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Aflac Incorporated and Subsidiaries
Notes to the Consolidated Financial Statements
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of 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). American Family Life Assurance Company of New York (Aflac New
York) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through
independent agents. Additionally, Aflac U.S. 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. Aflac Japan's revenues, including realized gains and
losses on its investment portfolio, accounted for 71% of the Company's total revenues in 2016, compared with 70% in
2015 and 72% in 2014. The percentage of the Company's total assets attributable to Aflac Japan was 83% at both
December 31, 2016 and 2015.
Basis of Presentation
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 these Notes to the
Consolidated Financial Statements, 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 when recording transactions resulting from business operations based on currently available information.
The most significant items on our balance sheet that involve a greater degree of accounting estimates and actuarial
determinations subject to changes in the future are the valuation of investments, deferred policy acquisition costs,
liabilities for future policy benefits and unpaid policy claims, and income taxes. These accounting estimates and actuarial
determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other
acquisition expenses, and terminations by policyholders. As additional information becomes available, or actual amounts
are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is
inherent in these estimates, we believe the amounts provided are adequate.
The consolidated financial statements include the accounts of the Parent Company, its subsidiaries and those entities
required to be consolidated under applicable accounting standards. All material intercompany accounts and transactions
have been eliminated.
Significant Accounting Policies
Translation of Foreign Currencies:
The functional currency of Aflac Japan's insurance operations is the Japanese
yen. We translate our yen-denominated financial statement accounts into U.S. dollars as follows. Assets and liabilities are
translated at end-of-period exchange rates. Realized gains and losses on security transactions are translated at the
exchange rate on the trade date of each transaction. Other revenues, expenses and cash flows are translated using
average exchange rates for the period. The resulting currency translation adjustments are reported in accumulated other
comprehensive income. We include in earnings the realized currency exchange gains and losses resulting from foreign
currency transactions.
We have designated a majority of the Parent Company's yen-denominated liabilities (notes payable and yen-
denominated loans) as non-derivative hedges and designated foreign currency forwards and options as derivative hedges
of the foreign currency exposure of our investment in Aflac Japan. Outstanding principal and related accrued interest on
these Parent Company liabilities and the fair value of these derivatives are translated into U.S. dollars at end-of-period
exchange rates. Currency translation adjustments and changes in the fair value of these derivatives are recorded as
unrealized foreign currency translation gains (losses) in other comprehensive income and are included in accumulated
other comprehensive income.
Insurance Revenue and Expense Recognition:
The supplemental health and life insurance policies we issue are
classified as long-duration contracts. The contract provisions generally cannot be changed or canceled during the contract
period; however, we may adjust premiums for supplemental health policies issued in the United States within prescribed
guidelines and with the approval of state insurance regulatory authorities.