49 / 188
Japan Post has expanded the number of post offices that offer Aflac's cancer insurance products from 10,000 in the
fourth quarter of 2014 to more than 20,000 postal outlets as of July 2015. We believe this alliance with Japan Post has
and will further benefit our cancer insurance sales.
Japanese Regulatory Environment
In June 2013, a revision to the Financial Instruments and Exchange Act established a post-funded Orderly Resolution
Regime for financial institutions to prevent a financial crisis in the event of a financial institution’s failure. This regime came
into effect in March 2014 and has not had, and is not expected to have, a material impact on the Company's operations in
Japan.
Aflac Japan Investments
The level of investment income in yen is affected by available cash flow from operations, the timing of investing the
cash flow, yields on new investments, the effect of yen/dollar exchange rates on U.S. dollar-denominated investment
income, and other factors.
As part of the Company's portfolio management and asset allocation process, Aflac Japan invests in U.S. dollar-
denominated investments. Aflac Japan has been investing in both publicly-traded and privately originated U.S. dollar-
denominated investment grade and below investment grade fixed-maturity securities and loans, and has entered into
foreign currency forwards and options to hedge the currency risk on the fair value of a portion of the U.S. dollar
investments. In 2015, Aflac Japan increased its allocation to U.S. dollar-denominated investments, including senior
secured bank loans and high yield corporate bonds, and initiated a commercial mortgage loan investment program. In
2016, Aflac Japan began investing in senior secured commercial mortgage loans and middle market loans, and later
during the fourth quarter initiated an infrastructure debt program. In 2016, Aflac Japan invested an additional $535 million
in bank loans, $750 million in commercial mortgage loans, $76 million in middle market loans, and $13 million in
infrastructure debt. As of December 31, 2016, Aflac Japan had $19 million and $476 million in outstanding commitments
to fund commercial mortgage loans and middle market loans, respectively. These commitments are contingent upon final
underwriting and due diligence to be performed on the commercial mortgage loans and the availability of middle market
loans that meet underwriting criteria. In addition, starting in the first quarter of 2016, Aflac Japan initiated an allocation to a
dividend-focused U.S. public equity securities program. In 2016, Aflac Japan invested $637 million in U.S. public equities,
which are classified as available for sale and carried on the balance sheet at fair value. Beginning in the third quarter of
2016, the Company began hedging the currency risk on the carrying value of U.S. dollar-denominated bank loans,
commercial mortgage loans, and equity securities through the use of foreign currency forwards.
Our yen-denominated private placement portfolio has declined over the last several years as a result of call and
maturity activity and no reinvestment activity. However, beginning in 2016 we began to selectively purchase yen-
denominated private placements, which resulted in $268 million of purchases for the full year.
Starting in 2015, Aflac Japan added investments in dividend-focused yen-denominated publicly traded equity
securities, including investments in exchange traded funds (ETFs) holding Japan real estate investment trusts. In 2016,
Aflac Japan invested $258 million in yen-denominated publicly traded equity securities, which are classified as available
for sale and carried on the balance sheet at fair value.
See the Analysis of Financial Condition section of this MD&A for further discussion of these investment programs, and
see Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements for more information regarding loans and loan
receivables.
Funds available for investment include cash flows from operations, investment income, and funds generated from
maturities, redemptions, securities lending, and other securities transactions. Securities lending is also used from time to
time to accelerate the availability of funds for investment. Purchases of securities from period to period are determined
based on multiple objectives including appropriate portfolio diversification, the relative value of a potential investment and
availability of investment opportunities, liquidity, credit and other risk factors while adhering to our investment policy
guidelines. Aflac Japan purchased debt security investments at an aggregate acquisition cost of approximately 1.0 trillion
yen in 2016 (approximately $9.1 billion), 663.6 billion yen in 2015 (approximately $5.5 billion) and 1.0 trillion yen in 2014
(approximately $10.0 billion).
The following table presents the results of Aflac Japan's investment yields for the years ended and as of
December 31.
47