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Policy Liabilities
(In millions)
2016
2015
Japan segment:
Future policy benefits
$ 68,291
$ 62,244
Unpaid policy claims
2,393
2,193
Other policy liabilities
13,457
14,023
Total Japan policy liabilities
$ 84,141
$ 78,460
U.S. segment:
Future policy benefits
$ 8,442
$ 8,087
Unpaid policy claims
1,652
1,609
Other policy liabilities
118
119
Total U.S. policy liabilities
$ 10,212
$ 9,815
Consolidated:
Future policy benefits
$ 76,106
$ 69,687
Unpaid policy claims
4,045
3,802
Other policy liabilities
13,575
14,142
Total consolidated policy liabilities
(1)
$ 93,726
$ 87,631
(1)
The sum of the Japan and U.S. segments exceeds the total due to reinsurance and retrocession activity.
Our policy liabilities, which are determined in accordance with applicable guidelines as defined under U.S. GAAP and
Actuarial Standards of Practice, include two components that involve analysis and judgment: future policy benefits and
unpaid policy claims, which accounted for 81% and 4% of total policy liabilities as of December 31, 2016, respectively.
Future policy benefits provide for claims that will occur in the future and are generally calculated as the present value
of future expected benefits to be incurred less the present value of future expected net benefit premiums. We calculate
future policy benefits based on assumptions of morbidity, mortality, persistency and interest. These assumptions are
generally established at the time a policy is issued. The assumptions used in the calculations are closely related to those
used in developing the gross premiums for a policy. As required by U.S. GAAP, we also include a provision for adverse
deviation, which is intended to accommodate adverse fluctuations in actual experience.
Unpaid policy claims include those claims that have been incurred and are in the process of payment as well as an
estimate of those claims that have been incurred but have not yet been reported to us. We compute unpaid policy claims
on a non-discounted basis using statistical analyses of historical claims payments, adjusted for current trends and
changed conditions. We update the assumptions underlying the estimate of unpaid policy claims regularly and incorporate
our historical experience as well as other data that provides information regarding our outstanding liability.
Our insurance products provide fixed-benefit amounts per occurrence that are not subject to medical-cost inflation.
Furthermore, our business is widely dispersed in both the United States and Japan. This geographic dispersion and the
nature of our benefit structure mitigate the risk of a significant unexpected increase in claims payments due to epidemics
and events of a catastrophic nature. Claims incurred under Aflac's policies are generally reported and paid in a relatively
short time frame. The unpaid claims liability is sensitive to morbidity assumptions, in particular, severity and frequency of
claims. Severity is the ultimate size of a claim, and frequency is the number of claims incurred. Our claims experience is
primarily related to the demographics of our policyholders.
As a part of our established financial reporting and accounting practices and controls, we perform detailed annual
actuarial reviews of our policyholder liabilities (gross premium valuation analysis) and reflect the results of those reviews
in our results of operations and financial condition as required by U.S. GAAP. For Aflac Japan, our annual reviews in 2016
and 2015 indicated that we needed to strengthen the liability associated with a block of care policies, primarily due to low
investment yields. We strengthened our future policy benefits liability by $52 and $18 million in 2016 and 2015,
respectively, as a result of these reviews. Our review in 2014 indicated no need to strengthen liabilities associated with
policies in Japan. Our reviews in 2016, 2015 and 2014 indicated no need to strengthen liabilities associated with policies
in the United States.
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