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

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 September 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 97% of our assets and 86% 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.
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 nine months ended September 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
For 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.

                             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 September 30,                             Nine Months Ended September 30,
                        2008           2007           2008          2007           2008           2007            2008           2007

                           In Millions                Per Diluted Share                In Millions                Per Diluted Share

Net earnings         $    100        $  420        $    .21        $ .85        $  1,057        $ 1,251        $   2.19        $ 2.53
Items impacting
net earnings,
net of tax:
Realized
investment gains
(losses)                 (389 )           1            (.81 )          -            (394 )           18            (.82 )         .04
Impact from SFAS
133                        (4 )           2               -            -              (4 )            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 during the three months ended September 30, 2008, of $597 million ($389 million after tax) included $303 million ($198 million after tax) related to a decision to sell our investments in Lehman Brothers and Washington Mutual and impair our investment in Ford Motor Company in addition to other smaller securities transactions during the quarter. We also impaired investments in certain of our perpetual debentures, or so-called "hybrid securities," which accounted for the remaining realized investment losses during the period of $294 million ($191 million after tax). Realized investment gains in the first nine months of 2007 primarily resulted from securities sold or redeemed in the normal course of business.
As disclosed in our Form 10-K, we maintain an investment portfolio of subordinated perpetual debentures. These securities are subordinated to other debt obligations of the issuer, but rank higher than the issuers' equity securities. Perpetual debentures have characteristics of both debt and equity investments, along with unique features that create economic maturity dates of the securities. Although these securities have no contractual maturity date, they have stated interest coupons that were fixed at their issuance and subsequently change to a floating short-term rate of interest of 125 to more than 300 basis points above an appropriate market index, generally by the 25th year after issuance. We believe this interest step-up penalty has the effect of creating an economic maturity date of the perpetual debentures. Since first purchasing these securities in 1993, we have accounted for and reported perpetual debentures as debt securities and have classified them as both available-for-sale and held-to-maturity securities.
In light of the recent unprecedented volatility in the debt and equity markets, we have concluded that all of our perpetual debentures should be classified as available-for-sale securities. We have also concluded that our perpetual debentures should be evaluated for other-than-temporary

impairments using an equity security impairment model as opposed to our previous policy of using a debt security impairment model. The after-tax charge of $191 million in the third quarter of 2008 reflects the impact of applying our equity security impairment policy to this asset class through June 30, 2008. The June 30 valuation date was used following the SEC's letter to the Financial Accounting Standards Board (FASB) on the topic of the appropriate impairment model to apply to hybrid securities. In its letter dated October 14, 2008, the SEC stated that, given the debt characteristics of hybrid securities, a debt impairment model could be used for filings subsequent to October 14, 2008, until the FASB further addresses the appropriate impairment approach.
The impact of classifying all of our perpetual debentures as available-for-sale securities and assessing them for other-than-temporary impairments under our equity security impairment model was determined to be immaterial to our results of operations and financial position for any previously reported period. As of September 30, 2008, approximately 92% of our perpetual debentures were rated A or better, and the fair value of our perpetual debenture portfolio was approximately 94% of book value. 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 nine-month period ended September 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 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 nine-month periods ended September 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 34.5% for the nine-month period ended September 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.
Subject to the preceding assumptions, our objective for 2008 is to increase net earnings per diluted share by 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          $        4.09            25.1 %    $     .33
                    105.00                   3.98            21.7            .22
                    110.00            3.89                   19.0            .13
                    115.00                   3.81            16.5            .05
                    117.93 **         3.76                 15.0                -
                    120.00                   3.73            14.1           (.03 )
                    125.00                   3.66            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.

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                  Nine Months Ended
                                                       September 30,                       September 30,
(In millions)                                      2008              2007              2008              2007

Premium income                                  $  2,569          $  2,266          $  7,774          $  6,651
Net investment income:
Yen-denominated investment income                    317               278               954               812
Dollar-denominated investment income                 187               178               554               523

Net investment income                                504               456             1,508             1,335
Other income                                           4                 -                17                18

Total operating revenues                           3,077             2,722             9,299             8,004

Benefits and claims                                1,914             1,735             5,783             5,103
Operating expenses:
Amortization of deferred policy
acquisition costs                                     93                75               289               225
Insurance commissions                                234               212               711               629
Insurance and other expenses                         273               232               826               654

Total operating expenses                             600               519             1,826             1,508

Total benefits and expenses                        2,514             2,254             7,609             6,611

Pretax operating earnings*                      $    563          $    468          $  1,690          $  1,393

Weighted-average yen/dollar exchange rate         107.70            117.88            105.75            119.37




                                                   In Dollars                                               In Yen

                                    Three Months                Nine Months                 Three Months                Nine Months
                                       Ended                       Ended                       Ended                       Ended
Percentage change over             September 30,               September 30,               September 30,               September 30,
previous period:                 2008          2007          2008          2007          2008          2007         2008          2007

Premium income                   13.3 %         2.8 %        16.9 %         1.4 %         3.6 %         4.2 %        3.6 %         4.5 %
Net investment income            10.4           6.2          12.9           5.9            .9           7.7           .1           9.1
Total operating revenues         13.1           3.0          16.2           2.1           3.3           4.3          3.0           5.2
Pretax operating earnings*       20.5          15.0          21.3          10.2          10.1          16.7          7.5          13.6

* 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 3.3% to 1.15 trillion yen as of September 30, 2008, compared with 1.12 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 $11.1 billion at September 30, 2008, compared with $9.7 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 nine 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 nine 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 . . .