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partners, and rigorous contracting procedures (including financial, legal, IT security, and risk reviews), there can be no
assurance that controls and procedures that we employ, which are designed to assess third party viability and prevent us
from taking excessive or inappropriate risks, will be effective. We review our supplier cost structures and alliance
compensation policies and practices as part of our overall risk management program, but it is possible that these cost
structures and forms of compensation could inadvertently incentivize excessive or inappropriate risk taking. If our third
parties take excessive or inappropriate risks, those risks could harm our reputation and have a material adverse effect on
our results of operations or financial condition.
The concentration of our investment portfolios in any particular single-issuer or sector of the economy may have
an adverse effect on our financial position or results of operations.
Negative events or developments affecting any particular single issuer, industry, group of related industries or
geographic sector may have an adverse impact on a particular holding or set of holdings. We seek to minimize this risk by
maintaining an appropriate level of diversification. To the extent we have concentrated positions, it could have an adverse
effect on our results of operations and financial position. Our global investment guidelines establish concentration limits
for our investment portfolios.
At December 31, 2016, we held approximately $42.9 billion at amortized cost, or 42.4% of our total debt and perpetual
securities, in JGBs. JGBs were rated A1/A+/A at December 31, 2016 by Moody's, S&P and Fitch, respectively. At
December 31, 2016, 10% of our total portfolio of debt and perpetual securities was in the bank and financial institution
sector. For further details on the concentrations within our investment portfolios, see the Analysis of Financial Condition
section of MD&A in this report.
The valuation of our investments and derivatives includes methodologies, estimations and assumptions which
are subject to differing interpretations and could result in changes to investment valuations that may adversely
affect our results of operations or financial condition.
We report a significant amount of our fixed maturity securities and other financial instruments at fair value. As such,
valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation
methods which are more sophisticated, thereby resulting in values which may be greater or less than the value at which
the investments may be ultimately sold. Rapidly changing and unprecedented credit and equity market conditions could
materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-
period changes in value could vary significantly.
Valuations of our derivatives fluctuate with changes in underlying market variables, such as interest rates and foreign
currency exchange rates. During periods of market turbulence created by political instability, economic uncertainty,
government interventions or other factors, we may experience significant changes in the volatility of our derivative
valuations. Extreme market conditions can also affect the liquidity of such instruments creating marked differences in
transaction levels and counterparty valuations. Depending on the severity and direction of the movements in its derivative
valuations, the Company will face increases in the amount of collateral required to be posted with its counterparties.
Liquidity stresses to the Company may also occur if the required collateral amounts increase significantly over a very
short period of time. Conversely, the Company may be exposed to an increase in counterparty credit risk for short periods
of time while calling collateral from its counterparties.
For further discussion on investment and derivative valuations, see the Critical Accounting Estimates section in Item
7, Management's Discussion and Analysis, and Notes 1, 3, 4, and
5
of the Notes to the Consolidated Financial
Statements in this Form 10-K.
Managing key executive succession is critical to our success.
We would be adversely affected if we fail to adequately plan for succession of our senior management and other key
executives. While we have succession plans and employment arrangements with certain key executives, these plans
cannot guarantee that the services of these executives will be available to us, and our operations could be adversely
affected if they are not.
The determination of the amount of impairments taken on our investments is based on significant valuation
judgments and could materially impact our results of operations or financial position.
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