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facilitate identification by insurance regulators of inadequately capitalized insurance companies based upon the types and
mix of risk inherent in the insurer's operations. The formulas for determining the amount of risk-based capital specify
various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree
of risk. Regulatory compliance is determined by a ratio of a company's regulatory total adjusted capital to its authorized
control level risk-based capital as defined by the NAIC. Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified corrective action. The levels are company action, regulatory action,
authorized control, and mandatory control. Aflac's NAIC risk-based capital ratio remains high and reflects a very strong
capital and surplus position. As of December 31, 2016, based on year-end statutory accounting results, Aflac's company
action level RBC ratio was 894%.
Under state insurance guaranty association laws and similar laws in international jurisdictions, we are subject to
assessments, based on the share of business we write in the relevant jurisdiction, for certain obligations of insolvent
insurance companies to policyholders and claimants. In the United States, some states permit member insurers to recover
assessments paid through full or partial premium tax offsets. The Company's policy is to accrue assessments when the
entity for which the insolvency relates has met its state of domicile's statutory definition of insolvency, the amount of the
loss is reasonably estimable and the related premium upon which the assessment is based is written. In most states, the
definition is met with a declaration of financial insolvency by a court of competent jurisdiction. For additional information
regarding state insurance guaranty assessments, see the U.S. Regulatory Environment subsection of MD&A in this report.
Reform Legislation
Federal legislation and administrative policies in several areas, including health care reform legislation, financial
services reform legislation, securities regulation, pension regulation, privacy, tort reform legislation and taxation, can
significantly and adversely affect insurance companies. For example, the ACA, federal health care reform legislation, gave
the U.S. federal government direct regulatory authority over the business of health insurance. The reform included major
changes to the U.S. health care insurance marketplace. Among other changes, the reform legislation included an
individual medical insurance coverage mandate, provided for penalties on certain employers for failing to provide
adequate coverage, created health insurance exchanges, and addressed coverage and exclusions as well as medical
loss ratios. It also imposed an excise tax on certain high cost plans, known as the “Cadillac tax,” that is currently
scheduled to begin in 2020. The legislation also included changes in government reimbursements and tax credits for
individuals and employers and alters federal and state regulation of health insurers. At this time it is unclear whether
implementation of the ACA will continue. While the ACA was enacted in 2010, the major elements of the law became
effective on January 1, 2014. We believe that the ACA, as enacted, does not require material changes in the design of our
insurance products. However, indirect consequences of the legislation and regulations could present challenges and/or
opportunities that could potentially have an impact on our sales model, financial condition and results of operations.
Dodd-Frank Act
Title VII of the Dodd-Frank Act and regulations issued thereunder, in particular rules to require central clearing and
collateral for certain types of derivatives, may have an impact on Aflac's derivative activity, including activity on behalf of
Aflac Japan. In 2015 and 2016, six U.S. financial regulators, including the U.S. Commodity Futures Trading Commission
(CFTC), issued final rules that impose greater obligations on swap dealers regarding uncleared swaps with certain
counterparties, such as Aflac. Such rules, as well as similar regulations in Europe, become effective on March 1, 2017
and may result in more stringent collateral requirements or affect other aspects of Aflac's derivatives activity.
The Dodd-Frank Act also established a Federal Insurance Office (FIO) under the U.S. Treasury Department to monitor
all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care
insurance and crop insurance. Traditionally, U.S. insurance companies have been regulated primarily by state insurance
departments. In December 2013, the FIO released a report entitled "How To Modernize And Improve The System Of
Insurance Regulation In The United States." The report was required by the Dodd-Frank Act, and included 18
recommended areas of near-term reform for the states, including addressing capital adequacy and safety/soundness
issues, reform of insurer resolution practices, and reform of marketplace regulation. The report also listed nine
recommended areas for direct federal involvement in insurance regulation. Some of the recommendations outlined in the
FIO report released in December 2013 have been implemented. The National Association of Registered Agents and
Brokers Reform Act, signed into law in January 2015, simplifies the agent and broker licensing process across state
lines. The FIO has also engaged with the supervisory colleges to monitor financial stability and identify regulatory gaps for
large national and internationally active insurers.
In the 115th Congress, several proposals have been introduced to reform the Dodd-Frank Act, including proposals to
limit or repeal the Financial Stability Oversight Council's (the Council) ability to designate nonbank financial companies as
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