149 / 188
8. REINSURANCE
We enter into fixed quota-share coinsurance agreements with other companies in the normal course of business. For
each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or
liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits
paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.
Effective March 31, 2015, we entered into a coinsurance transaction whereby we ceded 30.0% of the sickness
hospital benefit of one of Aflac Japan’s closed in-force blocks of business. We have an agreement for a $90 million letter
of credit as collateral for this reinsurance transaction (see Note 13 for additional information). Effective April 1, 2015, we
entered into a retrocession coinsurance transaction whereby we assumed 27.0% of the sickness hospital benefit of one of
Aflac Japan’s closed in-force blocks of business through our subsidiary CAIC.
Effective October 1, 2014 and September 30, 2013, we entered into coinsurance reinsurance transactions whereby
we ceded 16.7% and 33.3%, respectively, of the hospital benefit of one of Aflac Japan’s closed medical in-force blocks of
business. Effective December 31, 2014, we entered into a retrocession coinsurance reinsurance transaction whereby we
assumed 8.35% of the reinsured hospital benefit of one of Aflac Japan’s closed medical in-force blocks of business
through our subsidiary CAIC.
For our reinsurance transactions to date, we have recorded a deferred profit liability related to the reinsurance
transactions. The remaining deferred profit liability of $870 million, as of December 31, 2016, included in future policy
benefits in the consolidated balance sheet, is being amortized into income over the expected lives of the policies. We also
have recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the
consolidated balance sheet and had a remaining balance of $860 million and $805 million as of December 31, 2016 and
2015, respectively. The increase in the reinsurance recoverable balance was driven by two aggregating factors: yen
strengthening and the growth in reserves related to the business that has been reinsured as the policies age. The spot
yen/dollar exchange rate strengthened by approximately 4% and ceded reserves increased approximately 3% from
December 31, 2015 to December 31, 2016.
The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of
reinsurance for the years ended December 31.
(In millions)
2016
2015
Direct premium income
$ 19,592
$ 17,904
Ceded to other companies:
Ceded Aflac Japan closed blocks
(560)
(481)
Other
(48)
(39)
Assumed from other companies:
Retrocession activities
234
178
Other
7
8
Net premium income
$ 19,225
$ 17,570
Direct benefits and claims
$ 13,240
$ 12,041
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks
(509)
(437)
Eliminations
58
46
Other
(38)
(30)
Assumed from other companies:
Retrocession activities
222
167
Eliminations
(58)
(46)
Other
4
5
Benefits and claims, net
$ 12,919
$ 11,746
142