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The table below reflects the growth of the future policy benefits liability for the years ended December 31.
Future Policy Benefits
(In millions of dollars and billions of yen)
2016
2015
2014
Aflac U.S.
$ 8,442
$ 8,087
$ 7,728
Growth rate
4.4%
4.6%
5.1 %
Aflac Japan
$ 68,291
$ 62,244
$ 57,916
Growth rate
9.7%
7.5%
(6.3)%
Consolidated
$ 76,106
$ 69,687
$ 65,646
Growth rate
9.2%
6.2%
(5.0)%
Yen/dollar exchange rate (end of period)
116.49
120.61
120.55
Aflac Japan (in yen)
7,955
7,507
6,982
Growth rate
6.0%
7.5%
7.2 %
The growth of the future policy benefits liability in yen for Aflac Japan and in dollars for Aflac U.S. has been due to the
aging of our in-force block of business and the addition of new business.
In computing the estimate of unpaid policy claims, we consider many factors, including the benefits and amounts
available under the policy; the volume and demographics of the policies exposed to claims; and internal business
practices, such as incurred date assignment and current claim administrative practices. We monitor these conditions
closely and make adjustments to the liability as actual experience emerges. Claim levels are generally stable from period
to period; however, fluctuations in claim levels may occur. In calculating the unpaid policy claim liability, we do not
calculate a range of estimates. The following table shows the expected sensitivity of the unpaid policy claims liability as of
December 31, 2016, to changes in severity and frequency of claims.
Sensitivity of Unpaid Policy Claims Liability
(In millions)
Total Severity
Total Frequency
Decrease
by 2%
Decrease
by 1% Unchanged
Increase
by 1%
Increase
by 2%
Increase by 2%
$ 0
$ 24
$ 48
$ 73
$ 98
Increase by 1%
(24)
0
24
49
73
Unchanged
(48)
(24)
0
24
48
Decrease by 1%
(71)
(48)
(24)
0
24
Decrease by 2%
(94)
(71)
(48)
(24)
0
Other policy liabilities, which accounted for 15% of total policy liabilities as of December 31, 2016, consisted primarily
of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan
insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over
the contractual premium payment period. Advanced premiums represented 38% and 43% of the December 31, 2016 and
2015 other policy liabilities balances, respectively. See the Aflac Japan segment subsection of this MD&A for further
information.
Income Taxes
Income tax provisions are generally based on pretax earnings reported for financial statement purposes, which differ
from those amounts used in preparing our income tax returns. Deferred income taxes are recognized for temporary
differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws
and statutory tax rates applicable to the periods in which we expect the temporary differences to reverse. The evaluation
of a tax position in accordance with U.S. GAAP is a two-step process. Under the first step, the enterprise determines
whether it is more likely than not that a tax position will be sustained upon examination by taxing authorities. The second
step is measurement, whereby a tax position that meets the more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial statements. A valuation allowance is established for deferred
tax assets when it is more likely than not that an amount will not be realized. The determination of a valuation allowance
for deferred tax assets requires management to make certain judgments and assumptions.
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