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MD&A OVERVIEW
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 three-year period ended December 31, 2016. As a result, the following discussion should be read in
conjunction with the related consolidated financial statements and notes. This MD&A is divided into the following
sections:
• Our Business
•
Performance Highlights
•
Critical Accounting Estimates
•
Results of Operations, consolidated and by segment
•
Analysis of Financial Condition, including discussion of market risks of financial instruments
•
Capital Resources and Liquidity, including discussion of availability of capital and the sources and uses of cash
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OUR BUSINESS
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. Aflac U.S. also markets and administers group products through Continental American
Insurance Company (CAIC), branded as Aflac Group Insurance. Our insurance operations in the United States and our
branch in Japan service the two markets for our insurance business.
For more information on our business, see Business, Part I, Item 1 of this report.
PERFORMANCE HIGHLIGHTS
Yen-denominated income statement accounts are translated to U.S. dollars using a weighted-average Japanese yen/
U.S. dollar foreign exchange rate, while yen-denominated balance sheet accounts are translated to U.S. dollars using a
spot Japanese yen/U.S. dollar foreign exchange rate. The spot yen/dollar exchange rate at December 31, 2016 was
116.49, or 3.5% stronger than the December 31, 2015 spot yen/dollar exchange rate of 120.61. The weighted-average
yen/dollar exchange rate for the year ended December 31, 2016 was 108.70, or 11.3% stronger than the weighted-
average yen/dollar exchange rate of 120.99 for the same period in 2015.
Reflecting the stronger yen/dollar exchange rate, total revenues increased 8.1% to $22.6 billion in 2016, compared
with $20.9 billion in 2015. Net earnings in 2016 were $2.7 billion, or $6.42
per diluted share, compared with $2.5 billion, or
$5.85 per diluted share, in 2015.
Results for 2016 included pretax net realized investment losses of $123 million ($80 million after-tax), compared with
net realized investment gains of $140 million ($91 million after-tax) in 2015. Net investment losses in 2016 consisted of
$215 million of net gains ($140 million after-tax) from the sale or redemption of securities; $83 million ($54 million after-
tax) of other-than-temporary impairment losses; and $255 million of net losses ($166 million after-tax) from valuing
derivatives.
Shareholders' equity included a net unrealized gain on investment securities and derivatives of $4.8 billion at
December 31, 2016, compared with a net unrealized gain of $3.0 billion at December 31, 2015.
In December 2016, the Parent Company completed a tender offer in which it extinguished $176 million principal of its
6.90% senior notes due 2039 and $193 million principal of its 6.45% senior notes due 2040. The pretax loss due to the
early redemption of these notes was $137 million.
In September 2016, the Parent Company issued $700 million of senior notes through a U.S. public debt offering and
also entered into a 5.0 billion yen loan and a 25.0 billion yen loan. In September 2016, we extinguished 8.0 billion yen of
2.26% fixed rate Uridashi notes upon their maturity and in July 2016, we extinguished 15.8 billion yen of 1.84% fixed rate
Samurai notes upon their maturity.