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Penn Treaty Network Company and its subsidiary American Network Insurance Company (collectively referred to as
Penn Treaty) is a financially distressed long-term care insurance company, with no affiliation to us. Penn Treaty was
placed in rehabilitation on January 6, 2009, and remained in rehabilitation as of December 31, 2016. Under state laws,
health insurers will be assessed a share of the guarantee funds needed to protect Penn Treaty’s policyholders. This
charge will be funded over several years and the cash will be largely recovered through premium tax credits over
time. Current accounting practice only allows this charge to be recognized when a final court order of liquidation is
declared, a condition that had not been met as of December 31, 2016. We expect to accrue a
charge of between $10
million and $20 million, in future periods, for our portion of the assessment.
Aflac U.S. Investments
The level of investment income is affected by available cash flow from operations, the timing of investing the cash
flow, yields on new investments, and other factors.
Historically, Aflac U.S. has invested primarily in investment grade corporate bonds. In 2015, as part of the Company's
portfolio management and asset allocation process, Aflac U.S. purchased high yield corporate bonds and senior secured
middle market loan receivables and initiated a senior secured commercial mortgage loan investment program. In addition,
in the fourth quarter of 2016, Aflac U.S. initiated an infrastructure debt program. In 2016, Aflac U.S. invested $18 million in
high yield corporate bonds; $207 million in middle market loan receivables, of which $41 million was unfunded; $111
million in commercial mortgage loans; and $2 million in infrastructure debt. As of December 31, 2016, the Company had
$303 million in outstanding commitments to fund potential future loan originations related to the middle market loan
investment program. This commitment is contingent upon the availability of middle market loans that meet underwriting
criteria. See Notes 1 and 3 of the Notes to the Consolidated Financial Statements for more information regarding loans
and loans receivables.
Starting in the first quarter of 2016, the Company initiated an allocation to dividend-focused U.S. public equity
securities. The U.S. public equity securities portfolio had a cost basis of $155 million as of December 31, 2016.
Funds available for investment include cash flows from operations, investment income, and funds generated from
maturities, redemptions, and other securities transactions. 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 U.S. purchased debt, equity, and loan receivable investments at an aggregate acquisition cost of
approximately $1.1 billion in 2016, compared with $900 million in 2015 and $1.0 billion in 2014.
The following table presents the results of Aflac's U.S. investment yields for the years ended and as of December 31.
2016
2015
2014
New money yield
(1)
3.89%
4.45% 4.32%
Return on average invested assets, net of investment expenses
(2)
5.04
5.19
5.46
Portfolio book yield, end of period
(1)
5.60%
5.77% 5.89%
(1)
Includes fixed maturities and perpetual securities, loan receivables, and equities
(2)
Number reflected on a quarterly average basis
The decrease in the Aflac U.S. new money yield in 2016 was primarily due to lower U.S. interest rates during much of
the investment period.
The following table presents the composition of total investments by sector, at cost or amortized cost, and cash for
Aflac U.S. ($14.1 billion in 2016 and $13.7 billion in 2015) as of December 31.
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