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An investment in a fixed maturity, perpetual or equity security is impaired if the fair value falls below book value. We
regularly review our entire investment portfolio for declines in value. The majority of our investments are evaluated for
other-than-temporary impairment using our debt impairment model, while our investments in equities and below-
investment-grade perpetual securities are evaluated using our equity impairment model.
Our debt impairment model includes emphasis on the ultimate collection of the cash flows from our investments. The
determination of the amount of impairments under this model is based upon our periodic evaluation and assessment of
known and inherent risks associated with the respective securities. Such evaluations and assessments are revised as
conditions change and new information becomes available.
For our fixed maturity and perpetual securities reported in the available-for-sale portfolio, we report the investments at
fair value in the statement of financial condition and record any unrealized gain or loss in the value of the asset in
accumulated other comprehensive income. For our held-to-maturity securities portfolio, we report the investments at
amortized cost. Under the debt impairment model, the determination of whether an impairment in value is other than
temporary is based largely on our evaluation of the issuer
'
s creditworthiness. 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. We also verify whether we have the intent to sell or if it is more likely than not
we would be required to sell the security prior to recovery of its amortized cost. If we determine it is unlikely we will
recover our book value of the instrument prior to our disposal of the security, we will reduce the carrying value of the
security to its fair value and recognize any associated impairment loss in our consolidated statement of earnings or other
comprehensive income, depending on the nature of the loss.
Our investments in perpetual securities that are rated below investment grade and equity securities are evaluated for
other-than-temporary impairment under our equity impairment model. This impairment model focuses on the severity of a
security's decline in fair value coupled with the length of time the fair value of the security has been below cost or
amortized cost and the financial condition and near-term prospects of the issuer. For equity securities, we also verify our
intent to hold the securities until they recover in value.
For regulatory accounting purposes for Aflac Japan, there are certain requirements for realizing impairments that could
be triggered by rising interest rates or credit-related losses, negatively impacting Aflac Japan's earnings and
corresponding repatriation and capital deployment.
Our management updates its evaluations regularly as conditions change and as new information becomes available
and reflects impairment losses in the Company's income statement when considered necessary. Furthermore, additional
impairments may need to be taken in the future. Historical trends may not be indicative of future impairments.
Catastrophic events could adversely affect our financial condition and results of operations.
Our insurance operations are exposed to the risk of catastrophic events including, but not necessarily limited to,
epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, and acts of terrorism. The extent of losses from a
catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of
the event. Certain events such as earthquakes, tsunamis, hurricanes and man-made catastrophes could cause
substantial damage or loss of life in larger areas, especially those that are heavily populated. Claims resulting from natural
or man−made catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year
and could materially reduce our profitability or harm our financial condition, as well as affect our ability to write new
business.
Changes in accounting standards issued by the Financial Accounting Standard Boards (FASB) or other standard-
setting bodies may adversely affect our financial statements.
Our financial statements are subject to the application of generally accepted accounting principles in both the United
States and Japan, which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt
new or revised accounting standards issued by recognized authoritative bodies, including the FASB. It is possible that
future accounting standards we are required to adopt could change the current accounting treatment that we apply to our
consolidated financial statements and that such changes could have a material adverse effect on our results of operations
and financial condition. During the last three years, various accounting standard-setting bodies have been active in
soliciting comments and issuing statements, interpretations and exposure drafts. For information on new accounting
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