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In October 2016, the Parent Company and Aflac renewed a 364-day uncommitted bilateral line of credit that provides
for borrowings in the amount of $100 million. In March 2016, the Parent Company entered into a three-year senior
unsecured revolving credit facility agreement with a syndicate of financial institutions that provides for borrowings of up to
100.0 billion yen. For further information regarding these transactions, see Note 9 of the Notes to the Consolidated
Financial Statements and the Capital Resources and Liquidity section of this MD&A.
We repurchased 21.6 million shares of our common stock in the open market for $1.4 billion under our share
repurchase program in 2016, compared with 21.2 million shares repurchased in 2015.
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CRITICAL ACCOUNTING ESTIMATES
We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These
principles are established primarily by the Financial Accounting Standards Board (FASB). In this MD&A, references to
U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification
TM
(ASC). The preparation
of financial statements in conformity with U.S. GAAP requires us to make estimates based on currently available
information when recording transactions resulting from business operations. The estimates that we deem to be most
critical to an understanding of Aflac's results of operations and financial condition are those related to the valuation of
investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy
claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various
assumptions developed from management's analyses and judgments. The application of these critical accounting
estimates determines the values at which 93% of our assets and 78% of our liabilities are reported as of December 31,
2016, and thus has a direct effect on net earnings and shareholders' equity. Subsequent experience or use of other
assumptions could produce significantly different results.
Investments and Derivatives
Aflac's investments, primarily consisting of debt, perpetual and equity securities, include both publicly issued and
privately issued securities. For publicly issued securities, we determine the fair values from quoted market prices readily
available from public exchange markets and price quotes and valuations from third party pricing vendors. For the majority
of privately issued securities within our investment portfolio, a third party pricing vendor has developed valuation models
that we utilize to determine fair values. For the remaining privately issued securities, we use non-binding price quotes
from outside brokers.
We estimate the fair values of our securities on a monthly basis. We monitor the estimated fair values obtained from
our custodian, pricing vendors and brokers for consistency from month to month, while considering current market
conditions. We also periodically discuss with our custodian and pricing brokers and vendors the pricing techniques they
use to monitor the consistency of their approach and periodically assess the appropriateness of the valuation level
assigned to the values obtained from them. If a fair value appears unreasonable, we will re-examine the inputs and
assess the reasonableness of the pricing data with the vendor. Additionally, we may compare the inputs to relevant market
indices and other performance measurements. The output of this analysis is presented to the Company's Valuation and
Classifications Subcommittee (VCS). Based on the analysis provided to the VCS, the valuation is confirmed or may be
revised if there is evidence of a more appropriate estimate of fair value based on available market data. We have
performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent
reasonable estimates of fair value.
We also routinely review our investments that have experienced declines in fair value to determine if the decline is
other than temporary. The identification of distressed investments, the determination of fair value if not publicly traded and
the assessment of whether a decline is other than temporary involve significant management judgment. We must apply
considerable judgment in determining the likelihood of the security recovering in value while we own it. Factors that may
influence this include our assessment of the issuer’s ability to continue making timely payments of interest and principal,
the overall level of interest rates and credit spreads, and other factors. This process requires consideration of risks, which
can be controlled to a certain extent, such as credit risk, and risks which cannot be controlled, such as interest rate risk.
Management updates its evaluations regularly and reflects impairment losses in the Company's net earnings or other
comprehensive income, depending on the nature of the loss, as such evaluations are revised.
Our derivative activities include foreign currency, interest rate and credit default swaps in variable interest entities
(VIEs) that are consolidated; foreign currency swaps associated with certain senior notes and our subordinated
debentures; foreign currency forwards and options used in hedging foreign exchange risk and options on interest rate
swaps (or interest rate swaptions) used in hedging interest rate risk on U.S. dollar-denominated securities in Aflac Japan's