
    an Unrealized Loss   Unrealized   an Unrealized Loss   Unrealized
    Position   Losses   Position   Losses
 
Fixed maturities
    32 %     40 %     40 %     41 %
Perpetual debentures
    14 %     18 %     14 %     22 %
 
Total
    46 %     58 %     54 %     63 %
 
     Ford Motor Credit (FMC) is a wholly owned financing subsidiary of Ford Motor Company. The unrealized loss on Aflac Japan’s $282 million (30.0 billion yen) investment in FMC increased $61 million to $109 million during the six-month period ended June 30, 2008, as compared to $48 million at December 31, 2007. The increase in the unrealized loss for FMC related to foreign currency translation is $7 million. We believe that the remaining increase in the unrealized loss on FMC is related to sharply lower reported earnings by FMC in 2007, compared with 2006, coupled with an operating loss

15


Table of Contents

in the first quarter of 2008. We believe FMC’s decline in profitability is fueled largely by higher borrowing and other operating costs in 2007 and 2008 and that unrealized losses in FMC are also impacted by widening credit spreads globally as a result of the contraction in global capital markets liquidity over the past several quarters. However, we also believe FMC continues to maintain adequate stand-alone liquidity and a stable credit outlook even after substantial lease residual asset write-downs. Accordingly, based on our reviews of FMC, we believe we will collect all amounts due under the contractual terms of our investment. Because we have the ability and intent to hold this investment until a recovery of fair value, which may be maturity, we do not consider this investment to be other than temporarily impaired as of June 30, 2008. For further information on unrealized losses on debt securities, see Note 3 of the Notes to the Consolidated Financial Statements included in our annual report to shareholders for the year ended December 31, 2007.
     As part of our investment activities, we own investments in qualifying special purpose entities (QSPEs). At June 30, 2008, available-for-sale QSPEs totaled $3.6 billion at fair value ($3.8 billion at amortized cost, or 6.3% of total debt securities), compared with $3.2 billion at fair value ($3.3 billion at amortized cost, or 6.0% of total debt securities) at December 31, 2007. We have no equity interests in any of the QSPEs, nor do we have control over these entities. Therefore, our loss exposure is limited to the cost of our investment.
     We also own investments in variable interest entities (VIEs). We are the primary beneficiary of VIEs totaling $1.4 billion at fair value ($1.7 billion at amortized cost) and have consolidated our interests in these VIEs in accordance with FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. The activities of these VIEs are limited to holding debt securities and utilizing the cash flows from the debt securities to service our investments therein. The terms of the debt securities held by these VIEs mirror the terms of the notes held by Aflac. The consolidation of these investments does not impact our financial position or results of operations.
     We have interests in VIEs in which we are not the primary beneficiary and are therefore not required to consolidate totaling $1.1 billion at fair value ($1.4 billion at amortized cost) as of June 30, 2008.
     Included in these VIEs are collateralized debt obligations (CDOs) totaling $667 million at fair value ($921 million at amortized cost) as of June 30, 2008. These CDOs were issued through VIEs originated by third party companies and combine highly rated underlying assets as collateral for the CDOs with credit default swaps (CDS) to produce an investment security that consists of multiple tranches with varying levels of subordination within the VIE. The underlying collateral assets and funding of these VIEs are generally static in nature. The VIEs are limited to holding the underlying collateral and CDS contracts on specific corporate entities and utilizing the cash flows from the collateral and CDS contracts to service our investment therein. The underlying collateral and the reference corporate entities covered by the CDS contracts are all investment grade at the time of issuance. These VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and CDS contracts. We currently own only senior CDO tranches within the VIEs that we own. Consistent with our other debt securities, we are exposed to credit losses within these CDOs that could result in principal losses to our investments. We have mitigated our risk of credit loss through the structure of the VIE, which contractually requires the subordinated tranches within the VIEs we own to absorb the expected losses from the underlying credit default swaps. Based on our models, each of the VIEs can sustain multiple defaults in the underlying CDS pools with no loss to our CDO investments. There have been no defaults in any of the CDOs we own. We have no continuing obligation to fund these VIEs nor do we guarantee any of the VIEs in any manner. Our involvement with these VIEs began in 2006, and we have continued to invest in this type of financing vehicle from time to time. Our risk of loss associated with our interest in these VIEs is limited to our current investment therein.

16


Table of Contents

     Included in the CDOs described above are variable interest rate CDOs purchased with the proceeds from $200 million of variable interest rate funding agreements issued to third party investors during the second quarter of 2008. We earn a spread between the coupon received on the CDOs and the interest credited on the funding agreements. Our obligation under these funding agreements is included in other policyholder funds.
     The remaining VIEs that we are not required to consolidate totaled $415 million at fair value ($442 million at amortized cost) at June 30, 2008. Our investment in these VIEs is limited to loans in the form of debt obligations from the VIEs that are irrevocably and unconditionally guaranteed by their corporate parents. These VIEs are used to raise financing for their parent companies in the international capital markets. These VIEs do not rely on outside or ongoing forms of funding to support their activities beyond the guarantees of their corporate parents. We have no continuing obligation to fund these VIEs nor do we guarantee any of the VIEs in any manner. Our involvement with these VIEs began in 2004 and we have continued to invest in these financing vehicles from time to time. Our risk of loss associated with our interest in these VIEs is limited to our current investment therein.
     We lend fixed-maturity securities to financial institutions in short-term security lending transactions. These short-term security lending arrangements increase investment income with minimal risk. Our security lending policy requires that the fair value of the securities and/or cash received as collateral be 102% or more of the fair value of the loaned securities. At June 30, 2008, we had security loans outstanding with a fair value of $1,501 million, and we held cash in the amount of $1,540 million as collateral for these loaned securities. At December 31, 2007, we had security loans outstanding with a fair value of $790 million, and we held cash in the amount of $808 million as collateral for these loaned securities.
     During the first quarter of 2007, we reclassified an investment from the held-to-maturity portfolio to the available-for-sale portfolio as a result of a significant deterioration in the issuer’s credit worthiness. At the date of transfer, this debt security had an amortized cost of $169 million and an unrealized loss of $8 million. We sold the security at a realized gain of $12 million in the first quarter of 2007.
     For additional information, see Notes 1 and 3 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.

17


Table of Contents

4. FINANCIAL INSTRUMENTS
     We have outstanding cross-currency swap agreements related to the $450 million senior notes and interest-rate swap agreements related to the 20 billion yen variable interest rate Uridashi notes (see Note 5). The components of the fair value of the cross-currency and interest-rate swaps were reflected as an asset or (liability) in the balance sheet as follows:
                 
    June 30,   December 31,
(In millions)   2008   2007
 
Interest rate component
  $ 9     $ 7  
Foreign currency component
    (75 )     (47 )
Accrued interest component
    5       5  
 
Total fair value of cross-currency and interest-rate swaps
  $ (61 )   $ (35 )
 
     The following is a reconciliation of the foreign currency component of the cross-currency swaps included in accumulated other comprehensive income for the six-month periods ended June 30.
                 
(In millions)   2008   2007
 
Balance, beginning of period
  $ (47 )   $ (17 )
Increase (decrease) in fair value of cross-currency swaps
    (28 )     15  
Interest rate component not qualifying for hedge accounting reclassified to net earnings
          1  
 
Balance, end of period
  $ (75 )   $ (1 )
 
     The change in fair value of the interest-rate swaps, included in accumulated other comprehensive income, was immaterial during the six-month periods ended June 30, 2008 and 2007.
     SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs create three valuation hierarchy levels. The following table presents the fair-value hierarchy levels of the Company’s assets and liabilities under SFAS 157 that are measured at fair value on a recurring basis as of June 30, 2008.
                                 
(In millions)   Level 1   Level 2   Level 3   Total
 
Assets:
                               
Fixed maturities
  $ 8,141     $ 23,041     $ 294     $ 31,476  
Perpetual debentures
          3,970             3,970  
Equity securities
    18             4       22  
 
Total assets
  $ 8,159     $ 27,011     $ 298     $ 35,468  
 
Liabilities:
                               
Cross-currency and interest-rate swaps
          61             61  
 
Total liabilities
  $     $ 61     $     $ 61  
 
     The fair value of our fixed maturities and equity securities categorized as Level 1 is based on quoted market prices for identical securities traded in active markets that are readily and regularly available to us.

18


Table of Contents

     The fair value of our fixed maturities and perpetual debentures categorized as Level 2 is determined using three techniques, depending on the source and availability of market inputs. Of these securities, approximately 42% are valued by obtaining quoted prices from our custodian. The custodian obtains price quotes from various pricing services that estimate their fair values based on observable market transactions for similar investments in active markets, market transactions for the same investments in inactive markets or other observable market data where available.
     The fair value of approximately 44% of our Level 2 fixed maturities and perpetual debentures is determined using discounted cash flow (DCF) pricing models that employ observable and corroborated market inputs from both active and inactive markets. The estimated fair values developed by the DCF pricing models are most sensitive to prevailing credit spreads, the level of interest rates (yields) and interest rate volatility. Credit spreads are derived based on pricing data obtained from investment brokers and take into account the current yield curve, time to maturity and subordination levels for similar securities or classes of securities. We validate the reliability of the DCF pricing models periodically by using the models to price investments for which there are quoted market prices from active markets or, in the alternative, are quoted by our custodian. For the remaining Level 2 fixed maturities and perpetual debentures that are not quoted by our custodian and cannot be priced under the DCF pricing model, we obtain specific broker quotes from a minimum of three brokers and use the average of the three quotes to estimate the fair value of the securities.
     The fair value of our cross-currency and interest-rate swap contracts is based on the amount we would expect to receive or pay to terminate the swaps. The prices used to determine the value of the swaps are obtained from the respective swap counterparties and take into account current interest and foreign currency rates and remaining duration.
     The fair value of our fixed maturities classified as Level 3 consist primarily of collateralized debt obligations for which there are limited or no observable valuation inputs. We estimate the fair value of our Level 3 fixed maturities by obtaining broker quotes from a limited number of brokers. These brokers base their quotes on a combination of their knowledge of the current pricing environment and market flows. The equity securities classified in Level 3 are related to investments in Japanese businesses, each of which are insignificant and in the aggregate are immaterial. Because fair values for these investments are not readily available, we carry them at their original cost. We review each of these investments periodically and, in the event we determine that any are other than temporarily impaired, we write them down to their estimated fair value at that time.
     The following table presents the changes in our securities available for sale classified as Level 3.
                                                 
    Three Months Ended June 30, 2008   Six Months Ended June 30, 2008
 
    Fixed   Equity           Fixed   Equity    
(In millions)   maturities   securities   Total   maturities   securities   Total
 
Balance, beginning of period
  $ 100     $ 4     $ 104     $ 109     $ 3     $ 112  
Unrealized gains (losses) included in other comprehensive income
    (10 )           (10 )     (19 )     1       (18 )
Transfers into Level 3
    204             204       204             204  
 
Balance, end of period
  $ 294     $ 4     $ 298     $ 294     $ 4     $ 298  
 

19


Table of Contents

     During the second quarter of 2008, we experienced a reduction in the availability of observable valuation inputs from various pricing services and brokers used to value certain of our investment securities. Thus several valuation inputs we considered to be observable in the first quarter of 2008 were classified as non-observable in the second quarter of 2008. This resulted in the transfer of affected fixed maturities available for sale from the Level 2 valuation category into the Level 3 valuation category during the second quarter of 2008.
     Gains or losses included in earnings attributable to the change in unrealized gains or losses during the six-month period ended June 30, 2008, relating to assets still held were immaterial.
     For additional information on our cross-currency and interest-rate swaps and other financial instruments, see Notes 1 and 4 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.
5. NOTES PAYABLE
     A summary of notes payable follows:
                 
    June 30,   December 31,
(In millions)   2008   2007
 
6.50% senior notes due April 2009
  $ 450     $ 450  
Yen-denominated Uridashi notes:
               
1.52% notes due September 2011 (principal amount 15 billion yen)
    141       131  
2.26% notes due September 2016 (principal amount 10 billion yen)
    94       88  
Variable interest rate notes due September 2011 (1.25% at June 2008, principal amount 20 billion yen)
    188       175  
Yen-denominated Samurai notes:
               
.71% notes due July 2010 (principal amount 40 billion yen)
    376       350  
1.87% notes due June 2012 (principal amount 30 billion yen)
    282       263  
Capitalized lease obligations payable through 2013
    8       8  
 
Total notes payable
  $ 1,539     $ 1,465  
 
     We were in compliance with all of the covenants of our notes payable at June 30, 2008. No events of default or defaults occurred during the six months ended June 30, 2008.
     For additional information, see Notes 4 and 7 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.

20


Table of Contents

6. SHAREHOLDERS’ EQUITY
     The following table is a reconciliation of the number of shares of the Company’s common stock for the six-month periods ended June 30:
                 
(In thousands of shares)   2008   2007
 
Common stock — issued:
               
Balance, beginning of period
    658,604       655,715  
Exercise of stock options and issuance of restricted shares
    997       1,500  
 
Balance, end of period
    659,601       657,215  
 
Treasury stock:
               
Balance, beginning of period
    172,074       163,165  
Purchases of treasury stock:
               
Open market
    12,500       7,062  
Other
    109       184  
Dispositions of treasury stock:
               
Shares issued to AFL Stock Plan
    (688 )     (764 )
Exercise of stock options
    (352 )     (798 )
Other
    (69 )     (117 )
 
Balance, end of period
    183,574       168,732  
 
Shares outstanding, end of period
    476,027       488,483  
 
     Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic earnings per share. For the quarter ended June 30, 2008, stock options to purchase approximately 1.3 million shares, on a weighted-average basis, were considered to be anti-dilutive and were excluded from the calculation of diluted earnings per share, compared with 2.4 million shares for the quarter ended June 30, 2007. For the six months ended June 30, 2008, stock options to purchase approximately 1.0 million shares, on a weighted-average basis, were considered to be anti-dilutive and were excluded from the calculation of diluted earnings per share, compared with 2.6 million shares for the six-month period a year ago.
     In February 2006, the board of directors authorized the purchase of 30.0 million shares of our common stock. In January 2008, the board of directors authorized the purchase of an additional 30.0 million shares of our common stock. As of June 30, 2008, approximately 43.1 million shares were available for purchase under our share repurchase authorizations.
     On February 4, 2008, we entered into an agreement for an accelerated share repurchase (ASR) program with an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch). Under the agreement, we purchased 12.5 million shares of our outstanding common stock at $60.61 per share for an initial purchase price of $758 million. The repurchase was funded with internal capital. The shares were acquired as a part of previously announced share repurchase authorizations by our board of directors and are held in treasury. The ASR program was settled during the second quarter of 2008, resulting in a purchase price adjustment of $40 million, or $3.22 per share, paid to Merrill Lynch based upon the volume-weighted average price of our common stock during the ASR program period. The total purchase price for the 12.5 million shares was $798 million, or $63.83 per share.

21


Table of Contents

7. SHARE-BASED TRANSACTIONS
     The Company has two long-term incentive compensation plans. The first plan is a stock option plan that allows for grants of both incentive stock options (ISOs) and non-qualifying stock options (NQSOs). This plan expired in February 2007 (although options granted before that date remain outstanding in accordance with their terms). The second plan is a long-term incentive compensation plan that allows for ISOs, NQSOs, restricted stock, restricted stock units, and stock appreciation rights. At June 30, 2008, approximately 21.1 million shares were available for future grants under this plan, and the only performance-based awards issued and outstanding were restricted stock awards.
     The following table provides information on stock options outstanding and exercisable at June 30, 2008.
                 
    Stock   Weighted-Average
    Option   Exercise Price
(In thousands of shares)   Shares   Per Share
 
Outstanding
    16,575     $ 37.18  
Exercisable
    12,651       32.75  
 
     As of June 30, 2008, the aggregate intrinsic value of stock options outstanding was $425 million, with a weighted-average remaining term of 5.5 years. The aggregate intrinsic value of stock options exercisable at that same date was $380 million, with a weighted-average remaining term of 4.5 years. We received cash from the exercise of stock options in the amount of $27 million during the first six months of 2008, compared with $32 million in the first six months of 2007. The tax benefit realized as a result of stock option exercises and restricted stock releases was $18 million in the first six months of 2008, compared with $24 million in the first six months of 2007.
     As of June 30, 2008, total compensation cost not yet recognized in our financial statements related to restricted-share-based awards was $29 million, of which $14 million (503 thousand shares) was related to restricted-share-based awards with a performance-based vesting condition. We expect to recognize these amounts over a weighted-average period of approximately 1.6 years. There are no other contractual terms covering restricted stock awards once vested.
     For additional information on our long-term share-based compensation plans and the types of share-based awards, see Note 10 of the Notes to the Consolidated Financial Statements included in our annual report to shareholders for the year ended December 31, 2007.

22


Table of Contents

8. BENEFIT PLANS
     Our basic employee defined-benefit pension plans cover substantially all of our full-time employees in the United States and Japan. The components of retirement expense for the Japanese and U.S. pension plans were as follows:
                                                                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2008   2007   2008   2007
 
(In millions)   Japan   U.S.   Japan   U.S.   Japan   U.S.   Japan   U.S.
 
Components of net periodic benefit cost:
                                                               
Service cost
  $ 2     $ 3     $ 3     $ 2     $ 5     $ 5     $ 5     $ 5  
Interest cost
    1       2             2       2       5       1       5  
Expected return on plan assets
          (3 )     (1 )     (2 )     (1 )     (6 )     (1 )     (5 )
Amortization of net actuarial loss
    1             1       1       1       1       1       2  
 
Net periodic benefit cost
  $ 4     $ 2     $ 3     $ 3     $ 7     $ 5     $ 6     $ 7  
 
     During the six months ended June 30, 2008, Aflac Japan contributed approximately $7 million (using the June 30, 2008, exchange rate) to the Japanese pension plan, and Aflac U.S. did not make a contribution to the U.S. pension plan.
     For additional information regarding our Japanese and U.S. benefit plans, see Note 12 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.
9. COMMITMENTS AND CONTINGENT LIABILITIES
     We are a defendant in various lawsuits considered to be in the normal course of business. Members of our senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. Although some of this litigation is pending in states where large punitive damages, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, we believe the outcome of pending litigation will not have a material adverse effect on our financial position, results of operations, or cash flows.

23


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. We 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 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 “expect,” “anticipate,” “believe,” “goal,” “objective,” “may,” “should,” “estimate,” “intends,” “projects,” “will,” “assumes,” “potential,” “target” or similar words as well as specific projections of future results, generally qualify as forward-looking. Aflac undertakes no obligation to update such forward-looking statements.
     We caution 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:
    legislative and regulatory developments, including changes to health care and health insurance delivery
    assessments for insurance company insolvencies
    competitive conditions in the United States and Japan
    new product development and customer response to new products and new marketing initiatives
    ability to attract and retain qualified sales associates and employees
    ability to repatriate profits from Japan
    changes in U.S. and/or Japanese tax laws or accounting requirements
    credit and other risks associated with Aflac’s investment activities
    significant changes in investment yield rates
    fluctuations in foreign currency exchange rates
    deviations in actual experience from pricing and reserving assumptions including, but not limited to, morbidity, mortality, persistency, expenses, and investment yields
    level and outcome of litigation
    downgrades in the Company’s credit rating
    changes in rating agency policies or practices
    subsidiary’s ability to pay dividends to Parent Company
    ineffectiveness of hedging strategies
    catastrophic events
    general economic conditions in the United States and Japan, including increased uncertainty in the U.S. and international financial markets

24


Table of Contents

COMPANY OVERVIEW
     Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States and Japan. The Company’s insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac), which operates in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan). Most of Aflac’s policies are individually underwritten and marketed through independent agents. Our insurance operations in the United States and our branch in Japan service the two markets for our insurance business.
     Management’s Discussion and Analysis of Financial Condition and Results of Operations (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 period from December 31, 2007, to June 30, 2008. As a result, the following discussion should be read in conjunction with the consolidated financial statements and notes that are included in our annual report to shareholders for the year ended December 31, 2007.
     This MD&A is divided into four primary sections. In the first section, we discuss our critical accounting estimates. We then follow with a discussion of the results of our operations on a consolidated basis and by segment. The third section presents an analysis of our financial condition as well as a discussion of market risks of financial instruments. We conclude by addressing the availability of capital and the sources and uses of cash in the Capital Resources and Liquidity section.
CRITICAL ACCOUNTING ESTIMATES
     We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires us to make estimates based on currently available information when recording transactions resulting from business operations. The estimates that we deem to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to investments, deferred policy acquisition costs and policy liabilities. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 95% of our assets and 84% of our liabilities are reported and thus have a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.
     In 2007, our unpaid policy claims liability for prior years declined by approximately $400 million. More than 70% of the release of our unpaid policy claims liability resulted from incurred but not reported claims that are estimated using a claim cost and completion factor method. During the first 12 months after a claim is incurred, we estimate the ultimate cost of the claim based on initial expected claim cost factors that reflect our experience in prior periods. In the thirteenth month after incurral, we change the estimating basis to a completion factor method because the actual cash payments to date for claims 13 or more months old are deemed to have sufficient credibility on which to base the remaining liability estimate. Prior to the thirteenth month, the historical claim cost method is deemed to have more credibility. The difference in estimate between the two methods is routinely recognized in our financial statements in the thirteenth month after a claim is incurred.

25


Table of Contents

     For the past several years, we have experienced a downward trend in our current period hospitalization claim costs, primarily in Japan. For this reason, our claim cost estimate as of December 31, 2006, was high. Redundancy or insufficiency is initially recognized when the claims reach the thirteenth month after incurral. More than 75% of the 2007 release of prior period claim liability was related to claims incurred in 2006. The remainder was related to claims incurred prior to 2006.
     If the downward trend in hospital claim costs continues, we will expect to see a release in the unpaid policy claims liability for prior years during 2008 that is similar to what we experienced in 2007. However, if claim trends stabilize or deteriorate, then the unpaid policy claims liability for prior years could have a much smaller release or an increase.
     There have been no changes in the items that we have identified as critical accounting estimates during the six months ended June 30, 2008. For additional information, see the Critical Accounting Estimates section of MD&A included in our annual report to shareholders for the year ended December 31, 2007.
New Accounting Pronouncements
     We adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) effective January 1, 2008. The adoption of this standard did not have any impact on our financial position or results of operations. SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs create three valuation hierarchy levels. Level 1 valuations reflect quoted market prices for identical assets or liabilities in active markets. Level 2 valuations reflect quoted market prices for similar assets or liabilities in an active market, quoted market prices for identical or similar assets or liabilities in non-active markets or model derived valuations in which all significant valuation inputs are observable in active markets. Level 3 valuations reflect valuations in which one or more of the significant valuation inputs are not observable in an active market. The vast majority of our financial instruments subject to the classification provisions of SFAS 157 relate to our investment securities classified as securities available for sale in our investment portfolio.
     We determine the value of our securities available for sale using several sources or techniques based on the type and nature of the investment securities. For those securities classified as Level 1, we obtain quoted market prices in the active market in which they are traded.
     For those securities classified as level 2, we first obtain quoted prices from our custodian. The custodian obtains price quotes from various pricing services who estimate their fair values based on observable market transactions for similar investments in active markets, market transactions for the same investments in inactive markets or other observable market data where available.
     For those Level 2 securities not quoted by our custodian, we estimate fair values based on a discounted cash flow (DCF) pricing model that uses observable market inputs from both active and inactive markets to determine the estimated fair value of the security. The estimated fair values developed by the DCF pricing model are most sensitive to the credit spreads and, consequently, the discount rate used in the model. Credit spreads are derived based on pricing sheets obtained from brokers and pricing services and take into account the current yield curve, remaining duration and subordination levels for similar securities or classes of securities. We validate the reliability of the DCF pricing model periodically by using the model to price securities for which there are quoted

26


Table of Contents

market prices from active markets or, in the alternative, are quoted by our custodian. For those securities that are not quoted by our custodian and cannot be priced under the DCF pricing model, we obtain specific broker quotes from a minimum of three brokers and use the average of the quotes to estimate the fair value of the security.
     Our investment in securities classified as Level 3 is not significant. The fair value of our securities classified as Level 3 is estimated by obtaining broker quotes from a limited number of brokers. These brokers base their quotes on a combination of their knowledge of the current pricing environment and market flows. We consider these inputs unobservable.
     We estimate the fair values of our securities available for sale on a monthly basis. We monitor the estimated fair values from each of the sources described above for consistency from month to month and based on current market conditions. We also periodically discuss with our custodian and pricing brokers the pricing techniques they use to monitor the consistency of their approach and periodically assess the appropriateness of the valuation level assigned to the values obtained from them. See Note 4 of the Notes to the Consolidated Financial Statements for the classification of our securities available for sale under the provisions of SFAS 157 as of June 30, 2008.
     For additional information on new accounting pronouncements and the impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements.

27


Table of Contents

RESULTS OF OPERATIONS
     The following table is a presentation of items impacting net earnings and net earnings per diluted share.
Items Impacting Net Earnings
                                                                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2008   2007   2008   2007   2008   2007   2008   2007
 
    In Millions   Per Diluted Share   In Millions   Per Diluted Share
 
Net earnings
  $ 483     $ 415     $ 1.00     $ .84     $ 957     $ 831     $ 1.98     $ 1.68  
Items impacting net earnings, net of tax:
                                                               
Realized investment gains (losses)
    (1 )     9             .02       (5 )     18       (.01 )     .04  
Impact from SFAS 133
    (3 )     (1 )     (.01 )                 (1 )            
 
Realized Investment Gains and Losses
     Our investment strategy is to invest in fixed-income securities in order to provide a reliable stream of investment income, which is one of the drivers of the Company’s profitability. We do not purchase securities with the intent of generating capital 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 maintenance and rebalancing. The realization of investment gains and losses is independent of the underwriting and administration of our insurance products, which are the principal drivers of our profitability. Realized investment losses in the first six months of 2008 and realized investment gains in the same period in 2007 primarily resulted from securities sold or redeemed in the normal course of business during the period.
Impact from SFAS 133
     We entered into cross-currency swap agreements to effectively convert our dollar-denominated senior notes, which mature in 2009, into a yen-denominated obligation. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133), requires that the change in the fair value of the interest rate component of the cross-currency swaps, which does not qualify for hedge accounting, be reflected in net earnings (other income). The impact from SFAS 133 includes the change in fair value of the interest rate component of the cross-currency swaps, which does not qualify for hedge accounting.
     We have also issued yen-denominated Samurai and Uridashi notes. We have designated these notes as a hedge of our investment in Aflac Japan. If the value of these yen-denominated notes and the notional amounts of the cross-currency swaps exceed our investment in Aflac Japan, we would be required to recognize the foreign currency effect on the excess, or ineffective portion, in net earnings (other income). The ineffective portion would be included in the impact from SFAS 133. These hedges were effective during the six-month period ended June 30, 2008; therefore, there was no impact on net earnings.
     We have entered into interest-rate swap agreements related to the 20 billion yen variable interest rate Uridashi notes and have designated the swap agreements as a hedge of the variability of the debt cash flows. The notional amounts and terms of the swaps match the principal amount and terms

28


Table of Contents

of the variable interest rate Uridashi notes, and the swaps had no value at inception. SFAS 133 requires that the change in the fair value of the swap contracts be recorded in other comprehensive income so long as the hedge is deemed effective. Any ineffectiveness would be recognized in net earnings (other income) and would be included in the impact from SFAS 133. These hedges were effective during the six-month periods ended June 30, 2008 and 2007; therefore, there was no impact on net earnings.
     For additional information, see the Impact from SFAS 133 section of MD&A and Notes 4 and 7 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.
Foreign Currency Translation
     Aflac Japan’s premiums and most of its investment income are received in yen. Claims and expenses are paid in yen, and we primarily purchase yen-denominated assets to support yen-denominated policy liabilities. These and other yen-denominated financial statement items are translated into dollars for financial reporting purposes. We translate Aflac Japan’s yen-denominated income statement into dollars using an average exchange rate for the reporting period, and we translate its yen-denominated balance sheet using the exchange rate at the end of the period. However, it is important to distinguish between translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert yen into dollars.
     Due to the size of Aflac Japan, where our functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on our 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. As a result, we view foreign currency translation as a financial reporting issue for Aflac and not an economic event to our Company or shareholders. Because changes in exchange rates distort the growth rates of our operations, management evaluates Aflac’s financial performance, excluding the impact of foreign currency translation.
Income Taxes
     Our combined U.S. and Japanese effective income tax rate on pretax earnings was 34.7% for the six-month period ended June 30, 2008, compared with 34.6% for the same period in 2007.
Earnings Guidance
     We communicate earnings guidance in this report based on the growth in net earnings per diluted share. However, certain items that cannot be predicted or that are outside of management’s control may have a significant impact on actual results. Therefore, our comparison of net earnings includes certain assumptions to reflect the limitations that are inherent in projections of net earnings. In comparing period-over-period results, we exclude the effect of realized investment gains and losses, the impact from SFAS 133 and nonrecurring items. We also assume no impact from foreign currency translation on the Aflac Japan segment and the Parent Company’s yen-denominated interest expense for a given period in relation to the prior period.

29


Table of Contents

     Subject to the preceding assumptions, our objective for 2008 is to increase net earnings per diluted share by 14% to 15% over 2007. If we achieve this objective, the following table shows the likely results for 2008 net earnings per diluted share, including the impact of foreign currency translation using various yen/dollar exchange rate scenarios.
2008 Net Earnings Per Share (EPS) Scenarios*
                             
Weighted-Average            
Yen/Dollar   Net Earnings Per   % Growth   Yen Impact
Exchange Rate   Diluted Share   Over 2007   on EPS
 
  100.00     $ 4.06 – 4.09       24.2 – 25.1 %   $ .33  
  105.00       3.95 – 3.98       20.8 – 21.7       .22  
  110.00       3.86 – 3.89       18.0 – 19.0       .13  
  115.00       3.78 – 3.81       15.6 – 16.5       .05  
  117.93 **     3.73 – 3.76       14.1 – 15.0        
  120.00       3.70 – 3.73       13.1 – 14.1       (.03 )
  125.00       3.63 – 3.66       11.0 – 11.9       (.10 )
 
*   Excludes realized investment gains/losses, impact from SFAS 133 and nonrecurring items in 2008 and 2007
 
**   Actual 2007 weighted-average exchange rate
     Our objective for 2009 is to increase net earnings per diluted share by 13% to 15%, on the basis described above.
INSURANCE OPERATIONS
     Aflac’s insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan, which operates as a branch of Aflac, is the principal contributor to consolidated earnings. GAAP financial reporting requires that a company report financial and descriptive information about operating segments in its annual and interim period financial statements. Furthermore, we are required to report a measure of segment profit or loss, certain revenue and expense items, and segment assets.
     We measure and evaluate our insurance segments’ financial performance using operating earnings on a pretax basis. We define segment operating earnings as the profits we derive from our operations before realized investment gains and losses, the impact from SFAS 133, and nonrecurring items. We believe that an analysis of segment pretax operating earnings is vitally important to an understanding of the underlying profitability drivers and trends of our insurance business. Furthermore, because a significant portion of our business is conducted in Japan, we believe it is equally important to understand the impact of translating Japanese yen into U.S. dollars.
     We evaluate our sales efforts using new annualized premium sales, an industry operating measure. Total new annualized premium sales, which include new sales and the incremental increase in premiums due to conversions, represent the premiums that we would collect over a 12-month period, assuming the policies remain in force. For Aflac Japan, total new annualized premium sales are determined by applications written during the reporting period. For Aflac U.S., total new annualized premium sales are determined by applications that are accepted during the reporting period. Premium income, or earned premiums, is a financial performance measure that reflects collected or due premiums that have been earned ratably on policies in force during the reporting period.

30


Table of Contents

AFLAC JAPAN SEGMENT
Aflac Japan Pretax Operating Earnings
     Changes in Aflac Japan’s pretax operating 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.
Aflac Japan Summary of Operating Results
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions)   2008   2007   2008   2007
 
Premium income
  $ 2,620     $ 2,190     $ 5,205     $ 4,385  
Net investment income:
                               
Yen-denominated investment income
    322       267       637       534  
Dollar-denominated investment income
    186       175       367       344  
 
Net investment income
    508       442       1,004       878  
Other income
    14       10       13       19  
 
Total operating revenues
    3,142       2,642       6,222       5,282  
 
Benefits and claims
    1,946       1,682       3,868       3,368  
Operating expenses:
                               
Amortization of deferred policy acquisition costs
    100       76       196       150  
Insurance commissions
    239       208       478       417  
Insurance and other expenses
    284       215       553       421  
 
Total operating expenses
    623       499       1,227       988  
 
Total benefits and expenses
    2,569       2,181       5,095       4,356  
 
Pretax operating earnings*
  $ 573     $ 461     $ 1,127     $ 926  
 
Weighted-average yen/dollar exchange rate
    104.50       120.78       104.77       120.13  
 
                                                                 
    In Dollars   In Yen
 
    Three Months
Ended
  Six Months
Ended
  Three Months
Ended
  Six Months
Ended
Percentage change over   June 30,   June 30,   June 30,   June 30,
previous period:   2008   2007   2008   2007   2008   2007   2008   2007
 
Premium income
    19.7 %     (1.1 )%     18.7 %     .7 %     3.6 %     4.3 %     3.6 %     4.6 %
Net investment income
    14.8       4.8       14.3       5.8       (.7 )     10.6       (.3 )     9.9  
Total operating revenues
    18.9             17.8       1.7       2.9       5.5       2.8       5.6  
Pretax operating earnings*
    24.3       6.7       21.7       8.0       7.5       12.6       6.1       12.2  
 
 
*   See the Insurance Operations section of this MD&A for our definition of segment operating earnings.
     The percentage increases in premium income reflect the growth of premiums in force. Annualized premiums in force in yen increased 3.6% to 1.14 trillion yen as of June 30, 2008, compared with 1.10 trillion yen a year ago, and reflect the high persistency of Aflac Japan’s business and the sales of new policies. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $10.7 billion at June 30, 2008, compared with $8.9 billion a year ago.
     Aflac Japan maintains a portfolio of dollar-denominated and reverse-dual currency securities (yen-denominated debt securities with dollar coupon payments). Dollar-denominated investment income from these assets accounted for approximately 37% of Aflac Japan’s investment income in the first

31


Table of Contents

six months of 2008, compared with 39% a year ago. In periods when the yen strengthens in relation to the dollar, translating Aflac Japan’s dollar-denominated investment income into yen lowers growth rates for net investment income, total operating revenues, and pretax operating earnings in yen terms. In periods when the yen weakens, translating dollar-denominated investment income into yen magnifies growth rates for net investment income, total operating revenues, and pretax operating earnings in yen terms. On a constant currency basis, dollar-denominated investment income accounted for approximately 40% of Aflac Japan’s investment income during the first six months of 2008. The following table illustrates the effect of translating Aflac Japan’s dollar-denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had yen/dollar exchange rates remained unchanged from the comparable period in the prior year.
Aflac Japan Percentage Changes Over Previous Period
(Yen Operating Results)
For the Periods Ended June 30,
                                                                 
    Including Foreign Currency Changes   Excluding Foreign Currency Changes**
 
    Three Months   Six Months   Three Months   Six Months
    2008   2007   2008   2007   2008   2007   2008   2007
 
Net investment income
    (.7 )%     10.6 %     (.3 )%     9.9 %     5.0 %     8.3 %     5.0 %     8.3 %
Total operating revenues
    2.9       5.5       2.8       5.6       3.7       5.1       3.8       5.3  
Pretax operating earnings*
    7.5       12.6       6.1       12.2       11.3       10.6       11.0       10.8  
 
 
*   See the Insurance Operations section of this MD&A for our definition of segment operating earnings.
 
**   Amounts excluding foreign currency changes on dollar-denominated items were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year.
     The following table presents a summary of operating ratios for Aflac Japan.
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Ratios to total revenues:   2008   2007   2008   2007
 
Benefits and claims
    61.9 %     63.7 %     62.2 %     63.8 %
Operating expenses:
                               
Amortization of deferred policy acquisition costs
    3.2       2.9       3.1       2.8  
Insurance commissions
    7.6       7.9       7.7       7.9  
Insurance and other expenses
    9.1       8.1       8.9       8.0  
 
Total operating expenses
    19.9       18.9       19.7       18.7  
Pretax operating earnings*
    18.2       17.4       18.1       17.5  
 
 
*   See the Insurance Operations section of this MD&A for our definition of segment operating earnings.
     The benefit ratio has declined over the past several years, reflecting the impact of newer products with lower loss ratios. We have also experienced favorable claim trends in our major product lines. We expect the benefit ratio to continue to decline in future years primarily reflecting the shift to newer products and riders and the impact of favorable claim trends. The operating expense ratio increased in the first six months in line with our expectations and primarily reflects the increased costs associated with IT infrastructure changes and our preparation for sales through the bank channel. We expect the operating expense ratio to be modestly higher for the year in relation to 2007. Due to continued improvement in the benefit ratio, the pretax operating profit margin expanded from 17.4% to 18.2% for the three-month period and from 17.5% to 18.1% for the six-month period ended June 30, 2008. We expect an expanded profit margin to continue through the remainder of 2008.

32


Table of Contents

Aflac Japan Sales
     Aflac Japan’s total new annualized premium sales in yen declined 4.9% in the second quarter of 2008, compared with the second quarter of 2007. For the six months ended June 30, 2008, total new annualized premium sales in yen declined .3%, compared with the same period a year ago. The following table presents Aflac Japan’s total new annualized premium sales for the periods ended June 30.
                                                                 
    In Dollars   In Yen
 
(In millions of dollars   Three Months   Six Months   Three Months   Six Months
and billions of yen)   2008   2007   2008   2007   2008   2007   2008   2007
 
Total new annualized premium sales
  $ 274     $ 249     $ 537     $ 470       28.7       30.1       56.3       56.4  
Percentage change over comparable period in prior year
    9.9 %     (8.7 )%     14.4 %     (10.4 )%     (4.9 )%     (3.5 )%     (.3 )%     (6.9 )%
 
     The following table details the contributions to total new annualized premium sales by major product for the periods ended June 30.
                                 
    Three Months   Six Months
    2008   2007   2008   2007
 
Medical policies
    34 %     30 %     35 %     31 %
Cancer life
    34       36       33       34  
Ordinary life
    23       23       22       22  
Rider MAX
    5       7       5       8  
Other
    4       4       5       5  
 
Total
    100 %     100 %     100 %     100 %
 
     Medical sales rose 8.7% during the second quarter of 2008, compared with the same period a year ago. Medical sales were helped by sales of Gentle EVER, our nonstandard medical product for customers that do not qualify for our standard EVER product. Cancer insurance sales declined 11.1% in the second quarter, reflecting challenging comparisons to 2007 when cancer insurance sales benefited from advance purchases of our product prior to a pending premium rate increase. In addition, our sales associates focused on selling a lower premium cancer insurance product in the second quarter that upgrades the coverage for existing policyholders.
     We continue to believe that sales of cancer and medical insurance will benefit from the recently opened bank channel. By the end of June, we had agreements with 154 out of a total of 402 banks to sell our products in their branches. Sales from the bank channel increased 146.4% during the second quarter, compared with first quarter; however, we had expected sales from the bank channel to be even higher. As the year progresses, we expect to see further sales gains in the bank channel.
     As previously disclosed, in November 2007 Japan Post Network Co., Ltd., selected Aflac Japan as its provider of cancer insurance to be sold through Japan’s vast postal network. Japan Post Network Co., Ltd., operates the 24,000 post offices located throughout Japan. Initially, we expect to sell through about 300 postal outlets beginning in October of this year.

33


Table of Contents

     Although we expected somewhat weaker sales in the second quarter, compared with the first quarter, we did expect a sales increase over the comparable period in 2007. However, despite sales being flat for the first six months of the year, we expect to see improved sales growth in the second half of 2008. Based on our strong product line and the prospects of our two new distribution opportunities, the bank channel and Japan Post, we believe we can achieve our sales objective of a 3% to 7% increase in 2008, although attainment of our sales target will be more challenging than we had originally anticipated.
Aflac Japan Investments
     Growth of investment income in yen is affected by available cash flow from operations, timing of and yields on new investments, and the effect of yen/dollar exchange rates on dollar-denominated investment income. Aflac Japan has invested in privately issued securities to secure higher yields than Japanese government or other public corporate bonds would have provided, while still adhering to prudent standards for credit quality. All of our privately issued securities are rated investment grade at the time of purchase. These securities are generally issued with standard documentation for medium-term note programs and have appropriate covenants.
     The following table presents the results of Aflac Japan’s investment activities for the periods ended June 30.
                                 
    Three Months   Six Months
    2008   2007   2008   2007
 
New money yield — yen only
    3.27 %     3.20 %     3.31 %     3.18 %
New money yield — blended
    3.46       3.58       3.57       3.47  
Return on average invested assets, net of investment expenses
    3.83       4.10       3.84       4.10  
 
     At June 30, 2008, the yield on Aflac Japan’s investment portfolio, including dollar-denominated investments, was 3.98%, compared with 4.09% a year ago. See the Investments and Cash section of this MD&A for additional information.
Japanese Economy
     Japan’s economy has shown signs of moderate expansion over the past few years. However, recent statistics suggest that the growth in the Japanese economy is slowing somewhat. Based on these recent observations, we believe that the ability of the Japanese economy to sustain such expansion remains uncertain. For additional information, see the Japanese Economy section of MD&A in our annual report to shareholders for the year ended December 31, 2007.
Japanese Regulatory Environment
     Japan’s Financial Services Agency (FSA) adopted new mortality tables for reserving newly underwritten policies effective April 2007. These new tables reflect recent improvements in survival rates in Japan and have generally resulted in a decrease in policy premiums for death benefit products and an increase in premium rates for third sector (health) products and annuities. We reflected the impact of the new mortality table in our product pricing for the first sector (life) products effective April 2007. For the third sector, the revised tables were reflected in our product pricing effective September 2007.

34


Table of Contents

     Additionally, the FSA has implemented a new rule for third sector product reserving for our FSA-based financial statements, effective April 1, 2007. Under the new rule, we are required to conduct stress testing of our reserves using a prescribed method that incorporates actual morbidity. The results of the tests and their relation to our reserves determine whether reserve strengthening is required. This new reserve requirement will not impact our GAAP financial statements. Adoption of this requirement did not have a material impact on our FSA-based financial statements for the year ended March 31, 2008, or on our product pricing going forward.
AFLAC U.S. SEGMENT
Aflac U.S. Pretax Operating Earnings
     Changes in Aflac U.S. pretax operating 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.
Aflac U.S. Summary of Operating Results
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In millions)   2008   2007   2008   2007
 
Premium income
  $ 1,064     $ 972     $ 2,114     $ 1,933  
Net investment income
    125       124       248       246  
Other income
    2       3       5       5  
 
Total operating revenues
    1,191       1,099       2,367       2,184  
 
Benefits and claims
    628       584       1,245       1,156  
Operating expenses:
                               
Amortization of deferred policy acquisition costs
    85       79       180       159  
Insurance commissions
    123       118       242       238  
Insurance and other expenses
    165       147       320       291  
 
Total operating expenses
    373       344       742       688  
 
Total benefits and expenses
    1,001       928       1,987       1,844  
 
Pretax operating earnings*
  $ 190     $ 171     $ 380     $ 340  
 
Percentage changes over previous period:
                               
 
Premium income
    9.5 %     10.7 %     9.4 %     10.8 %
Net investment income
    .1       8.4       .7       9.4  
Total operating revenues
    8.4       10.6       8.4       10.7  
Pretax operating earnings*
    11.1       14.1       11.8       14.7  
 
 
*   See the Insurance Operations section of this MD&A for our definition of segment operating earnings.
     The percentage increases in premium income reflect the growth of premiums in force. The increases in annualized premiums in force of 8.9% in the first six months of 2008 and 10.6% for the same period of 2007 were favorably affected by sales at the worksite and a slight improvement in the persistency of several products. Annualized premiums in force at June 30, 2008, were $4.6 billion, compared with $4.2 billion a year ago.

35


Table of Contents

     Net investment income was relatively flat during the three- and six-month periods ended June 30, 2008 primarily as a result of funds utilized in our accelerated share repurchase program in early 2008. For further information, see the Capital Resources and Liquidity section of this MD&A, Note 6 of the Notes to the Consolidated Financial Statements, and MD&A and Note 9 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.
     The following table presents a summary of operating ratios for Aflac U.S.
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
Ratios to total revenues:   2008   2007   2008   2007
 
Benefits and claims
    52.8 %     53.1 %     52.6 %     52.9 %
Operating expenses:
                               
Amortization of deferred policy acquisition costs
    7.1       7.2       7.6       7.3  
Insurance commissions
    10.3       10.8       10.2       10.9  
Insurance and other expenses
    13.9       13.3       13.5       13.3  
 
Total operating expenses
    31.3       31.3       31.3       31.5  
Pretax operating earnings*
    15.9       15.6       16.1       15.6  
 
*   See the Insurance Operations section of this MD&A for our definition of segment operating earnings.
     The benefit ratio declined in the first half of 2008. We expect the benefit ratio to decline slightly in 2008, compared with 2007 due to favorable claim cost trends. We expect the operating expense ratio and pretax operating profit margin for 2008 to remain relatively stable compared with 2007.
Aflac U.S. Sales
     Aflac’s U.S. total new annualized premium sales rose 4.9% during the second quarter and 2.7% for the six-month period ended June 30, 2008. The following table presents Aflac’s U.S. total new annualized premium sales for the periods ended June 30.
                                 
    Three Months   Six Months
(In millions)   2008   2007   2008   2007
 
Total new annualized premium sales
  $ 383     $ 365     $ 736     $ 717  
Percentage change over comparable period in prior year
    4.9 %     11.8 %     2.7 %     11.2 %
 
     The following table details the contributions to total new annualized premium sales by major product category for the periods ended June 30.
                                 
    Three Months   Six Months
    2008   2007   2008   2007
 
Accident/disability coverage
    49 %     52 %     49 %     52 %
Cancer expense insurance
    18       16       18       16  
Hospital indemnity products
    16       13       15       13  
Fixed-benefit dental coverage
    6       6       6       6  
Other
    11       13       12       13  
 
Total
    100 %     100 %     100 %     100 %
 

36


Table of Contents

     Total new annualized premium sales for accident/disability, our leading product category, decreased 1.3% in the second quarter of 2008, while cancer expense insurance increased 16.7% and our hospital indemnity group increased 21.0%, compared with the same period a year ago.
     We remain satisfied with our progress in the ongoing expansion of our U.S. sales force. The number of newly recruited sales associates rose 4.2% to more than 6,700 new associates as compared to the same period a year ago. The number of average weekly producing sales associates rose 6.3% to approximately 11,300 in the second quarter of 2008, compared with the same period a year ago. We believe that the average weekly producing sales associates metric allows our sales management to actively monitor progress on a real-time basis. Furthermore, we believe the increase in producing sales associates reflects the success of the training programs we implemented over the last few years.
     However, based on our six month sales results, it will be difficult to achieve our objective of an 8% to 12% increase in new annualized premium sales for the full year. Although we believe that the weakened U.S. economy has been a contributing factor to slower sales growth, we also believe our products remain affordable to the average American consumer. During this period of rising food and gas prices, the protection our products offer is even more valuable to consumers when a health event occurs, and we will continue to convey that message to consumers through our commercials and sales force. Consistent demand for our products has been evidenced by our improved U.S. sales growth and persistency in the second quarter, compared with the first quarter this year.
Aflac U.S. Investments
     The following table presents the results of Aflac’s U.S. investment activities for the periods ended June 30.
                                 
    Three Months   Six Months
    2008   2007   2008   2007
 
New money yield
    7.29 %     6.51 %     7.19 %     6.40 %
Return on average invested assets, net of investment expenses
    6.64       6.73       6.71       6.78  
 
     The increase in the U.S. new money yield reflects widening credit spreads globally. At June 30, 2008, the portfolio yield on Aflac’s U.S. portfolio was 7.04%, compared with 7.01% a year ago. During the second quarter of 2008, Aflac U.S. purchased $200 million of variable interest rate CDOs at an initial rate of 5.41%. These CDOs were purchased in conjunction with variable interest rate funding agreements issued by Aflac U.S. Because these CDOs do not support our core policyholder benefit obligations, the yield on these CDOs is not included in the Aflac U.S. portfolio yield or in the yields listed in the above table. See Note 3 of the Notes to the Consolidated Financial Statements and the Investments and Cash section of this MD&A for additional information.

37


Table of Contents

ANALYSIS OF FINANCIAL CONDITION
     Our financial condition has remained strong in the functional currencies of our operations during the last two years. The yen/dollar exchange rate at the end of each period is used to translate yen-denominated balance sheet items to U.S. dollars for reporting purposes. The exchange rate at June 30, 2008, was 106.42 yen to one dollar, or 7.3% stronger than the December 31, 2007, exchange rate of 114.15. The stronger yen increased reported investments and cash by $3.3 billion, total assets by $3.7 billion, and total liabilities by $3.7 billion, compared with the amounts that would have been reported for the second quarter of 2008 if the exchange rate had remained unchanged from December 31, 2007.
Market Risks of Financial Instruments
     Because we invest in fixed-income securities, our financial instruments are exposed primarily to two types of market risks: currency risk and interest rate risk.
Currency Risk
     The functional currency of Aflac Japan’s insurance operation is the Japanese yen. All of Aflac Japan’s premiums, claims and commissions are received or paid in yen, as are most of its investment income and other expenses. Furthermore, most of Aflac Japan’s investments, cash and liabilities are yen-denominated. When yen-denominated securities mature or are sold, the proceeds are generally reinvested in yen-denominated securities. Aflac Japan holds these yen-denominated assets to fund its yen-denominated policy obligations. In addition, Aflac Incorporated has yen-denominated notes payable and cross-currency swaps related to its dollar-denominated senior notes.
     Although we generally do not convert yen into dollars, we do translate financial statement amounts from yen into dollars for financial reporting purposes. Therefore, reported amounts are affected by foreign currency fluctuations. We report unrealized foreign currency translation gains and losses in accumulated other comprehensive income.
     On a consolidated basis, we attempt to minimize the exposure of our shareholders’ equity to foreign currency translation fluctuations. We accomplish this by investing a portion of Aflac Japan’s investment portfolio in dollar-denominated securities, by the Parent Company’s issuance of yen-denominated debt and by the use of cross-currency swaps (for additional information, see the discussion under Hedging Activities as follows in this section of MD&A). As a result, the effect of currency fluctuations on our net assets is mitigated. The dollar values of our yen-denominated net assets, which are subject to foreign currency translation fluctuations for financial reporting purposes, are summarized as follows (translated at end-of-period exchange rates):
                 
    June 30,   December 31,
(In millions)   2008   2007
 
Aflac Japan yen-denominated net assets
  $ 2,129     $ 2,415  
Parent Company yen-denominated net liabilities
    (1,605 )     (1,496 )
 
Consolidated yen-denominated net assets subject to foreign currency translation fluctuations
  $ 524     $ 919  
 

38


Table of Contents

     The following table demonstrates the effect of foreign currency fluctuations by presenting the dollar values of our yen-denominated assets and liabilities, and our consolidated yen-denominated net asset exposure at selected exchange rates.
Dollar Value of Yen-Denominated Assets and Liabilities
at Selected Exchange Rates
                                                 
(In millions)   June 30, 2008   December 31, 2007
 
Yen/dollar exchange rates   91.42   106.42*   121.42   99.15   114.15*   129.15
 
Yen-denominated financial instruments:
                                               
Assets:
                                               
Securities available for sale:
                                               
Fixed maturities
  $ 24,960     $ 21,442     $ 18,793     $ 23,190     $ 20,143     $ 17,803  
Perpetual debentures
    4,194       3,603       3,158       4,218       3,664       3,238  
Equity securities
    25       22       19       25       22       20  
Securities held to maturity:
                                               
Fixed maturities
    22,686       19,488       17,080       19,341       16,799       14,848  
Perpetual debentures
    4,957       4,259       3,733       4,588       3,985       3,522  
Cash and cash equivalents
    367       315       276       369       321       284  
Other financial instruments
    73       62       55       60       52       46  
 
Subtotal
    57,262       49,191       43,114       51,791       44,986       39,761  
 
Liabilities:
                                               
Notes payable
    1,267       1,089       954       1,169       1,015       898  
Cross-currency swaps
    608       522       458       560       487       430  
Japanese policyholder protection corporation
    175       150       131       174       151       133  
 
Subtotal
    2,050       1,761       1,543       1,903       1,653       1,461  
 
Net yen-denominated financial instruments
    55,212       47,430       41,571       49,888       43,333       38,300  
Other yen-denominated assets
    7,001       6,014       5,271       6,310       5,480       4,844  
Other yen-denominated liabilities
    61,603       52,920       46,383       55,140       47,894       42,331  
 
Consolidated yen-denominated net assets subject to foreign currency fluctuation
  $ 610     $ 524     $ 459     $ 1,058     $ 919     $ 813  
 
*   Actual period-end exchange rate
     We are exposed to economic currency risk only when yen funds are actually converted into dollars. This primarily occurs when we repatriate funds from Aflac Japan to Aflac U.S., which is done annually. The exchange rates prevailing at the time of repatriation will differ from the exchange rates prevailing at the time the yen profits were earned. A portion of the repatriation may be used to service Aflac Incorporated’s yen-denominated notes payable with the remainder converted into dollars.
Interest Rate Risk
     Our primary interest rate exposure is to the impact of changes in interest rates on the fair value of our investments in debt securities. Reflecting the impact of widening credit spreads globally, we had $2.6 billion of net unrealized losses on total debt securities at June 30, 2008, compared with $.3 billion of net unrealized gains on total debt securities at December 31, 2007. We estimate that the reduction in

39


Table of Contents

the fair value of debt securities we own resulting from a 100 basis point increase in market interest rates, based on our portfolios at June 30, 2008, and December 31, 2007, would be as follows:
                 
    June 30,   December 31,
(In millions)   2008   2007
 
Effect on yen-denominated debt securities
  $ (5,041 )   $ (4,872 )
Effect on dollar-denominated debt securities
    (871 )     (919 )
 
Effect on total debt securities
  $ (5,912 )   $ (5,791 )
 
     We attempt to match the duration of our assets with the duration of our liabilities. Currently, when debt securities we own mature, the proceeds may be reinvested at a yield below that of the interest required for the accretion of policy benefit liabilities on policies issued in earlier years. However, adding riders to our older policies has helped offset negative investment spreads on these policies. Overall, adequate profit margins exist in Aflac Japan’s aggregate block of business because of profits that have emerged from changes in mix of business and favorable experience from mortality, morbidity, and expenses.
     We have entered into interest-rate swap agreements related to the 20 billion yen variable interest rate Uridashi notes. These agreements effectively swap the variable interest rate Uridashi notes to fixed rate notes to mitigate our exposure to interest rate risk. For additional information, see the Interest Rate Risk section of MD&A in our annual report to shareholders for the year ended December 31, 2007.
Investments and Cash
     Our investment philosophy is to maximize investment income while emphasizing liquidity, safety and quality. Our investment objective, subject to appropriate risk constraints, is to fund policyholder obligations and other liabilities in a manner that enhances shareholders’ equity. We seek to achieve this objective through a diversified portfolio of fixed-income investments that reflects the characteristics of the liabilities it supports. Aflac invests primarily within the debt securities markets.

40


Table of Contents

     The following table details investment securities by segment.
Investment Securities by Segment
                                 
    Aflac Japan   Aflac U.S.
 
    June 30,   December 31,   June 30,   December 31,
(In millions)   2008   2007   2008   2007
 
Securities available for sale, at fair value:
                               
Fixed maturities
  $ 24,777     $ 23,532     $ 6,595 *   $ 6,874 *
Perpetual debentures
    3,668       3,764       302       331  
Equity securities
    22       22              
 
Total available for sale
    28,467       27,318       6,897       7,205  
 
Securities held to maturity, at amortized cost:
                               
Fixed maturities
    19,488       16,799       221       20  
Perpetual debentures
    4,259       3,985              
 
Total held to maturity
    23,747       20,784       221       20  
 
Total investment securities
  $ 52,214     $ 48,102     $ 7,118     $ 7,225  
 
*   Excludes investment-grade, available-for-sale fixed-maturity securities held by the Parent Company of $104 in 2008 and $105 in 2007.
     During the second quarter of 2008, Aflac U.S. used the proceeds from the issuance of $200 million of variable interest rate funding agreements to third party investors to purchase a corresponding amount of variable interest rate CDOs. These CDOs were purchased exclusively to support our obligation under the funding agreements and are classified as fixed maturities in the Aflac U.S. held-to-maturity portfolio. See Note 3 of the Notes to the Consolidated Financial Statements for additional information.
     We have investments in both publicly issued and privately issued securities. However, the status of issuance should not be viewed as an indicator of liquidity or as a limitation on the determination of fair value. The outstanding amount of a particular issuance, as well as the level of activity in a particular issuance and the state of the market, including credit events and the interest rate environment, affect liquidity regardless of type of issuance. We routinely assess the fair value of all of our investments. This process includes evaluating quotations provided by outside securities pricing sources and/or compiled using data provided by external debt and equity market sources, as described more fully in the Critical Accounting Estimates section of this MD&A and in Note 4 of the Notes to the Consolidated Financial Statements.

41


Table of Contents

     The following table details investment securities by type of issuance.
Investment Securities by Type of Issuance
                                 
    June 30, 2008   December 31, 2007
 
    Amortized   Fair   Amortized   Fair
(In millions)   Cost   Value   Cost   Value
 
 
Publicly issued securities:
                               
Fixed maturities
  $ 16,909     $ 17,403     $ 15,986     $ 16,919  
Perpetual debentures
    173       144       173       157  
Equity securities
    14       19       13       19  
 
Total publicly issued
    17,096       17,566       16,172       17,095  
 
Privately issued securities:
                               
Fixed maturities
    34,541       32,070       30,232       29,783  
Perpetual debentures
    8,512       7,920       8,084       7,872  
Equity securities
    3       3       3       3  
 
Total privately issued
    43,056       39,993       38,319       37,658  
 
Total investment securities
  $ 60,152     $ 57,559     $ 54,491     $ 54,753  
 
     Privately issued securities accounted for 71.6% of total debt securities, at amortized cost, at June 30, 2008, compared with 70.3% at December 31, 2007. Privately issued securities held by Aflac Japan at amortized cost accounted for $40.4 billion, or 67.2%, of total debt securities at June 30, 2008, and $36.0 billion, or 66.0%, of total debt securities at December 31, 2007. Reverse-dual currency debt securities accounted for $12.5 billion, or 29.1%, of total privately issued securities at June 30, 2008, compared with $11.1 billion, or 29.2%, of total privately issued securities at December 31, 2007. Aflac Japan has invested in privately issued securities to secure higher yields than those available from Japanese government bonds. Aflac Japan’s investments in yen-denominated privately issued securities consist primarily of non-Japanese issuers and have longer maturities, thereby allowing us to improve our asset/liability matching and our overall investment returns. Most of our privately issued securities are issued under medium-term note programs and have standard documentation commensurate with credit ratings, except when internal credit analysis indicates that additional protective and/or event-risk covenants are required.
     Our investment activities expose us to credit risk, which is a consequence of extending credit and/or carrying investment positions. However, we continue to adhere to prudent standards for credit quality. We accomplish this by considering our product needs and the overall corporate objectives, in addition to credit risk. In evaluating the initial rating, we look at the overall senior issuer rating, the explicit rating for the actual issue or the rating for the security class, and, where applicable, the appropriate designation from the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC). All of our securities have ratings from either a nationally recognized statistical rating organization or the SVO of the NAIC. In addition, we perform extensive internal credit reviews to ensure that we are consistent in applying rating criteria for all of our securities.

42


Table of Contents

     We use specific criteria to judge the credit quality of both existing and prospective investments. Furthermore, we use several methods to monitor these criteria, including credit rating services and internal credit analysis. The distributions by credit rating of our purchases of debt securities, based on acquisition cost, were as follows:
Composition of Purchases by Credit Rating
                         
    Six Months Ended   Twelve Months Ended   Six Months Ended
    June 30, 2008   December 31, 2007   June 30, 2007
 
AAA
    13.4 %     18.4 %     24.3 %
AA
    48.2       44.1       36.3  
A
    25.5       30.2       30.8  
BBB
    12.9       7.3       8.6  
 
 
    100.0 %     100.0 %     100.0 %
 
     The percentage increase of securities purchased in the BBB rated category during the period was due to the attractive relative value these securities presented while still meeting our investment policy guidelines for liquidity, safety and quality. The increased percentage of securities purchased in the AAA rated category in the first six months of 2007 primarily reflects the purchase of U.S. Treasury bills by Aflac Japan, pending repatriation of profits to Aflac U.S. in the third quarter of 2007.
     The distributions of debt securities we own, by credit rating, were as follows:
Composition by Credit Rating
                                 
    June 30, 2008   December 31, 2007
 
    Amortized   Fair   Amortized   Fair
    Cost   Value   Cost   Value
 
AAA
    6.0 %     6.1 %     6.3 %     6.2 %
AA
    43.9       45.5       44.3       45.3  
A
    31.1       30.5       30.7       30.4  
BBB
    17.1       16.4       16.8       16.6  
BB or lower
    1.9       1.5       1.9       1.5  
 
Total
    100.0 %     100.0 %     100.0 %     100.0 %
 
     In the event of a credit rating downgrade to below-investment-grade status, we do not automatically liquidate our position. However, if the security is in the held-to-maturity portfolio, we immediately transfer it to the available-for-sale portfolio so that the security’s fair value and its unrealized gain/loss are reflected on the balance sheet.
     Once we designate a security as below investment grade, we intensify our monitoring of the issuer. We do not automatically recognize an impairment if the security’s amortized cost exceeds its fair value. Our investment management starts by reviewing its credit analysis. Included in this process are an evaluation of the issuer, its current credit posture and an assessment of the future prospects for the issuer. We then obtain fair value information from at least three independent pricing sources. Upon determining the fair value, we move our focus to an analysis of whether or not the decline in fair value, if any, is other than temporary. For securities with an amortized cost in excess of fair value, investment management then reviews the issue based on our impairment policy to determine if the investment should be impaired and/or liquidated. The assessment of whether a decline is other than temporary requires significant management judgment and is discussed more

43


Table of Contents

fully in the Critical Accounting Estimates section of MD&A and in Note 3 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007. Securities classified as below investment grade were as follows:
Below-Investment-Grade Securities
                                                 
    June 30, 2008   December 31, 2007
 
    Par   Amortized   Fair   Par   Amortized   Fair
(In millions)   Value   Cost   Value   Value   Cost   Value
 
Ahold
  $ 331     $ 332     $ 318     $ 310     $ 311     $ 272  
Ford Motor Credit
    282       282       173       263       263       215  
CSAV
    226       226       161       210       210       143  
BAWAG
    131       132       79       123       123       90  
Ford Motor Company
    111       121       76       111       122       93  
Sprint Capital Corp.
    22       24       20       *       *       *  
Academica Charter Schools Finance
    22       24       21       *       *       *  
International Securities Trading Corp.
    18                   20              
Patrick Family Housing (Patrick AFB)
    4       1       1       4       1       1  
Aloha Utilities Inc.
    **       **       **       2       2       1  
 
Total
  $ 1,147     $ 1,142     $ 849     $ 1,043     $ 1,032     $ 815  
 
*   Investment grade at respective reporting date
 
**   Sold during 2008
     Occasionally, a debt security will be split rated. This occurs when one rating agency rates the security as investment grade while another rating agency rates the same security as below investment grade. Our policy is to review each issue on a case-by-case basis to determine if a split-rated security should be classified as investment grade or below investment grade. Our review includes evaluating the issuer’s credit position as well as current market pricing and other factors, such as the issuer’s or security’s inclusion on a credit rating downgrade watch list. Split-rated securities as of June 30, 2008, represented 1.1% of total debt securities at amortized cost and were as follows:
Split-Rated Securities
                         
    Amortized   Moody's   S&P   Fitch   Investment-Grade
(In millions)   Cost   Rating   Rating   Rating   Status
 
Signum (Ahold)
  $ 301     Baa3   BB+   BB+   Below Investment Grade
IKB Deutsche Industriebank
    122     Ba2   N/A   A   Investment Grade
Stora Enso Oyj
    99     Ba1   BBB-   BBB-   Investment Grade
MEAD Corp.
    36     Ba1   BBB   N/A   Investment Grade
Tennessee Gas Pipeline
    31     Baa3   BB   BBB-   Investment Grade
Sprint Capital Corp.
    24     Baa3   BB   BB+   Below Investment Grade
Union Carbide Corp.
    15     Ba2   BBB-   BBB   Investment Grade
Ahold Finance USA Inc.
    15     Baa3   BB+   BB+   Below Investment Grade
Oncor Electric Delivery
    11     Ba1   BBB-   BBB   Investment Grade
Bell Canada
    9     Baa1   BB+   BB-   Investment Grade
 

44


Table of Contents

     The following table provides details on amortized cost, fair value and unrealized gains and losses for our investments in debt securities by investment-grade status as of June 30, 2008.
                                         
    Total   Total   Percent   Gross   Gross
    Amortized   Fair   of Fair   Unrealized   Unrealized
(In millions)   Cost   Value   Value   Gains   Losses
 
Available-for-sale securities:
                                       
Investment-grade securities
  $ 35,025     $ 34,597       60.1 %   $ 1,404     $ 1,832  
Below-investment-grade securities
    1,142       849       1.5       1       294  
Held-to-maturity securities:
                                       
Investment-grade securities
    23,968       22,091       38.4       268       2,145  
 
Total
  $ 60,135     $ 57,537       100.0 %   $ 1,673     $ 4,271  
 
     The following table presents an aging of securities in an unrealized loss position as of June 30, 2008.
Aging of Unrealized Losses
                                                                 
                    Less than   Six Months    
    Total   Total   Six Months   to 12 Months   Over 12 Months
             
    Amortized   Unrealized   Amortized   Unrealized   Amortized   Unrealized   Amortized   Unrealized
(In millions)   Cost   Loss   Cost   Loss   Cost   Loss   Cost   Loss
 
Available-for-sale securities:
                                                               
Investment-grade securities
  $ 19,350     $ 1,832     $ 6,047     $ 204     $ 3,421     $ 292     $ 9,882     $ 1,336  
Below-investment- grade securities
    1,109       294                   18       2       1,091       292  
Held-to-maturity securities:
                                                               
Investment-grade securities
    18,728       2,145       4,082       184       2,018       223       12,628       1,738  
 
Total
  $ 39,187     $ 4,271     $ 10,129     $ 388     $ 5,457     $ 517     $ 23,601     $ 3,366  
 
     The following table presents a distribution of unrealized losses by magnitude as of June 30, 2008.
Percentage Decline From Amortized Cost
                                                                 
    Total   Total   Less than 20%   20% to 50%   Greater than 50%
             
    Amortized   Unrealized   Amortized   Unrealized   Amortized   Unrealized   Amortized   Unrealized
(In millions)   Cost   Loss   Cost   Loss   Cost   Loss   Cost   Loss
 
Available-for-sale securities:
                                                               
Investment-grade securities
  $ 19,350     $ 1,832     $ 17,322     $ 1,283     $ 1,991     $ 525     $ 37     $ 24  
Below-investment-grade securities
    1,109       294       342       21       767       273              
Held-to-maturity securities:
                                                               
Investment-grade securities
    18,728       2,145       16,571       1,382       1,875       578       282       185  
 
Total
  $ 39,187     $ 4,271     $ 34,235     $ 2,686     $ 4,633     $ 1,376     $ 319     $ 209  
     

45


Table of Contents

     The following table presents the 10 largest unrealized loss positions in our portfolio as of June 30, 2008.
                                 
    Credit   Amortized   Fair   Unrealized
(In millions)   Rating   Cost   Value   Loss
 
SLM Corp.
  BBB   $ 313     $ 118     $ 195  
Ford Motor Credit
    B       282       173       109  
Takefuji
  BBB     725       623       102  
Nordea Bank
  AA     376       288       88  
Credit Suisse Group
  AA     569       496       73  
CSAV
  BB     226       161       65  
Unicredito Italiano
    A       487       424       63  
KBC Group
    A       251       189       62  
IKB Deutsche Industriebank
    A       122       63       59  
Erste Bank
    A       423       364       59  
 
     The fair value of our investments in debt securities can fluctuate as a result of changes in interest rates, foreign currency exchange rates, and credit issues. Declines in fair value noted above resulted from changes in interest rates, yen/dollar exchange rates, and issuer credit status. However, we believe that it would be inappropriate to recognize impairment charges because we believe the changes in fair value are temporary. Based on our evaluation and analysis of specific issuers in accordance with our impairment policy, impairment charges recognized during the six-month periods ended June 30, 2008 and 2007, were immaterial.
     Realized losses on debt securities were as follows:
Realized Losses on Debt Securities
                                 
    Three Months Ended   Six Months Ended
    June 30, 2008   June 30, 2008
 
            Realized           Realized
(In millions)   Proceeds   Loss   Proceeds   Loss
 
Investment-grade securities, length of consecutive unrealized loss:
                               
Less than six months
  $ 44     $ 1     $ 81     $ 2  
Six months to 12 months
    24       1       55       9  
Over 12 months
    21       2       30       2  
 
Total
  $ 89     $ 4     $ 166     $ 13  
 
     Sales of below-investment-grade securities and related realized losses were immaterial during the first six months of 2008.
     Cash, cash equivalents, and short-term investments totaled $1.4 billion, or 2.3% of total investments and cash, as of June 30, 2008, compared with $1.6 billion, or 2.7%, at December 31, 2007.
     For additional information concerning our investments, see Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Notes 3 and 4 of the Notes to the Consolidated Financial Statements included in our annual report to shareholders for the year ended December 31, 2007.

46


Table of Contents

Deferred Policy Acquisition Costs
     The following table presents deferred policy acquisition costs by segment.
                 
(In millions)   June 30, 2008   December 31, 2007
 
Aflac Japan
  $ 4,708     $ 4,269  
Aflac U.S.
    2,486       2,385  
 
Total
  $ 7,194     $ 6,654  
 
     Total deferred policy acquisition costs increased 8.1% during the period as compared to December 31, 2007. Aflac Japan’s deferred policy acquisition costs increased 10.3% (2.8% increase in yen) for the six months ended June 30, 2008. The stronger yen at June 30, 2008, increased reported deferred policy acquisition costs by $319 million. Deferred policy acquisition costs of Aflac U.S. increased 4.3% for the six-month period ended June 30, 2008. The increase in deferred policy acquisition costs was primarily driven by total new annualized premium sales.
Policy Liabilities
     The following table presents policy liabilities by segment.
                 
(In millions)   June 30, 2008   December 31, 2007
 
Aflac Japan
  $ 49,375     $ 44,694  
Aflac U.S.
    6,504       5,979  
Other business segments
    2       3  
 
Total
  $ 55,881     $ 50,676  
 
     Total policy liabilities increased 10.3% during the period as compared to December 31, 2007. Aflac Japan’s policy liabilities increased 10.5% (3.0% increase in yen) for the six months ended June 30, 2008. The stronger yen at June 30, 2008, increased reported policy liabilities by $3.3 billion. Policy liabilities of Aflac U.S. increased 8.8% for the six-month period ended June 30, 2008. The increase in total policy liabilities is the result of the growth and aging of our in-force business.
Notes Payable
     Notes payable totaled $1.5 billion at both June 30, 2008, and December 31, 2007. The ratio of debt to total capitalization (debt plus shareholders’ equity, excluding the unrealized gains and losses on investment securities) was 15.9% as of June 30, 2008, compared with 15.6% at December 31, 2007. See Note 5 of the Notes to the Consolidated Financial Statements for additional information.
Benefit Plans
     Aflac U.S. and Aflac Japan have various benefit plans. For additional information on our U.S. and Japanese plans, see Note 8 of the Notes to the Consolidated Financial Statements and Note 12 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2007.

47


Table of Contents

Policyholder Protection Corporation
     The Japanese insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. See the Policyholder Protection Corporation section of MD&A in our annual report to shareholders for the year ended December 31, 2007, for additional information.
Hedging Activities
     Aflac has limited hedging activities. Our primary exposure to be hedged is our investment in Aflac Japan, which is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, we have taken the following courses of action. First, Aflac Japan maintains a portfolio of dollar-denominated securities, which serve as an economic currency hedge of a portion of our investment in Aflac Japan. Second, we have designated the Parent Company’s yen-denominated liabilities (Samurai and Uridashi notes payable and cross-currency swaps) as a hedge of our investment in Aflac Japan. If the total of these yen-denominated liabilities is equal to or less than our net investment in Aflac Japan, the hedge is deemed to be effective and the related exchange effect is reported in the unrealized foreign currency component of other comprehensive income. Should these yen-denominated liabilities exceed our investment in Aflac Japan, the portion of the hedge that exceeds our investment in Aflac Japan would be deemed ineffective. As required by SFAS 133, we would then recognize the foreign exchange effect on the ineffective portion in net earnings (other income). We estimate that if the ineffective portion was 10 billion yen, we would report a foreign exchange gain/loss of approximately $1 million for every one yen weakening/strengthening in the end-of-period yen/dollar exchange rate. At June 30, 2008, our hedge was effective with yen-denominated assets exceeding yen-denominated liabilities by 56.0 billion yen, compared with 105.2 billion yen at December 31, 2007. The decrease in our yen-denominated net asset position resulted from the continuing decline in the market value of our yen-denominated available-for-sale investment securities as a result of widening credit spreads globally.
     We have entered into interest-rate swap agreements related to the 20 billion yen variable interest rate Uridashi notes. SFAS 133 requires that the change in the fair value of the swap contracts be recorded in other comprehensive income so long as the hedge is deemed effective. Any ineffectiveness is recognized in net earnings (other income). The impact from SFAS 133 would include any ineffectiveness associated with these interest-rate swaps. These hedges were effective during the six-month period ended June 30, 2008; therefore, there was no impact on net earnings.
Off-Balance Sheet Arrangements
     As of June 30, 2008, we had no material unconditional purchase obligations that were not recorded on the balance sheet. Additionally, we had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations.

48


Table of Contents

CAPITAL RESOURCES AND LIQUIDITY
     Aflac provides the primary sources of liquidity to the Parent Company through dividends and management fees. Aflac declared dividends to the Parent Company in the amount of $758 million in the first half of 2008, compared with $682 million for the same period in 2007. During the first six months of 2008, Aflac paid $42 million to the Parent Company for management fees, compared with $41 million for the same period in 2007. The primary uses of cash by the Parent Company are shareholder dividends and our share repurchase program. The Parent Company’s sources and uses of cash are reasonably predictable and are not expected to change materially in the future.
     The Parent Company also accesses debt security markets to provide additional sources of capital. Capital is primarily used to fund business expansion and capital expenditures. We have a Shelf Registration Statement (SRS) on file with Japanese regulatory authorities to issue up to 100 billion yen of Uridashi notes in Japan. This SRS will expire in August 2008. As of June 30, 2008, the Parent Company had issued 45 billion yen of yen-denominated Uridashi notes from this SRS. If issued, the remaining 55 billion yen (approximately $517 million using the June 30, 2008, exchange rate) of yen-denominated Uridashi notes will not be available to U.S. persons. We believe outside sources for additional debt and equity capital, if needed, will continue to be available. For additional information, see Note 5 of the Notes to the Consolidated Financial Statements.
     The principal sources of cash for our insurance operations are premiums and investment income. The primary uses of cash by our insurance operations are policy claims, commissions, operating expenses, income taxes and payments to the Parent Company for management fees and dividends. Both the sources and uses of cash are reasonably predictable.
     When making an investment decision, our first consideration is based on product needs. Our investment objectives provide for liquidity through the purchase of investment-grade debt securities. These objectives also take into account duration matching, and because of the long-term nature of our business, we have adequate time to react to changing cash flow needs.
     As a result of policyholder aging, claims payments are expected to gradually increase over the life of a policy. Therefore, future policy benefit reserves are accumulated in the early years of a policy and are designed to help fund future claims payments. We expect our future cash flows from premiums and our investment portfolio to be sufficient to meet our cash needs for benefits and expenses.

49


Table of Contents

Consolidated Cash Flows
     We translate cash flows for Aflac Japan’s yen-denominated items into U.S. dollars using weighted-average exchange rates. In periods when the yen weakens, translating yen into dollars causes fewer dollars to be reported. When the yen strengthens, translating yen into dollars causes more dollars to be reported. The following table summarizes consolidated cash flows by activity for the six-month periods ended June 30.
Consolidated Cash Flows by Activity
                 
(In millions)   2008   2007
 
Operating activities
  $ 2,454     $ 2,329  
Investing activities
    (1,814 )     (1,742 )
Financing activities
    (841 )     (375 )
Exchange effect on cash and cash equivalents
    25       (9 )
 
Net change in cash and cash equivalents
  $ (176 )   $ 203  
 
Operating Activities
     In the first half of 2008, consolidated cash flow from operations increased 5.4%, compared with the first six months of 2007. The following table summarizes operating cash flows by source for the six-month periods ended June 30.
Net Cash Provided by Operating Activities
                 
(In millions)   2008   2007
 
Aflac Japan
  $ 2,013     $ 1,784  
Aflac U.S. and Other Operations
    441       545  
 
Total
  $ 2,454     $ 2,329  
 
Investing Activities
     Operating cash flow is primarily used to purchase debt securities to meet future policy obligations. The following table summarizes investing cash flows by source for the six-month periods ended June 30.
Net Cash Used by Investing Activities
                 
(In millions)   2008   2007
 
Aflac Japan
  $ (1,653 )   $ (1,278 )
Aflac U.S. and Other Operations
    (161 )     (464 )
 
Total
  $ (1,814 )   $ (1,742 )
 
     Prudent portfolio management dictates that we attempt to match the duration of our assets with the duration of our liabilities. Currently, when our debt securities mature, the proceeds may be reinvested at a yield below that required for the accretion of policy benefit liabilities on policies issued in earlier years. However, the long-term nature of our business and our strong cash flows provide us with the ability to minimize the effect of mismatched durations and/or yields identified by various asset adequacy analyses. When market opportunities arise, we dispose of selected debt securities that are available for sale to improve the duration matching of our assets and liabilities, improve future investment yields,

50


Table of Contents

and/or rebalance our portfolio. As a result, dispositions before maturity can vary significantly from year to year. Dispositions before maturity were approximately 2% of the year-to-date average investment portfolio of debt securities available for sale during the six-month period ended June 30, 2008, compared with approximately 1% a year ago.
Financing Activities
     Consolidated cash used by financing activities was $841 million in the first six months of 2008, compared with $375 million for the same period of 2007. Cash returned to shareholders through share repurchases and dividends was $1,023 million during the first half of 2008 as compared to $537 million for the same period a year ago.
     The following tables present a summary of treasury stock activity during the six-month periods ended June 30.
Treasury Stock Purchased
                 
(In millions of dollars and thousands of shares)   2008   2007
 
Treasury stock purchases
  $ 805     $ 355  
 
Shares purchased:
               
Open market
    12,500       7,062  
Other
    109       184  
 
Total shares purchased
    12,609       7,246  
 
Treasury Stock Issued
                 
(In millions of dollars and thousands of shares)   2008   2007
 
Stock issued from treasury
  $ 20     $ 23  
 
Shares issued
    1,109       1,679  
 
     Dividends paid to shareholders in the first half of 2008 of $.48 per share increased 23.1% over the same period of 2007. The following table presents the sources of dividends paid to shareholders for the six-month periods ended June 30.
                 
(In millions)   2008   2007
 
Dividends paid in cash
  $ 218     $ 182  
Dividends through issuance of treasury shares
    10       10  
 
Total dividends to shareholders
  $ 228     $ 192  
 
     On February 4, 2008, we entered into an agreement for an accelerated share repurchase (ASR) program with an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch). Under the agreement, we purchased 12.5 million shares of our outstanding common stock at $60.61 per share for an initial purchase price of $758 million. The repurchase was funded with internal capital. The shares were acquired as a part of previously announced share repurchase authorizations by our board of directors and are held in treasury. The ASR program was settled during the second quarter of 2008, resulting in a purchase price adjustment of $40 million, or $3.22 per share, paid to Merrill Lynch based upon the volume weighted average price of our common stock during the ASR program period. The total purchase price for the 12.5 million shares was $798 million, or $63.83 per share.

51


Table of Contents

Regulatory Restrictions
     Aflac is domiciled in Nebraska and is subject to its regulations. In addition to limitations and restrictions imposed by U.S. insurance regulators, Japan’s FSA may not allow profit repatriations from Aflac Japan if the transfers would cause Aflac Japan to lack sufficient financial strength for the protection of policyholders.
     Payments are made from Aflac Japan to the Parent Company for management fees and to Aflac U.S. for allocated expenses and remittances of earnings. During the first six months of 2008, Aflac Japan paid $13 million to the Parent Company for management fees, compared with $17 million for the same period in 2007. Expenses allocated to Aflac Japan were $19 million for the six-month period ended June 30, 2008, compared with $17 million a year ago. During the first six months of 2008, Aflac Japan remitted profits of $301 million (32.0 billion yen) to Aflac U.S., compared with $250 million (31.0 billion yen) in the first half of 2007. We determine the timing of profit remittances based on corporate needs. We anticipate that 2008 profit remittances will total 64.0 billion yen, compared with full-year remittances of 67.8 billion yen in 2007.
     For additional information on regulatory restrictions on dividends, profit repatriations and other transfers, see Note 11 of the Notes to the Consolidated Financial Statements and the Regulatory Restrictions section of MD&A, both in our annual report to shareholders for the year ended December 31, 2007.
Rating Agencies
     Aflac is rated AA by both Standard & Poor’s and Fitch Ratings and Aa2 (Excellent) by Moody’s for financial strength. A.M. Best assigned Aflac an A+ (Superior) rating for financial strength and operating performance. Aflac Incorporated’s senior debt, Samurai notes and Uridashi notes are rated A by Standard & Poor’s, A+ by Fitch Ratings, and A2 by Moody’s.
Other
     In July 2008, the board of directors declared the third quarter cash dividend of $.24 per share. The dividend is payable on September 2, 2008, to shareholders of record at the close of business on August 20, 2008. In February 2006, the board of directors authorized the purchase of 30.0 million shares of our common stock. In January 2008, the board authorized the purchase of an additional 30.0 million shares of our common stock. As of June 30, 2008, approximately 43.1 million shares were available for purchase under our share repurchase authorizations.
     For information regarding commitments and contingent liabilities, see Note 9 of the Notes to the Consolidated Financial Statements.

52


Table of Contents

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
     The information required by Item 3 is incorporated by reference from the Market Risks of Financial Instruments section of MD&A in Part I, Item 2 of this report.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
     There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second fiscal quarter of 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

53


Table of Contents

PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
     During the second quarter of 2008, we repurchased shares of Aflac stock as follows:
Issuer Purchases of Equity Securities
                                 
                    (c)    
                    Total    
                    Number   (d) Maximum
                    of Shares   Number of
                    Purchased   Shares that
    (a)           as Part of   May Yet Be
    Total           Publicly   Purchased
    Number of   (b) Average   Announced   Under the
    Shares   Price Paid   Plans or   Plans or
Period   Purchased   Per Share   Programs   Programs
 
April 1 - April 30
        $             43,070,920  
May 1 - May 31
                      43,070,920  
June 1 - June 30
    665       66.05             43,070,920  
 
Total
    665     $ 66.05             43,070,920  
 
Of the shares available for purchase, 13,070,920 shares relate to a 30,000,000 share repurchase authorization by the board of directors announced in February 2006. The remaining 30,000,000 shares relate to a 30,000,000 share repurchase authorization by the board announced in January 2008. During the second quarter of 2008, 665 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.

54


Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders.
     The Annual Meeting of the Shareholders was held on May 5, 2008. Matters submitted to the shareholders were: (1) Election of 17 members to the board of directors; (2) Amendment of Article IV of the Company’s Articles of Incorporation to increase the Company’s authorized shares of $.10 par value Common Stock from 1,000,000,000 shares to 1,900,000,000 shares; (3) Adoption of an amended and restated management incentive plan (the “2009 Management Incentive Plan”); (4) Approval of an advisory (non-binding) proposal regarding executive compensation; and (5) Ratification of the appointment of independent registered public accounting firm for 2008. The proposals were approved by the shareholders.

55


Table of Contents

     The following is a summary of each vote cast for, against or withheld, as well as the number of abstention and broker non-votes as to each such matter, including a separate tabulation with respect to each nominee for office.
VOTES
                                         
                                    Broker
    For   Against   Abstentions   Withheld   Non-Votes
 
(1) Election of 17 members to the board of directors:                                        
Daniel P. Amos
    680,573,115       N/A       N/A       13,384,731       87  
John Shelby Amos II
    677,065,347       N/A       N/A       16,892,499       87  
Paul S. Amos II
    676,875,194       N/A       N/A       17,082,652       87  
Yoshiro Aoki
    684,463,406       N/A       N/A       9,494,440       87  
Michael H. Armacost
    680,968,516       N/A       N/A       12,989,330       87  
Kriss Cloninger III
    669,421,549       N/A       N/A       24,536,297       87  
Joe Frank Harris
    674,108,729       N/A       N/A       19,849,117       87  
Elizabeth J. Hudson
    680,804,259       N/A       N/A       13,153,587       87  
Kenneth S. Janke, Sr.
    669,780,243       N/A       N/A       24,177,603       87  
Douglas W. Johnson
    683,844,041       N/A       N/A       10,113,805       87  
Robert B. Johnson
    682,268,210       N/A       N/A       11,689,637       87  
Charles B. Knapp
    680,425,327       N/A       N/A       13,532,519       87  
E. Stephen Purdom
    677,051,146       N/A       N/A       16,906,700       87  
Barbara K. Rimer, Dr. PH
    680,794,710       N/A       N/A       13,163,136       87  
Marvin R. Schuster
    683,877,954       N/A       N/A       10,079,892       87  
David Gary Thompson
    682,793,189       N/A       N/A       11,164,657       87  
Robert L. Wright
    681,916,751       N/A       N/A       12,041,095       87  
(2) Increase in number of authorized common stock shares     626,391,454       59,134,254       8,432,106       N/A       119  
(3) Adoption of 2009 Management Incentive Plan     652,354,394       27,393,303       14,210,107       N/A       129  
(4) Advisory (non-binding) proposal on executive compensation     646,140,973       17,278,269       30,538,691       N/A        
(5) Ratification of appointment of KPMG LLP as independent registered public accounting firm     681,408,181       6,575,942       5,973,704       N/A       106  
 
N/A — not applicable

56


Table of Contents

Item 6. Exhibits.
(a) Exhibit Index:
                 
  3.0         -  
Articles of Incorporation, as amended.
  3.1         -  
Bylaws of the Corporation, as amended — incorporated by reference from Form 10-Q for September 30, 2006, Exhibit 3.1 (File No. 001-07434).
  4         -  
There are no long-term debt instruments in which the total amount of securities authorized exceeds 10% of the total assets of Aflac Incorporated and its subsidiaries on a consolidated basis. We agree to furnish a copy of any long-term debt instrument to the Securities and Exchange Commission upon request.
  10.0     *   -  
American Family Corporation Retirement Plan for Senior Officers, as amended and restated October 1, 1989 — incorporated by reference from 1993 Form 10-K, Exhibit 10.2 (File No. 001-07434).
  10.1     *   -  
Aflac Incorporated Supplemental Executive Retirement Plan, as amended April 1, 2003 - incorporated by reference from 2003 Form 10-K, Exhibit 10.4 (File No. 001-07434).
  10.2     *   -  
Third Amendment to the Aflac Incorporated Supplemental Executive Retirement Plan (incorporated by reference from 2003 Form 10-K, Exhibit 10.4), dated January 1, 2007 — incorporated by reference from Form 10-Q for March 31, 2007, Exhibit 10.2 (File No. 001-07434).
  10.3     *   -  
Fourth Amendment to the Aflac Incorporated Supplemental Executive Retirement Plan (incorporated by reference from 2003 Form 10-K, Exhibit 10.4), dated December 6, 2007 — incorporated by reference from 2007 Form 10-K, Exhibit 10.3 (File No. 001-07434).
  10.4     *   -  
Aflac Incorporated Executive Deferred Compensation Plan, as amended, effective January 1, 1999 — incorporated by reference from Form S-8 Registration Statement No. 333-135327, Exhibit 4.1.
  10.5     *   -  
Fourth Amendment to the Aflac Incorporated Executive Deferred Compensation Plan (incorporated by reference from Form S-8 Registration Statement No. 333-135327, Exhibit 4.1), dated December 29, 2005 — incorporated by reference from 2005 Form 10-K, Exhibit 10.30 (File No. 001-07434).
  10.6     *   -  
Fifth Amendment to the Aflac Incorporated Executive Deferred Compensation Plan (incorporated by reference from Form S-8 Registration Statement No. 333-135327, Exhibit 4.1), dated June 27, 2007 — incorporated by reference from Form 10-Q for June 30, 2007, Exhibit 10.5 (File No. 001-07434).
  10.7     *   -  
Aflac Incorporated Amended and Restated Management Incentive Plan, effective January 1, 1999 — incorporated by reference from the 2003 Shareholders’ Proxy Statement, Exhibit A (File No. 001-07434).
  10.8     *   -  
Aflac Incorporated Amended and Restated 2009 Management Incentive Plan — incorporated by reference from the 2008 Shareholders’ Proxy Statement, Appendix B (File No. 001-07434).
  10.9     *   -  
Aflac Incorporated Sales Incentive Plan — incorporated by reference from 2007 Form 10-K, Exhibit 10.8 (File No. 001-07434).
  10.10     *   -  
1999 Aflac Associate Stock Bonus Plan, as amended, dated February 11, 2003 — incorporated by reference from 2002 Form 10-K, Exhibit 99.2 (File No. 001-07434).
  10.11     *   -  
Aflac Incorporated 1997 Stock Option Plan — incorporated by reference from the 1997 Shareholders’ Proxy Statement, Appendix B (File No. 001-07434).
  10.12     *   -  
Form of Officer Stock Option Agreement (Non-Qualifying Stock Option) under the Aflac Incorporated 1997 Stock Option Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.5 (File No. 001-07434).

57


Table of Contents

                 
  10.13     *   -  
Form of Officer Stock Option Agreement (Incentive Stock Option) under the Aflac Incorporated 1997 Stock Option Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.6 (File No. 001-07434).
  10.14     *   -  
Notice of grant of stock options and stock option agreement to officers under the Aflac Incorporated 1997 Stock Option Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.7 (File No. 001-07434).
  10.15     *   -  
2004 Aflac Incorporated Long-Term Incentive Plan, dated May 3, 2004 — incorporated by reference from the 2004 Notice and Proxy Statement, Exhibit B (File No. 001-07434).
  10.16     *   -  
First Amendment to the 2004 Aflac Incorporated Long-Term Incentive Plan (incorporated by reference from the 2004 Notice and Proxy Statement, Exhibit B), dated May 2, 2005 — incorporated by reference from Form 10-Q for March 31, 2005, Exhibit 10.1 (File No. 001-07434).
  10.17     *   -  
Second Amendment to the 2004 Aflac Incorporated Long-Term Incentive Plan (incorporated by reference from the 2004 Notice and Proxy Statement, Exhibit B), dated February 14, 2006 — incorporated by reference from Form 10-Q for March 31, 2006, Exhibit 10.32 (File No. 001-07434).
  10.18     *   -  
Form of Non-Employee Director Stock Option Agreement (NQSO) under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.1 (File No. 001-07434).
  10.19     *   -  
Notice of grant of stock options to non-employee director under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.2 (File No. 001-07434).
  10.20     *   -  
Form of Non-Employee Director Restricted Stock Award Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.3 (File No. 001-07434).
  10.21     *   -  
Notice of restricted stock award to non-employee director under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.4 (File No. 001-07434).
  10.22     *   -  
Form of Officer Restricted Stock Award Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.1 (File No. 001-07434).
  10.23     *   -  
Notice of restricted stock award to officers under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.2 (File No. 001-07434).
  10.24     *   -  
Form of Officer Stock Option Agreement (Non-Qualifying Stock Option) under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.3 (File No. 001-07434).
  10.25     *   -  
Form of Officer Stock Option Agreement (Incentive Stock Option) under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.4 (File No. 001-07434).
  10.26     *   -  
Notice of grant of stock options to officers under the 2004 Aflac Incorporated Long-Term Incentive Plan — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.5 (File No. 001-07434).
  10.27     *   -  
Aflac Incorporated Employment Agreement with Daniel P. Amos, dated August 1, 1993 — incorporated by reference from 1993 Form 10-K, Exhibit 10.4 (File No. 001-07434).
  10.28     *   -  
Aflac Incorporated Employment Agreement with Kriss Cloninger III, dated February 14, 1992, and as amended November 12, 1993 — incorporated by reference from 1993 Form 10-K, Exhibit 10.6 (File No. 001-07434).
  10.29     *   -  
Aflac Incorporated Employment Agreement with Akitoshi Kan, dated April 1, 2001, and amended February 1, 2005 — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.1 (File No. 001-07434).
  10.30     *   -  
Aflac Incorporated Employment Agreement with Paul S. Amos II, dated January 1, 2005 — incorporated by reference from Form 8-K dated February 7, 2005, Exhibit 10.2 (File No. 001-07434).

58


Table of Contents

                 
  10.31     *   -  
Aflac Retirement Agreement with E. Stephen Purdom, dated February 15, 2000 — incorporated by reference from 2000 Form 10-K, Exhibit 10.13 (File No. 001-07434).
  10.32     *   -  
Aflac Consulting Arrangement with E. Stephen Purdom — incorporated by reference from 2007 Form 10-K, Exhibit 10.33 (File No. 001-07434).
  10.33         -  
Aflac Incorporated Accelerated Share Repurchase Agreement with Merrill Lynch, Pierce, Fenner & Smith, dated February 4, 2008 — incorporated by reference from Form 8-K dated February 6, 2008, Exhibit 10.1 (File No. 001-07434).
11       -  
Statement regarding the computation of per-share earnings for the Registrant.
12       -  
Statement regarding the computation of ratio of earnings to fixed charges for the Registrant.
15       -  
Letter from KPMG LLP regarding unaudited interim financial information.
31.1       -  
Certification of CEO dated August 8, 2008, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2       -  
Certification of CFO dated August 8, 2008, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32       -  
Certification of CEO and CFO dated August 8, 2008, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*   Management contract or compensatory plan agreement

59


Table of Contents

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Aflac Incorporated
 
 
August 8, 2008  /s/ Kriss Cloninger III    
  (Kriss Cloninger III)   
  President, Chief Financial Officer, Treasurer and Director   
 
     
August 8, 2008  /s/ Ralph A. Rogers, Jr.    
  (Ralph A. Rogers, Jr.)   
  Senior Vice President, Financial Services; Chief Accounting Officer   
 

60