133 / 188
inputs or current observable market data. As a result, the derivatives associated with our consolidated VIEs are classified
as Level 3 of the fair value hierarchy.
Loan Receivables
Our loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values
for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable
U.S. Treasury or London Interbank Offered Rate (LIBOR) yield plus an appropriate spread that considers other risk
factors, such as credit and liquidity risk. These spreads are provided by the applicable asset managers based on their
knowledge of the current loan pricing environment and market conditions. The spreads are a significant component of the
pricing inputs and are generally considered unobservable. Therefore, these investments have been assigned a Level 3
within the fair value hierarchy. Loan receivables are included in other investments on the consolidated balance sheets.
Other policyholders' funds
The largest component of the other policyholders' funds liability is our annuity line of business in Aflac Japan. Our
annuities have fixed benefits and premiums. For this product, we estimated the fair value to be equal to the cash
surrender value. This is analogous to the value paid to policyholders on the valuation date if they were to surrender their
policy. We periodically check the cash value against discounted cash flow projections for reasonableness. We consider
our inputs for this valuation to be unobservable and have accordingly classified this valuation as Level 3.
Notes payable
The fair values of our publicly issued notes payable classified as Level 3 were obtained from a limited number of
independent brokers. These brokers base their quotes on a combination of their knowledge of the current pricing
environment and market conditions. We consider these inputs to be unobservable. The fair values of our yen-
denominated loans approximate their carrying values.
131
Transfers between Hierarchy Levels and Level 3 Rollforward
There were no transfers between Level 1 and 2 for the years ended December 31, 2016 and 2015, respectively.
The following tables present the changes in fair value of our available-for-sale investments and derivatives classified
as Level 3 as of December 31.
2016
Fixed Maturities
Equity
Securities
Derivatives
(1)
(In millions)
Mortgage-
and
Asset-
Backed
Securities
Public
Utilities
Banks/
Financial
Institutions
Foreign
Currency
Swaps
Credit
Default
Swaps
Total
Balance, beginning of period
$
220 $ 0 $
26
$
3 $ (192) $
1 $
58
Realized investment gains (losses) included
in earnings
0
0
0
0
194
1
195
Unrealized gains (losses) included in other
comprehensive income (loss)
38
0
(1)
0
(22)
0
15
Purchases, issuances, sales and settlements:
Purchases
0
16
0
0
0
0
16
Issuances
0
0
0
0
0
0
0
Sales
0
0
0
0
0
0
0
Settlements
(60)
0
0
0
(1)
0
(61)
Transfers into Level 3
0
0
0
0
0
0
0
Transfers out of Level 3
0
0
0
0
0
0
0
Balance, end of period
$
198 $ 16 $
25
$
3 $ (21) $
2 $ 223
Changes in unrealized gains (losses) relating
to Level 3 assets and liabilities still held at
the end of the period included in realized
investment gains (losses)
$
0 $ 0 $
0
$
0 $ 194 $
1 $ 195
(1)
Derivative assets and liabilities are presented net