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U.S.
General
The Parent Company and its insurance subsidiaries, Aflac (a Nebraska-domiciled insurance company), American
Family Life Assurance Company of New York (Aflac New York, a New York-domiciled insurance company) and CAIC
(redomiciled from South Carolina to Nebraska effective December 2016) are subject to state regulations in the United
States as an insurance holding company system. Such regulations generally provide that transactions between
companies within the holding company system must be fair and equitable. In addition, transfers of assets among such
affiliated companies, certain dividend payments from insurance subsidiaries, and material transactions between
companies within the system, including management fees, loans and advances are subject to prior notice to, or approval
by, state regulatory authorities. These laws generally require, among other things, the insurance holding company and
each insurance company directly owned by the holding company to register with the insurance departments of their
respective domiciliary states and to furnish annually financial and other information about the operations of companies
within the holding company system.
Like all U.S. insurance companies, Aflac is subject to regulation and supervision in the jurisdictions in which it does
business. In general, the insurance laws of the various jurisdictions establish supervisory agencies with broad
administrative powers relating to, among other things:
• granting and revoking licenses to transact business
• regulating trade and claims practices
• licensing of insurance agents and brokers
• approval of policy forms and premium rates
• standards of solvency and maintenance of specified policy benefit reserves and minimum loss ratio requirements
• capital requirements
• limitations on dividends to shareholders
• the nature of and limitations on investments
• deposits of securities for the benefit of policyholders
• filing of financial statements prepared in accordance with statutory insurance accounting practices prescribed or
permitted by regulatory authorities
• periodic examinations of the market conduct, financial, and other affairs of insurance companies
The insurance laws of Nebraska that govern Aflac's activities provide that the acquisition or change of “control” of a
domestic insurer or of any person that controls a domestic insurer cannot be consummated without the prior approval of
the Nebraska Department of Insurance. A person seeking to acquire control, directly or indirectly, of a domestic insurance
company or of any person controlling a domestic insurance company (in the case of Aflac, the Parent Company) must
generally file with the Nebraska Department of Insurance (NDOI) an application for change of control containing certain
information required by statute and published regulations and provide a copy to Aflac. In Nebraska, control is generally
presumed to exist if any person, directly or indirectly, acquires 10% or more of an insurance company or of any other
person or entity controlling the insurance company. The 10% presumption is not conclusive and control may be found to
exist at less than 10%. Similar laws apply in New York, the domiciliary jurisdiction of the Parent Company's Aflac New York
insurance subsidiary.
State insurance departments conduct periodic examinations of the books and records, financial reporting, policy filings
and market conduct of insurance companies domiciled in their states, generally once every three to five years.
Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines
promulgated by the National Association of Insurance Commissioners (NAIC). In 2016, full-scope, risk-focused financial
examinations were conducted by the NDOI, New York Department of Financial Services (NYDFS), and the South Carolina
Department of Insurance (SCDOI) on their state domiciled insurance entities American Family Life Assurance Company of
Columbus, American Family Life Assurance Company of New York, and Continental American Insurance Company,
respectively. The NDOI and NYDFS exams covered a four-year period ending December 31, 2015, whereas the SCDOI
exam covered a five-year period ending December 31, 2015. There were no material findings contained in the NDOI and
SCDOI final exam report. The exam report from the NYDFS has not been finalized as of January 2017.
The NAIC continually reviews regulatory matters
,
such as risk-based capital (RBC) modernization and principles-
based reserving, and recommends changes and revisions for adoption by state legislators and insurance departments.
The NAIC uses a risk-based capital formula relating to insurance risk, business risk, asset risk and interest rate risk to
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