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Operating earnings per diluted share growth is computed using the average yen/dollar exchange rate for the
prior year, which eliminates fluctuations from currency rates that can magnify or suppress reported results in
dollar terms.
In 2016, we defined OROE as:
OROE growth is computed using the average yen/dollar exchange rate for the prior year for earnings. For the
average shareholder’s equity, we adjust the ending equity balance to the prior year-end spot yen/dollar exchange
rate. The combination of these adjustments to both components of this measure effectively eliminates fluctuations
from currency rates on operating earnings, which can magnify or suppress reported results in dollar terms.
The Japan Solvency Margin Ratio (“SMR”)
is a metric associated with our regulatory reporting to the Financial
Services Agency in Japan. SMR measures an insurance company’s ability to satisfy policy obligations. A strong
SMR serves to protect our policyholders’ interests, while also improving our flexibility to invest in additional asset
classes, with the objective of enhancing risk-adjusted investment returns and returning capital to our shareholders
through share repurchases and cash dividends. The SMR is an important financial indicator and key benchmark
for industry regulators. Maintaining a strong capital position has been a long-standing priority. Aflac’s SMR remains
high, and was 945% at the end of 2016, compared to 828% at the end of 2015.
Net Investment Income
emphasizes that each NEO is responsible for maximizing the Company’s risk-adjusted
performance subject to our liability profile and capital requirements.
U.S. and Japanese segments
For both the U.S. and Japanese segments, we use a metric referred to as the increase in total new annualized
premiums (on policies sold and converted) during the reporting period. Both segments’ MIP metrics include the
percentage increase in Direct Premiums and the percentage increase in Pretax Operating Earnings. We define
Direct Premiums
as the insurance premium earned by the segment during the period, prior to any reinsurance
ceded or assumed. We define
Pretax Operating Earnings
on a segment basis as the operating profit before
realized investment gains and losses from securities transactions, impairments, and derivative and hedging
activities, as well as nonrecurring items. The percentage increase in Pretax Operating Earnings for the Japan
segment is also measured before expenses allocated from the U.S., and excludes foreign currency effect.
TARGET SETTING CONSIDERATION
In addition to currency neutrality, the Compensation Committee considers the current business operating
environment and forecasts emerging from the strategic planning process when setting MIP objectives for each
metric. For example, new product launches and distribution expansion can materially affect the Company’s results
from one year to the next. Aflac Japan launched a major cancer product, New Cancer Days, at the end of 2014,
and its strong sales momentum carried into 2015. Aflac Japan also launched its EVER medical insurance in June
2015. Over this same timeframe, Aflac Japan continued to deepen and expand its relationship with Japan Post
Holdings.
It was also anticipated that low interest rates, especially in Japan, would continue in 2016. This expectation
was reinforced on January 29, 2016, when the Bank of Japan announced a negative interest rate policy, which
exacerbated problems faced by insurance companies in Japan, especially in regard to finding yen-denominated
assets to match against longer duration liabilities. The low rate environment would continue to pressure Aflac
Japan’s net investment income as private placement investments were called or matured. Furthermore, the
Company planned in 2016 to actively manage down sales of first sector savings products, which have returns
that are more interest rate sensitive. As such, the difficult sales comparison produced by the successful product
launches and enhanced distribution in 2015, combined with the anticipated effects of de-emphasizing first sector
products in 2016, led the Compensation Committee to identify that a lower third sector new annualized premium
target was justified for 2016.
the profits derived from operations,
including interest cash flows associated
with notes payable, before realized investment
gains and losses from securities transactions,
impairments, derivative and hedging activities,
and other nonrecurring items
average shareholder’s equity,
excluding unrealized gains/losses
from investments and derivatives
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Compensation Discussion & Analysis
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Elements of Our Executive Compensation Program
AFLAC INCORPORATED
2017 PROXY STATEMENT
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