Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on our evaluation under this framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2016.

KPMG LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2016, which is included herein.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Aflac Incorporated:

We have audited Aflac Incorporated's (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Aflac Incorporated's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Aflac Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Aflac Incorporated and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated February 24, 2017 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Atlanta, Georgia

February 24, 2017

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Aflac Incorporated:

We have audited the accompanying consolidated balance sheets of Aflac Incorporated and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aflac Incorporated and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aflac Incorporated's internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2017, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Atlanta, Georgia

February 24, 2017

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings

Years Ended December 31,

(In millions, except for share and per-share amounts)	2016						2015						2014
Revenues:
Net premiums, principally supplemental health insurance		$	19,225					$	17,570					$	19,072
Net investment income		3,278						3,135						3,319
Realized investment gains (losses):
Other-than-temporary impairment losses realized		(83		)				(153		)				(31		)
Sales and redemptions		215						303						215
Derivative and other gains (losses)		(255		)				(10		)				31
Total realized investment gains (losses)		(123		)				140						215
Other income (loss)		179						27						122
Total revenues		22,559						20,872						22,728
Benefits and expenses:
Benefits and claims, net		12,919						11,746						12,937
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		1,141						1,066						1,108
Insurance commissions		1,368						1,303						1,436
Insurance expenses		2,452						2,214						2,261
Interest expense		268						289						317
Other expenses		344			(1)			392			(1)			178
Total acquisition and operating expenses		5,573						5,264						5,300
Total benefits and expenses		18,492						17,010						18,237
Earnings before income taxes		4,067						3,862						4,491
Income tax expense:
Current		884						1,288						1,079
Deferred		524						41						461
Income taxes		1,408						1,329						1,540
Net earnings		$	2,659					$	2,533					$	2,951
Net earnings per share:
Basic		$	6.46					$	5.88					$	6.54
Diluted		6.42						5.85						6.50
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		411,471						430,654						451,204
Diluted		413,921						433,172						454,000

(1) Includes expense of $137 in 2016 and $230 in 2015 for the payments associated with the early extinguishment of debt

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Years Ended December 31,

(In millions)	2016						2015						2014
Net earnings		$	2,659					$	2,533					$	2,951
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		283						360						(1,455		)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment securities during period		2,852						(2,534		)				5,947
Reclassification adjustment for realized (gains) losses on investment securities included in net earnings		(53		)				(61		)				(54		)
Unrealized gains (losses) on derivatives during period		3						0						(17		)
Pension liability adjustment during period		(45		)				(20		)				(76		)
Total other comprehensive income (loss) before income taxes		3,040						(2,255		)				4,345
Income tax expense (benefit) related to items of other comprehensive income (loss)		1,035						(901		)				1,803
Other comprehensive income (loss), net of income taxes		2,005						(1,354		)				2,542
Total comprehensive income (loss)		$	4,664					$	1,179					$	5,493

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets

December 31,

(In millions)	2016				2015
Assets:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost $62,195 in 2016 and $56,903 in 2015)	$	68,778			$	60,795
Fixed maturities - consolidated variable interest entities (amortized cost $4,168 in 2016 and $3,739 in 2015)	4,982				4,554
Perpetual securities (amortized cost $1,269 in 2016 and $1,586 in 2015)	1,425				1,719
Perpetual securities - consolidated variable interest entities (amortized cost $237 in 2016 and $255 in 2015)	208				228
Equity securities (cost $231 in 2016 and $117 in 2015)	265				135
Equity securities - consolidated variable interest entities (cost $972 in 2016 and $363 in 2015)	1,044				363
Securities held to maturity, at amortized cost:
Fixed maturities (fair value $40,021 in 2016 and $37,520 in 2015)	33,350				33,459
Other investments	1,450			(1)	294
Cash and cash equivalents	4,859				4,350
Total investments and cash	116,361				105,897
Receivables	669				705
Accrued investment income	754				768
Deferred policy acquisition costs	8,993				8,511
Property and equipment, at cost less accumulated depreciation	433				427
Other(2)	2,609				1,948
Total assets	$	129,819			$	118,256

(1) Includes $819 in 2016 of loan receivables from consolidated variable interest entities

(2) Includes $127 in 2016 and $102 in 2015 of derivatives from consolidated variable interest entities

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2016 related to debt issuance costs.

See the accompanying Notes to the Consolidated Financial Statements.

(continued)

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets (continued)

December 31,

(In millions, except for share and per-share amounts)	2016				2015
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits	$	76,106			$	69,687
Unpaid policy claims	4,045				3,802
Unearned premiums	6,916				7,857
Other policyholders’ funds	6,659				6,285
Total policy liabilities	93,726				87,631
Income taxes	5,387				4,340
Payables for return of cash collateral on loaned securities	526				941
Notes payable	5,360				4,971
Other(3)	4,338				2,665
Total liabilities	109,337				100,548
Commitments and contingent liabilities (Note 15)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2016 and 2015; issued 671,249 shares in 2016 and 669,723 shares in 2015	67				67
Additional paid-in capital	1,976				1,828
Retained earnings	25,981				24,007
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)	(1,983		)		(2,196		)
Unrealized gains (losses) on investment securities	4,805				2,986
Unrealized gains (losses) on derivatives	(24		)		(26		)
Pension liability adjustment	(168		)		(139		)
Treasury stock, at average cost	(10,172		)		(8,819		)
Total shareholders’ equity	20,482				17,708
Total liabilities and shareholders’ equity	$	129,819			$	118,256

(3) Includes $146 in 2016 and $293 in 2015 of derivatives from consolidated variable interest entities

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2016 related to debt issuance costs.

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Years Ended December 31,

(In millions, except for per-share amounts)	2016				2015				2014
Common stock:
Balance, beginning of period	$	67			$	67			$	67
Balance, end of period	67				67				67
Additional paid-in capital:
Balance, beginning of period	1,828				1,711				1,644
Exercise of stock options	46				43				29
Share-based compensation	64				36				(3		)
Gain (loss) on treasury stock reissued	38				38				41
Balance, end of period	1,976				1,828				1,711
Retained earnings:
Balance, beginning of period	24,007				22,156				19,885
Net earnings	2,659				2,533				2,951
Dividends to shareholders ($1.66 per share in 2016, $1.58 per share in 2015 and $1.50 per share in 2014)	(685		)		(682		)		(680		)
Balance, end of period	25,981				24,007				22,156
Accumulated other comprehensive income (loss):
Balance, beginning of period	625				1,979				(563		)
Unrealized foreign currency translation gains (losses) during period, net of income taxes	213				345				(1,036		)
Unrealized gains (losses) on investment securities during period, net of income taxes and reclassification adjustments	1,819				(1,686		)		3,637
Unrealized gains (losses) on derivatives during period, net of income taxes	2				0				(14		)
Pension liability adjustment during period, net of income taxes	(29		)		(13		)		(45		)
Balance, end of period	2,630				625				1,979
Treasury stock:
Balance, beginning of period	(8,819		)		(7,566		)		(6,413		)
Purchases of treasury stock	(1,422		)		(1,315		)		(1,210		)
Cost of shares issued	69				62				57
Balance, end of period	(10,172		)		(8,819		)		(7,566		)
Total shareholders’ equity	$	20,482			$	17,708			$	18,347

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31,

(In millions)	2016						2015						2014
Cash flows from operating activities:
Net earnings		$	2,659					$	2,533					$	2,951
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in receivables and advance premiums		42						147						(7		)
Increase in deferred policy acquisition costs		(306		)				(241		)				(225		)
Increase in policy liabilities		3,331						3,524						3,614
Change in income tax liabilities		(93		)				(36		)				123
Realized investment (gains) losses		123						(140		)				(215		)
Other, net		231			(1)			989			(1)			309
Net cash provided (used) by operating activities		5,987						6,776						6,550
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		5,157						3,224						4,178
Fixed maturities matured or called		1,096						1,132						1,001
Perpetual securities matured or called		470						647						203
Equity securities sold		350						1						0
Securities held to maturity:
Fixed maturities matured or called		1,399						766						8,475
Costs of investments acquired:
Available-for-sale fixed maturities acquired		(10,890		)				(6,507		)				(10,978		)
Available-for-sale equity securities acquired		(1,079		)				(454		)				(5		)
Held-to-maturity fixed maturities acquired		0						0						(3,564		)
Other investments, net		(1,118		)				(70		)				272
Purchase of subsidiary		0						(40		)				0
Settlement of derivatives, net		1,252						(2,119		)				(636		)
Cash received (pledged or returned) as collateral, net		(416		)				(1,391		)				(3,217		)
Other, net		(76		)				(86		)				30
Net cash provided (used) by investing activities		(3,855		)				(4,897		)				(4,241		)
Cash flows from financing activities:
Purchases of treasury stock		(1,422		)				(1,315		)				(1,210		)
Proceeds from borrowings		986						998						750
Principal payments under debt obligations		(610		)				(1,272		)				(335		)
Dividends paid to shareholders		(658		)				(656		)				(654		)
Change in investment-type contracts, net		159						256						1,253
Treasury stock reissued		46						36						33
Other, net		(120		)	(1)			(234		)	(1)			16
Net cash provided (used) by financing activities		(1,619		)				(2,187		)				(147		)
Effect of exchange rate changes on cash and cash equivalents		(4		)				0						(47		)
Net change in cash and cash equivalents		509						(308		)				2,115
Cash and cash equivalents, beginning of period		4,350						4,658						2,543
Cash and cash equivalents, end of period		$	4,859					$	4,350					$	4,658
Supplemental disclosures of cash flow information:
Income taxes paid		$	1,526					$	996					$	1,416
Interest paid		211						236						241
Noncash interest		57						53						76
Impairment losses included in realized investment losses		83						153						31
Noncash financing activities:
Capital lease obligations		1						6						9
Treasury stock issued for:
Associate stock bonus		30						35						35
Shareholder dividend reinvestment		27						26						26
Share-based compensation grants		4						3						4

(1) Operating activities excludes and financing activities includes a cash outflow of $137 in 2016 and $230 in 2015 for the payments associated with the early extinguishment of debt

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Notes to the Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business 

Aflac Incorporated (the Parent Company) and its subsidiaries (collectively, the Company) primarily sell supplemental health and life insurance in the United States and Japan. The Company's insurance business is marketed and administered through American Family Life Assurance Company of Columbus (Aflac), which operates in the United States (Aflac U.S.) and as a branch in Japan (Aflac Japan). American Family Life Assurance Company of New York (Aflac New York) is a wholly owned subsidiary of Aflac. Most of Aflac's policies are individually underwritten and marketed through independent agents. Additionally, Aflac U.S. markets and administers group products through Continental American Insurance Company (CAIC), branded as Aflac Group Insurance. Our insurance operations in the United States and our branch in Japan service the two markets for our insurance business. Aflac Japan's revenues, including realized gains and losses on its investment portfolio, accounted for 71% of the Company's total revenues in 2016, compared with 70% in 2015 and 72% in 2014. The percentage of the Company's total assets attributable to Aflac Japan was 83% at both December 31, 2016 and 2015.

Basis of Presentation

We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB). In these Notes to the Consolidated Financial Statements, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards CodificationTM (ASC). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates when recording transactions resulting from business operations based on currently available information. The most significant items on our balance sheet that involve a greater degree of accounting estimates and actuarial determinations subject to changes in the future are the valuation of investments, deferred policy acquisition costs, liabilities for future policy benefits and unpaid policy claims, and income taxes. These accounting estimates and actuarial determinations are sensitive to market conditions, investment yields, mortality, morbidity, commission and other acquisition expenses, and terminations by policyholders. As additional information becomes available, or actual amounts are determinable, the recorded estimates will be revised and reflected in operating results. Although some variability is inherent in these estimates, we believe the amounts provided are adequate.

The consolidated financial statements include the accounts of the Parent Company, its subsidiaries and those entities required to be consolidated under applicable accounting standards. All material intercompany accounts and transactions have been eliminated.

Significant Accounting Policies

Translation of Foreign Currencies: The functional currency of Aflac Japan's insurance operations is the Japanese yen. We translate our yen-denominated financial statement accounts into U.S. dollars as follows. Assets and liabilities are translated at end-of-period exchange rates. Realized gains and losses on security transactions are translated at the exchange rate on the trade date of each transaction. Other revenues, expenses and cash flows are translated using average exchange rates for the period. The resulting currency translation adjustments are reported in accumulated other comprehensive income. We include in earnings the realized currency exchange gains and losses resulting from foreign currency transactions.

We have designated a majority of the Parent Company's yen-denominated liabilities (notes payable and yen-denominated loans) as non-derivative hedges and designated foreign currency forwards and options as derivative hedges of the foreign currency exposure of our investment in Aflac Japan. Outstanding principal and related accrued interest on these Parent Company liabilities and the fair value of these derivatives are translated into U.S. dollars at end-of-period exchange rates. Currency translation adjustments and changes in the fair value of these derivatives are recorded as unrealized foreign currency translation gains (losses) in other comprehensive income and are included in accumulated other comprehensive income.

Insurance Revenue and Expense Recognition: The supplemental health and life insurance policies we issue are classified as long-duration contracts. The contract provisions generally cannot be changed or canceled during the contract period; however, we may adjust premiums for supplemental health policies issued in the United States within prescribed guidelines and with the approval of state insurance regulatory authorities.

Insurance premiums for most of the Company's health and life policies, including cancer, accident, hospital, critical illness, dental, vision, term life, whole life, long-term care and disability, are recognized as revenue over the premium-paying periods of the contracts when due from policyholders. When revenues are reported, the related amounts of benefits and expenses are charged against such revenues, so that profits are recognized in proportion to premium revenues during the period the policies are expected to remain in force. This association is accomplished by means of annual additions to the liability for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Premiums from the Company's products with limited-pay features, including term life, whole life, WAYS, and child endowment, are collected over a significantly shorter period than the period over which benefits are provided. Premiums for these products are recognized as revenue over the premium-paying periods of the contracts when due from policyholders. Any gross premium in excess of the net premium is deferred and recorded in earnings, such that profits are recognized in a constant relationship with insurance in force. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized using the net premium method.

At the policyholder's option, customers can also pay discounted advanced premiums for certain of our products. Advanced premiums are deferred and recognized when due from policyholders over the regularly scheduled premium payment period.

The calculation of deferred policy acquisition costs (DAC) and the liability for future policy benefits requires the use of estimates based on sound actuarial valuation techniques. For new policy issues, we review our actuarial assumptions and deferrable acquisition costs each year and revise them when necessary to more closely reflect recent experience and studies of actual acquisition costs. For policies in force, we evaluate DAC by major product groupings to determine that they are recoverable from future revenues, and any amounts determined not to be recoverable are charged against net earnings. We have not had any material charges to earnings for DAC that was determined not to be recoverable in any of the years presented in this Form 10-K.

Advertising expense is reported as incurred in insurance expenses in the consolidated statements of earnings.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, money market instruments and other debt instruments with a maturity of 90 days or less when purchased.

Investments: Our debt securities consist of fixed-maturity securities, which are classified as either held to maturity or available for sale. Securities classified as held to maturity are securities that we have the ability and intent to hold to maturity or redemption and are carried at amortized cost. All other fixed-maturity debt securities, our perpetual securities and our equity securities are classified as available for sale and are carried at fair value. If the fair value is higher than the amortized cost for debt and perpetual securities, or the purchase cost for equity securities, the excess is an unrealized gain, and if lower than cost, the difference is an unrealized loss. The net unrealized gains and losses on securities available for sale, plus the unamortized unrealized gains and losses on debt securities transferred to the held-to-maturity portfolio, less related deferred income taxes, are recorded through other comprehensive income and included in accumulated other comprehensive income.

Amortized cost of debt and perpetual securities is based on our purchase price adjusted for accrual of discount, or amortization of premium, and recognition of impairment charges, if any. The amortized cost of debt and perpetual securities we purchase at a discount or premium will equal the face or par value at maturity or the call date, if applicable. Interest is reported as income when earned and is adjusted for amortization of any premium or discount.

We have investments in variable interest entities (VIEs). Criteria for evaluating VIEs for consolidation focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. We are the primary beneficiary of certain VIEs, and therefore consolidate these entities in our financial statements. While the VIEs generally operate within a defined set of documents, there are certain powers that are retained by us that are considered significant in our conclusion that we are the primary beneficiary. These powers vary by structure but generally include the initial selection of the underlying collateral or, for collateralized debt obligations (CDOs), the reference credits to include in the structure; the ability to obtain the underlying collateral in the event of default; and the ability to appoint or dismiss key parties in the structure. In particular, our powers surrounding the underlying collateral were considered to be the most significant powers since those most significantly impact the economics of the VIE. We have no obligation to provide any continuing financial support to any of the entities in which we are the primary beneficiary. Our maximum loss is limited to our original investment. Neither we nor any of our creditors have the ability to

obtain the underlying collateral, nor do we have control over the instruments in the VIEs, unless there is an event of default. For those entities where we are the primary beneficiary, the assets consolidated are fixed-maturity securities, perpetual securities, equity securities, and derivative instruments; collateral consisting of these asset classes is reported separately with the caption "- consolidated variable interest entities" on our balance sheet.

For the mortgage- and asset-backed securities held in our fixed maturities portfolio, we recognize income using a constant effective yield, which is based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in mortgage- and asset-backed securities is adjusted to the amount that would have existed had the new effective yield been applied at the time of acquisition. This adjustment is reflected in net investment income.

We use the specific identification method to determine the gain or loss from securities transactions and report the realized gain or loss in the consolidated statements of earnings. Securities transactions are accounted for based on values as of the trade date of the transaction.

An investment in a fixed maturity, perpetual security or equity security is impaired if the fair value falls below book value. We regularly review our entire investment portfolio for declines in value. Our fixed maturities and investment-grade perpetual securities investments are evaluated for other-than-temporary impairment using our debt impairment model. Our debt impairment model focuses on the ultimate collection of the cash flows from our investments and 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. 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.

When determining our intention to sell a security prior to recovery of its fair value to amortized cost, we evaluate facts and circumstances such as, but not limited to, future cash flow needs, decisions to reposition our security portfolio, and risk profile of individual investment holdings. We perform ongoing analyses of our liquidity needs, which includes cash flow testing of our policy liabilities, debt maturities, projected dividend payments and other cash flow and liquidity needs. Our cash flow testing includes extensive duration analysis of our investment portfolio and policy liabilities. Based on our analyses, we have concluded that we have sufficient excess cash flows to meet our liquidity needs without selling any of our investments prior to their maturity.

The determination of whether an impairment in value of our debt securities 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 the overall level of interest rates, credit spreads, the credit quality of the underlying issuer, and other factors. This process requires consideration of risks which can be controlled to a certain extent, such as credit risk, and risks which cannot be controlled, such as interest rate risk and foreign currency risk.

If, after monitoring and analyses, management believes that fair value will not recover to amortized cost prior to the disposal of the security, we recognize an other-than-temporary impairment of the security. Once a security is considered to be other-than-temporarily impaired, the impairment loss is separated into two separate components: the portion of the impairment related to credit and the portion of the impairment related to factors other than credit. We recognize a charge to earnings for the credit-related portion of other-than-temporary impairments. Impairments related to factors other than credit are charged to earnings in the event we intend to sell the security prior to the recovery of its amortized cost or if it is more likely than not that we would be required to dispose of the security prior to recovery of its amortized cost; otherwise, non-credit-related other-than-temporary impairments are charged to other comprehensive income.

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. Our equity 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 amortized cost and the financial condition and near-term prospects of the issuer. For equity securities that have declines in value that are deemed to be temporary, we make an assertion as to our ability and intent to retain the security until recovery. Once identified, these equity securities are restricted from trading unless authorized based upon significant events that could not have been foreseen at the time we asserted our ability and intent to retain the security until recovery.

If management believes that the equity security will not recover prior to the disposal of the security, we recognize an other-than-temporary impairment of the security. Once an equity security is considered to be other-than-temporarily impaired, its fair value on that date becomes the new cost basis and the impairment loss is recognized in earnings.

We lend fixed-maturity securities to financial institutions in short-term security lending transactions. These securities continue to be carried as investment assets on our balance sheet during the terms of the loans and are not reported as sales. We receive cash or other securities as collateral for such loans. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral.

Other investments include policy loans, middle market loans, commercial mortgage loans, and other short-term investments with maturities of one year or less, but greater than 90 days, at the time of purchase. We invest in middle market loans through participation rights, and commercial mortgage loans that are accounted for as loan receivables and recorded at amortized cost on the acquisition date. Since we have the intent and ability to hold these loan receivables for the foreseeable future or until they mature, they are considered held for investment and are carried at adjusted amortized cost in the other investments line on our consolidated balance sheets. The adjusted amortized cost of the loan receivables reflects allowances for expected incurred losses estimated based on past events and current economic conditions as of each reporting date. Other short-term investments are stated at amortized cost, which approximates estimated fair value.

Derivatives and Hedging: Freestanding derivative instruments are reported in the consolidated balance sheet at fair value and are reported in other assets and other liabilities, with changes in value reported in earnings and/or other comprehensive income. These freestanding derivatives are interest rate swaps, foreign currency swaps, credit default swaps (CDSs), foreign currency forwards, foreign currency options, and options on interest rate swaps (or interest rate swaptions). Interest rate and foreign currency swaps are used within VIEs to hedge the risk arising from interest rate and currency exchange risk, while the CDSs are used to increase the yield and improve the diversification of the portfolio. Foreign currency forwards and options are used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio. Foreign currency forwards and options are used to hedge certain portions of forecasted cash flows denominated in yen. Interest rate swaps are used to hedge the variability of interest cash flows associated with our variable interest rate notes. Cross-currency interest rate swaps, also referred to as foreign currency swaps, are used to economically convert certain U.S. dollar-denominated note obligations into yen-denominated principal and interest obligations. Interest rate swaptions have been used to hedge interest rate risk for certain U.S. dollar-denominated available-for-sale securities. We do not use derivatives for trading purposes, nor do we engage in leveraged derivative transactions.

From time to time, we purchase certain investments that contain an embedded derivative. We assess whether this embedded derivative is clearly and closely related to the asset that serves as its host contract. If we deem that the embedded derivative's terms are not clearly and closely related to the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the derivative is separated from that contract, held at fair value and reported with the host instrument in the consolidated balance sheet, with changes in fair value reported in earnings. If we have elected the fair value option, the embedded derivative is not bifurcated, and the entire investment is held at fair value with changes in fair value reported in earnings.

For those relationships where we seek hedge accounting, we formally document all relationships between hedging instruments and hedged items, as well as our risk-management objectives and strategies for undertaking various hedge transactions. This process includes linking derivatives and non-derivative financial instruments that are designated as hedges to specific assets or liabilities on the balance sheet. We also assess, both at inception and on an ongoing basis, whether the derivatives and non-derivative financial instruments used in hedging activities are highly effective in offsetting changes in fair values or cash flows of the hedged items. The assessment of hedge effectiveness determines the accounting treatment of noncash changes in fair value.

Changes in the fair value of any of our derivatives that are designated and qualify as cash flow hedges are recorded in other comprehensive income as long as they are deemed effective. Any hedge ineffectiveness is recorded immediately in current period earnings within derivative and other gains (losses). Periodic derivative net coupon settlements are recorded in the line item of the consolidated statements of earnings in which the cash flows of the hedged item are recorded.

Changes in the estimated fair value of derivative instruments that are designated and qualify as fair value hedges, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported in current earnings within derivative and other gains (losses).

We have designated the majority of the Parent Company's yen-denominated liabilities (notes payable and yen-denominated loans) as non-derivative hedges and designated certain derivatives as hedges of the foreign currency exposure to our investment in Aflac Japan. At the beginning of each quarter, we make our net investment hedge designation. If the total of the designated Parent Company non-derivative and derivatives notional is equal to or less than

our net investment in Aflac Japan, the hedge is deemed to be effective, and the exchange effect on the yen-denominated liabilities and the change in estimated fair value of the derivatives are reported in the unrealized foreign currency component of other comprehensive income. Should these designated net investment hedge positions exceed our net investment in Aflac Japan, the foreign exchange effect on the portion that exceeds our investment in Aflac Japan would be recognized in current earnings within derivative and other gains (losses).

Derivatives that are not designated as hedges are carried at fair value with all changes in fair value recorded in current period earnings within derivative and other gains (losses). We include the fair value of all freestanding derivatives in either other assets or other liabilities on the balance sheet.

We receive and pledge cash or other securities as collateral on open derivative positions. Cash received as collateral is reported as an asset with a corresponding liability for the return of the collateral. Cash pledged as collateral is recorded as a reduction to cash, and a corresponding receivable is recognized for the return of the cash collateral. We generally can repledge or resell collateral obtained by us, although we do not typically exercise such rights. Securities received as collateral are not recognized unless we were to exercise our right to sell that collateral or exercise remedies on that collateral upon a counterparty default. Securities that we have pledged as collateral continue to be carried as investment assets on our balance sheet.

Freestanding derivatives are carried at estimated fair value in our consolidated balance sheets either as other assets or as other liabilities. See Note 5 for a discussion on how we determine the fair value of our derivatives. Accruals on derivatives are typically recorded in accrued investment income or within other liabilities in the consolidated balance sheets.

If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported within derivative and other gains(losses), which is a component of realized investment gains (losses). The fluctuations in estimated fair value of derivatives that have not been designated for hedge accounting can result in volatility in net earnings.

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. At the inception of the hedging relationship for hedges we elect to designate for hedge accounting treatment, we formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction. We document the designation of each hedge as either (i) a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or the hedge of a forecasted transaction ("cash flow hedge"); (ii) a hedge of the estimated fair value of a recognized asset or liability ("fair value hedge"); or (iii) a hedge of a net investment in a foreign operation. The documentation process includes linking derivatives and nonderivatives that are designated as hedges to specific assets or groups of assets or liabilities on the statement of financial position or to specific forecasted transactions and defining the effectiveness and ineffectiveness testing methods to be used. At the hedge's inception and on an ongoing quarterly basis, we also formally assess whether the derivatives that are used in hedging transactions have been, and are expected to continue to be, highly effective in offsetting their designated risk. Hedge effectiveness is assessed using qualitative and quantitative methods.

For assessing hedge effectiveness of cash flow hedges, qualitative methods may include the comparison of critical terms of the derivative to the hedged item, and quantitative methods may include regression or other statistical analysis of changes in cash flows associated with the hedge relationship. Hedge ineffectiveness of the hedge relationships on our VIE cash flow hedges is measured each reporting period using the “Hypothetical Derivative Method.” For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings within derivative and other gains (losses). All components of each derivative's gain or loss are included in the assessment of hedge effectiveness.

For assessing hedge effectiveness of fair value hedges, qualitative methods may include the comparison of critical terms of the derivative to the hedged item, and quantitative methods may include regression or other statistical analysis of changes in fair value associated with the hedge relationship. Hedge ineffectiveness of the hedge relationships is measured each reporting period using the dollar offset method. For derivative instruments that are designated and qualify as fair value hedges, changes in the estimated fair value of the derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported in current earnings within derivative and other gains (losses). When assessing the effectiveness of our fair value hedges, we exclude the changes in fair value related to the difference between the spot and the forward rate on our foreign currency forwards and the time value of options.

For the hedge of our net investment in Aflac Japan, we have designated Parent Company yen-denominated liabilities as non-derivative hedging instruments and have designated certain foreign currency forwards and options as derivative hedging instruments. We make our net investment hedge designation at the beginning of each quarter. For assessing hedge effectiveness of net investment hedges, if the total of the designated Parent Company non-derivative and derivatives notional is equal to or less than our net investment in Aflac Japan, the hedge is deemed to be effective. If the hedge is effective, the related exchange effect on the yen-denominated liabilities is reported in the unrealized foreign currency component of other comprehensive income. For derivatives designated as net investment hedges, Aflac follows the forward-rate method. According to that method, all changes in fair value, including changes related to the forward-rate component of foreign currency forward contracts and the time value of foreign currency options, are reported in the unrealized foreign currency component of other comprehensive income. Should these designated net investment hedge positions exceed our net investment in Aflac Japan, the foreign exchange effect on the portion that exceeds our investment in Aflac Japan would be recognized in current earnings within derivative and other gains (losses).

We discontinue hedge accounting prospectively when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated cash flows or fair value of a hedged item; (2) the derivative is de-designated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised.

When hedge accounting is discontinued on a cash flow hedge or fair value hedge, the derivative is carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized in current period earnings. For discontinued cash flow hedges, including those where the derivative is sold, terminated or exercised, amounts previously deferred in other comprehensive income (loss) are reclassified into earnings when earnings are impacted by the cash flow of the hedged item.

Deferred Policy Acquisition Costs: Certain direct and incremental costs of acquiring new business are deferred and amortized with interest over the premium payment periods in proportion to the ratio of annual premium income to total anticipated premium income. Anticipated premium income is estimated by using the same mortality, persistency and interest assumptions used in computing liabilities for future policy benefits. In this manner, the related acquisition expenses are matched with revenues. Deferred costs include the excess of current-year commissions over ultimate renewal-year commissions and certain incremental direct policy issue, underwriting and sales expenses. All of these incremental costs are directly related to successful policy acquisition.

For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. The Company performs a two-stage analysis of the internal replacements to determine if the modification is substantive to the base policy. The stages of evaluation are as follows: 1) determine if the modification is integrated with the base policy, and 2) if it is integrated, determine if the resulting contract is substantially changed.

For internal replacement transactions where the resulting contract is substantially unchanged, the policy is accounted for as a continuation of the replaced contract. Unamortized deferred acquisition costs from the original policy continue to be amortized over the expected life of the new policy, and the costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred. Examples include conversions of same age bands, certain family coverage changes, pricing era changes (decrease), and ordinary life becomes reduced paid-up and certain reinstatements.

An internal replacement transaction that results in a policy that is substantially changed is accounted for as an extinguishment of the original policy and the issuance of a new policy. Unamortized deferred acquisition costs on the original policy are immediately expensed, and the costs of acquiring the new policy are capitalized and amortized in accordance with our accounting policies for deferred acquisition costs. Further, the policy reserves are evaluated based on the new policy features, and any change (up or down) necessary is recognized at the date of contract change/modification. Examples include conversions-higher age bands, certain family coverage changes, pricing era changes (increase), lapse & re-issue, certain reinstatements and certain contract conversions.

Riders can be considered internal replacements that are either integrated or non-integrated resulting in either substantially changed or substantially unchanged treatment. Riders are evaluated based on the specific facts and circumstances of the rider and are considered expansion of the existing benefits with additional premium required. Non-integrated riders to existing contracts do not change the Company's profit expectations for the related products and are treated as a new policy establishment for incremental coverage.

We measure the recoverability of DAC and the adequacy of our policy reserves annually by performing gross premium valuations on our business. (See the following discussion for further information regarding policy reserves.)

Policy Liabilities: Future policy benefits represent claims that are expected to occur in the future and are computed by a net level premium method using estimated future investment yields, persistency and recognized morbidity and mortality tables modified to reflect our experience, including a provision for adverse deviation. These assumptions are generally established and considered locked at policy inception. These assumptions may only be unlocked in certain circumstances based on the results of periodic DAC recoverability and premium deficiency testing.

Unpaid policy claims are estimates computed on an undiscounted basis using statistical analyses of historical claims experience adjusted for current trends and changed conditions. The ultimate liability may vary significantly from such estimates. We regularly adjust these estimates as new claims experience emerges and reflect the changes in operating results in the year such adjustments are made.

Other policy liabilities consist primarily of discounted advance premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period.

For internal replacements that are determined to not be substantially unchanged, policy liabilities related to the original policy that was replaced are immediately released, and policy liabilities are established for the new insurance contract; however, for internal replacements that are considered substantially unchanged, no changes to the reserves are recognized.

Reinsurance: We enter into reinsurance agreements with other companies in the normal course of business. For each of our reinsurance agreements, we determine if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, benefits and DAC are reported net of insurance ceded. See Note 8 of the Notes to the Consolidated Financial Statements for additional 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. We record deferred tax assets for tax positions taken based on our assessment of whether the tax position is more likely than not to be sustained upon examination by taxing authorities. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized.

Policyholder Protection Corporation and State Guaranty Association Assessments: In Japan, the government has required the insurance industry to contribute to a policyholder protection corporation. We recognize a charge for our estimated share of the industry's obligation once it is determinable. We review the estimated liability for policyholder protection corporation contributions on an annual basis and report any adjustments in Aflac Japan's expenses.

In the United States, each state has a guaranty association that supports insolvent insurers operating in those states. To date, our state guaranty association assessments have not been material.

Treasury Stock: Treasury stock is reflected as a reduction of shareholders' equity at cost. We use the weighted-average purchase cost to determine the cost of treasury stock that is reissued. We include any gains and losses in additional paid-in capital when treasury stock is reissued.

Share-Based Compensation: We measure compensation cost related to our share-based payment transactions at fair value on the grant date, and we recognize those costs in the financial statements over the vesting period during which the employee provides service in exchange for the award.

Earnings Per Share: We compute basic earnings per share (EPS) by dividing net earnings by the weighted-average number of unrestricted shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the weighted-average number of shares outstanding for the period plus the shares representing the dilutive effect of share-based awards.

Reclassifications: Certain reclassifications have been made to prior-year amounts to conform to current-year reporting classifications. These reclassifications had no impact on net earnings or total shareholders' equity.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments: In September 2015, the FASB issued guidance requiring that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. In the same period’s financial statements, the acquirer is required to record income effects of the adjustments as if the accounting had been completed at the acquisition date. The acquirer is also required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. We adopted this guidance as of January 1, 2016. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Financial Services - Insurance - Disclosures about Short-Duration Contracts: In May 2015, the FASB issued updated guidance requiring enhanced disclosures by all insurance entities that issue short-duration contracts. The amendments require insurance entities to disclose for annual reporting periods information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses. In addition, the amendments require insurance entities to disclose for annual and interim reporting periods a roll-forward of the liability for unpaid claims and claim adjustment expenses. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities and expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. We adopted this guidance as of December 31, 2016, and have no insurance contracts classified as short-duration. The adoption of this guidance did not have a significant impact on our disclosures.

Fair Value Measurement - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent): In May 2015, the FASB issued updated guidance that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. We adopted this guidance as of January 1, 2016. The adoption of this guidance did not have a significant impact on our disclosures.

Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs: In April 2015, the FASB issued updated guidance to simplify presentation of debt issuance costs. The updated guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this amendment. In August 2015, the FASB issued updated Securities and Exchange Commission (SEC) Staff guidance pertaining to the presentation of debt issuance costs related to line-of-credit arrangements. The guidance states that an entity may defer and present debt issuance costs as an asset, subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We retrospectively adopted this guidance as of January 1, 2016. The retrospective adoption of this accounting standard resulted in a $40 million reduction to notes payable and other assets as of December 31, 2015, the earliest balance sheet date presented in the period of adoption, but did not have a significant impact on our financial position, results of operations, or disclosures.

Consolidation - Amendments to the Consolidation Analysis: In February 2015, the FASB issued updated guidance that affects evaluation of whether limited partnerships and similar legal entities (limited liability corporations and securitization structures, etc.) are VIEs, evaluation of whether fees paid to a decision maker or a service provider are a variable interest, and evaluation of the effect of fee arrangements and the effect of related parties on the determination of the primary beneficiary under the VIE model for consolidation. The updated guidance eliminates the presumption that a general partner should consolidate a limited partnership. Limited partnership and similar legal entities that provide partners with either substantive kick-out rights or substantive participating rights over the general partner will now be evaluated under the voting interest model rather than the VIE model for consolidation. In situations where no single party has a controlling financial interest in a VIE, the related party relationships under common control should be considered in

their entirety in determining whether that common control group has a controlling financial interest in the VIE. We adopted this guidance as of January 1, 2016. The adoption of this guidance impacted our footnote disclosures, but did not have a significant impact on our financial position or results of operations.

Derivatives and Hedging - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity: In November 2014, the FASB issued guidance to clarify how to evaluate the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The guidance also clarifies that an entity should assess the substance of the relevant terms and features when considering how to weight those terms and features. We adopted this guidance as of January 1, 2016. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Presentation of Financial Statements - Going Concern - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern: In August 2014, the FASB issued this amendment that provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The new guidance requires a formal assessment of going concern by management based on criteria prescribed in the new guidance. We adopted this guidance as of December 31, 2016. The adoption of this guidance did not have a significant impact our financial position, results of operations, or disclosures, and no substantial doubt currently exists about the Company’s ability to continue as a going concern.

Compensation - Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period: In June 2014, the FASB issued this amendment that provides guidance on certain share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance to awards with performance conditions that affect vesting to account for such awards. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. We adopted this guidance as of January 1, 2016. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Income Statement - Extraordinary and Unusual Items - Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items: In January 2015, the FASB issued updated guidance that eliminates from U.S. GAAP the concept of extraordinary items. Presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained. We adopted this guidance as of January 1, 2015. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Receivables - Troubled Debt Restructurings by Creditors - Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure: In August 2014, the FASB issued updated guidance for troubled debt restructurings affecting creditors that hold government guaranteed mortgage loans. The guidance requires that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if certain conditions are met. We adopted the guidance as of January 1, 2015. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Transfers and Servicing - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures: In June 2014, the FASB issued updated guidance for repurchase agreement and security lending transactions to change the accounting for repurchase-to-maturity transactions and linked repurchase financings to be accounted for as secured borrowings, consistent with the accounting for other repurchase agreements. The amendments also require new disclosures to increase transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. We adopted accounting changes for the new guidance as of January 1, 2015, and adopted the required disclosures as of April 1, 2015. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Receivables - Troubled Debt Restructurings by Creditors - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure: In January 2014, the FASB issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage

loan. We adopted the guidance as of January 1, 2015. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists: In July 2013, the FASB issued guidance to amend the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new guidance states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. We adopted this guidance as of January 1, 2014. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Other Expenses - Fees Paid to the Federal Government by Health Insurers: In July 2011, the FASB issued guidance on the accounting for fees owed by health insurers as mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, which imposes an annual fee on health insurers for each calendar year beginning on or after January 1, 2014. A health insurer's portion of the annual fee is payable by September 30 of the applicable calendar year once the entity provides health insurance for any U.S. health risk in that year. The accounting guidance specifies that the liability for the fee should be estimated and recorded in full in the applicable calendar year in which the fee is payable. We adopted this guidance as of January 1, 2014. The adoption of this guidance did not have a significant impact on our financial position, results of operations, or disclosures.

Accounting Pronouncements Pending Adoption

Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment: In January 2017, the FASB issued amendments simplifying the subsequent measurement of goodwill. An entity, under this update, is no longer required to perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, the entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments are effective for public business entities that are U.S. SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after Dec. 15, 2019. Early adoption is permitted for any goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or disclosures.

Business Combinations - Clarifying the Definition of a Business: In January 2017, the FASB issued amendments clarifying when a set of assets and activities is a business. The amendments provide a screen to determine when a set of assets and activities is not a business. The amendments are effective for public business entities beginning after December 15, 2017, including interim periods within those periods. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or disclosures.

Statement of Cash Flows - Restricted Cash: In November 2016, the FASB issued amendments requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or disclosures.

Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory: In October 2016, the FASB issued amendments that require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. We are evaluating the impact of adoption of this guidance on our financial position, results of operations, or disclosures.

Consolidation - Interests Held through Related Parties That Are under Common Control: In October 2016, the FASB issued amendments which clarify the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal

years. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance is not expected to have a significant impact on our financial position, results of operations, or disclosures.

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments: In August 2016, the FASB issued amendments that provide guidance on eight specific statement of cash flows classification issues. The amendments are effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for any interim or annual period. The adoption of this guidance is not expected to have a significant impact on our financial position, results of operations, disclosures, or statements of cash flows.

Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments: In June 2016, the FASB issued amendments that require a financial asset (or a group of financial assets) measured on an amortized cost basis to be presented net of an allowance for credit losses in order to reflect the amount expected to be collected on the financial asset(s). The measurement of expected credit losses is amended by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform about a credit loss. Credit losses on available-for-sale debt securities will continue to be measured in a manner similar to current GAAP. However, the amendments require that credit losses be presented as an allowance rather than as a writedown. Other amendments include changes to the balance sheet presentation and interest income recognition of purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. The amendments are effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Companies may early adopt this guidance as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have identified certain financial instruments in scope of this guidance to include certain fixed maturity securities, loans and loan receivables and reinsurance recoverables (See Notes 3 and 8 for current balances of instruments in scope). We are continuing to evaluate the impact of adoption of this guidance on our financial position, results of operations and disclosures.

Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting: In March 2016, the FASB issued amendments which simplify several aspects for share-based payment award transactions, including income tax consequences, classification of awards as either liability or equities, and classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period.

The amendment requires prospective recognition of excess tax benefits and deficiencies in the income statement, rather than in paid-in capital. As a result of applying this requirement, we estimate that recognition of excess tax benefits will increase volatility in our statement of operations but will not have a significant impact on our statement of financial position, operations, or disclosures. We continue to evaluate the impact of this guidance as estimates will vary from the actual expense based on changes in actual share price.

The amendment also requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income statement. The guidance requires modified retrospective transition for settlements on all outstanding awards (both historical and future) that did not give rise to an excess benefit to be recorded through retained earnings on a cumulative-effect basis. We estimate that the adoption of these amendments in the guidance will not have a significant impact on our financial position, results of operations, or disclosures.

Additionally, the amendment requires that the minimum statutory tax withholding for all outstanding liability awards be reclassified at the date of adoption to equity (assuming equity classification results from the guidance change), and record a cumulative-effect adjustment to equity on a modified retrospective basis. We estimate that the adoption of these amendments in the guidance will not have a significant impact on our financial position, results of operations, or disclosures.

The guidance requires certain reclassifications of balances on the statement of cash flows to or from operating and financing activities. The reclassification guidance will not have a significant impact on our statement of cash flows.

The amendment allows an entity to elect whether to use estimates of forfeitures, or to account for forfeitures as they occur, using modified retrospective application. We estimate that the election and adoption of this amendment in the guidance will not have a significant impact on our financial position, results of operations, or disclosures.

Investments - Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting: In March 2016, the FASB issued amendments which eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. Per the amendments, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. We have evaluated the adoption of this guidance and do not expect the guidance to have a significant impact on our financial position, results of operations, or disclosures.

Derivatives and Hedging - Contingent Put and Call Options in Debt Instruments: In March 2016, the FASB issued amendments which clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We have evaluated the adoption of this guidance and do not expect the guidance to have a significant impact on our financial position, results of operations, or disclosures.

Derivatives and Hedging - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships: In March 2016, the FASB issued amendments which clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria remain intact. The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We have evaluated the adoption of this guidance and do not expect the guidance to have a significant impact on our financial position, results of operations, or disclosures.

Leases: In February 2016, the FASB issued updated guidance for accounting for leases. Per the amendments, lessees will be required to recognize all leases on the balance sheet, with the exception of short-term leases. A lease liability will be recorded for the obligation of a lessee to make lease payments arising from a lease. A right-of-use asset, will be recorded which represents the lessee’s right to use, or to control the use of, a specified asset for a lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We have identified certain operating leases in scope of this guidance to include office space and equipment leases (See Note 15 for current balances of leases in scope). The leases within scope of this guidance will increase our right-of-use assets recorded on our financial position, however we estimate leases within scope of the guidance to represent less than 1% of our total assets as of December 31, 2016. We estimate that the adoption of this guidance will not have a significant impact on our financial position, results of operations and disclosures.

Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Financial Liabilities: In January 2016, the FASB issued guidance to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The main provisions require that equity investments be measured at fair value with changes recognized in net income; that changes in instrument-specific credit risk for financial liabilities that are measured under the fair value option be recognized in other comprehensive income; and that entities would make the assessment of the ability to realize a deferred tax asset (DTA) related to an available-for-sale (AFS) debt security in combination with the entity's other DTAs. The amendments are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted, with the exception of the own credit provision if an entity has elected to measure a liability at fair value. We have identified certain financial instruments in scope of this guidance to include certain fixed maturity securities, perpetual securities and equity securities (See Note 3 for current balances of instruments in scope). We estimate that the impact of this guidance will increase volatility in our statement of operations and we are continuing to evaluate the impact of this guidance on our statement of financial position, operations, or disclosures.

Revenue from Contracts with Customers: In May 2014, the FASB issued updated guidance that affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date for this standard to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Other updates related to the new guidance, which are effective as of the same reporting period, pertain to improvements in certain areas. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods. We have identified revenue in scope of this guidance to include certain revenues associated with affiliated entities in support of our operations. We estimate the revenue within scope of the guidance to represent less than 1% of our total revenues as of December 31, 2016. We estimate that the adoption of this guidance will not have a significant impact on our financial position, results of operations and disclosures.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to our business.

2.	BUSINESS SEGMENT AND FOREIGN INFORMATION

The Company consists of two reportable insurance business segments: Aflac Japan and Aflac U.S., both of which sell supplemental health and life insurance. Operating business segments that are not individually reportable and business activities, including reinsurance retrocession activities, not included in Aflac Japan or Aflac U.S. are included in the "Other business segments" category.

We do not allocate corporate overhead expenses to business segments. Consistent with U.S. GAAP accounting guidance for segment reporting, we evaluate and manage our business segments using a financial performance measure called pretax operating earnings. Our definition of operating earnings includes interest cash flows associated with notes payable and excludes the following items from net earnings on an after-tax basis: realized investment gains/losses (securities transactions, impairments, and the impact of derivative and hedging activities), nonrecurring items and other non-operating income (loss). We then exclude income taxes related to operations to arrive at pretax operating earnings. Information regarding operations by segment for the years ended December 31 follows:

(In millions)	2016						2015						2014
Revenues:
Aflac Japan:
Net earned premiums
Cancer		$	5,639					$	4,933					$	5,596
Medical and other health		3,429						3,092						3,770
Life insurance		4,469						4,021						4,495
Net investment income		2,554						2,436						2,662
Other income		40						31						32
Total Aflac Japan		16,131						14,513						16,555
Aflac U.S.:
Net earned premiums:
Accident/disability		2,469						2,391						2,303
Cancer		1,299						1,293						1,279
Other health		1,415						1,395						1,371
Life insurance		271						268						258
Net investment income		703						678						645
Other income		10						8						3
Total Aflac U.S.		6,167						6,033						5,859
Other business segments		275						225						43
Total business segment revenues		22,573						20,771						22,457
Realized investment gains (losses) (1)		(208		)				55						171
Corporate		284						282						281
Intercompany eliminations		(199		)				(201		)				(248		)
Other non-operating income (loss)		109						(35		)	(2)			67
Total revenues		$	22,559					$	20,872					$	22,728

(1) Excluding a gain of $85 in both 2016 and 2015 and $44 in 2014 related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is classified as an operating gain when analyzing segment operations

(2) Includes a loss of $20 related to the change in value of yen repatriation received in advance of settlement of certain foreign currency derivatives. The loss was offset by derivative gains included in realized investment gains (losses).

(In millions)	2016						2015						2014
Pretax earnings:
Aflac Japan		$	3,334					$	3,175					$	3,458
Aflac U.S.		1,208						1,101						1,073
Other business segments		18						14						(2		)
Total business segment pretax operating earnings		4,560						4,290						4,529
Interest expense, noninsurance operations		(128		)				(146		)				(198		)
Corporate and eliminations		(129		)				(71		)				(78		)
Pretax operating earnings		4,303						4,073						4,253
Realized investment gains (losses) (1)		(208		)				55						171
Other non-operating income (loss)		(28		)	(3)			(266		)	(2),(3)			67
Total earnings before income taxes		$	4,067					$	3,862					$	4,491
Income taxes applicable to pretax operating earnings		$	1,491					$	1,403					$	1,456
Effect of foreign currency translation on after-tax operating earnings		141						(198		)				(117		)

(1) Excluding a gain of $85 in both 2016 and 2015 and $44 in 2014 related to the interest rate component of the change in fair value of foreign currency swaps on notes payable which is classified as an operating gain when analyzing segment operations

(2) Includes a loss of $20 related to the change in value of yen repatriation received in advance of settlement of certain foreign currency derivatives. This loss was offset by derivative gains included in realized investment gains (losses).

(3) Includes expense of $137 in 2016 and $230 in 2015 for the payments associated with the early extinguishment of debt

Assets as of December 31 were as follows:

(In millions)	2016						2015						2014
Assets:
Aflac Japan		$	107,858					$	97,646					$	98,525
Aflac U.S.		19,453						18,537						18,383
Other business segments		270						188						128
Total business segment assets		127,581						116,371						117,036
Corporate		26,476						23,375						24,596
Intercompany eliminations		(24,238		)				(21,490		)				(21,905		)
Total assets		$	129,819					$	118,256					$	119,727

Prior year amounts have been adjusted for the adoption of the accounting guidance on January 1, 2016 related to debt issuance costs.

Yen-Translation Effects: The following table shows the yen/dollar exchange rates used for or during the periods ended December 31. Exchange effects were calculated using the same yen/dollar exchange rate for the current year as for each respective prior year.

	2016						2015						2014
Statements of Earnings:
Weighted-average yen/dollar exchange rate		108.70						120.99						105.46
Yen percent strengthening (weakening)		11.3		%				(12.8		)%				(7.5		)%
Exchange effect on pretax operating earnings (in millions)		$	218					$	(288	)				$	(180	)

	2016						2015
Balance Sheets:
Yen/dollar exchange rate at December 31		116.49						120.61
Yen percent strengthening (weakening)		3.54		%				(.05		)%
Exchange effect on total assets (in millions)		$	2,820					$	(36	)
Exchange effect on total liabilities (in millions)		3,109						(41		)

Transfers of funds from Aflac Japan: Aflac Japan makes payments to the Parent Company for management fees and to Aflac U.S. for allocated expenses and profit repatriations. Information on transfers for each of the years ended December 31 is shown below. See Note 13 for information concerning restrictions on transfers from Aflac Japan.

(In millions)	2016						2015						2014
Management fees		$	79					$	53					$	39
Allocated expenses		106						101						71
Profit repatriation		1,286						2,139						1,704
Total transfers from Aflac Japan		$	1,471					$	2,293					$	1,814

Property and Equipment: The costs of buildings, furniture and equipment are depreciated principally on a straight-line basis over their estimated useful lives (maximum of 50 years for buildings and 20 years for furniture and equipment). Expenditures for maintenance and repairs are expensed as incurred; expenditures for betterments are capitalized and depreciated. Classes of property and equipment as of December 31 were as follows:

(In millions)	2016						2015
Property and equipment:
Land		$	166					$	166
Buildings		421						400
Equipment and furniture		355						329
Total property and equipment		942						895
Less accumulated depreciation		509						468
Net property and equipment		$	433					$	427

Receivables: Receivables consist primarily of monthly insurance premiums due from individual policyholders or their employers for payroll deduction of premiums, net of an allowance for doubtful accounts. At December 31, 2016, $207 million, or 30.9% of total receivables, were related to Aflac Japan's operations, compared with $257 million, or 36.4%, at December 31, 2015.

3. INVESTMENTS

Net Investment Income

The components of net investment income for the years ended December 31 were as follows:

(In millions)	2016						2015						2014
Fixed-maturity securities		$	3,214					$	3,094					$	3,249
Perpetual securities		94						114						141
Equity securities		35						3						1
Other investments		31						15						6
Short-term investments and cash equivalents		11						4						2
Gross investment income		3,385						3,230						3,399
Less investment expenses		107						95						80
Net investment income		$	3,278					$	3,135					$	3,319

Investment Holdings

The amortized cost for our investments in debt and perpetual securities, the cost for equity securities and the fair values of these investments at December 31 are shown in the following tables.

	2016
(In millions)	Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Yen-denominated:
Japan government and agencies		$	22,857					$	3,359					$	160					$	26,056
Municipalities		246						29						8						267
Mortgage- and asset-backed securities		1,096						33						8						1,121
Public utilities		1,533						318						3						1,848
Sovereign and supranational		862						186						5						1,043
Banks/financial institutions		2,673						403						74						3,002
Other corporate		3,192						623						3						3,812
Total yen-denominated		32,459						4,951						261						37,149
Dollar-denominated:
U.S. government and agencies		148						10						0						158
Municipalities		894						142						8						1,028
Mortgage- and asset-backed securities		196						20						0						216
Public utilities		5,205						690						60						5,835
Sovereign and supranational		335						91						0						426
Banks/financial institutions		2,570						507						16						3,061
Other corporate		24,556						2,021						690						25,887
Total dollar-denominated		33,904						3,481						774						36,611
Total fixed maturities		66,363						8,432						1,035						73,760
Perpetual securities:
Yen-denominated:
Banks/financial institutions		1,266						128						49						1,345
Other corporate		189						24						0						213
Dollar-denominated:
Banks/financial institutions		51						24						0						75
Total perpetual securities		1,506						176						49						1,633
Equity securities:
Yen-denominated		624						83						2						705
Dollar-denominated		579						31						6						604
Total equity securities		1,203						114						8						1,309
Total securities available for sale		$	69,072					$	8,722					$	1,092					$	76,702

	2016
(In millions)	Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Yen-denominated:
Japan government and agencies		$	20,702					$	5,338					$	0					$	26,040
Municipalities		350						107						0						457
Mortgage- and asset-backed securities		30						2						0						32
Public utilities		3,201						358						23						3,536
Sovereign and supranational		2,602						283						8						2,877
Banks/financial institutions		3,731						195						26						3,900
Other corporate		2,734						452						7						3,179
Total yen-denominated		33,350						6,735						64						40,021
Total securities held to maturity		$	33,350					$	6,735					$	64					$	40,021

	2015
(In millions)	Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Yen-denominated:
Japan government and agencies		$	17,293					$	1,862					$	0					$	19,155
Municipalities		128						9						0						137
Mortgage- and asset-backed securities		322						33						0						355
Public utilities		1,400						210						10						1,600
Sovereign and supranational		791						180						0						971
Banks/financial institutions		2,321						325						105						2,541
Other corporate		3,337						448						33						3,752
Total yen-denominated		25,592						3,067						148						28,511
Dollar-denominated:
U.S. government and agencies		110						11						0						121
Municipalities		926						151						6						1,071
Mortgage- and asset-backed securities		200						27						0						227
Public utilities		5,464						636						221						5,879
Sovereign and supranational		331						105						0						436
Banks/financial institutions		2,865						634						21						3,478
Other corporate		25,154						1,774						1,302						25,626
Total dollar-denominated		35,050						3,338						1,550						36,838
Total fixed maturities		60,642						6,405						1,698						65,349
Perpetual securities:
Yen-denominated:
Banks/financial institutions		1,581						143						93						1,631
Other corporate		183						22						0						205
Dollar-denominated:
Banks/financial institutions		77						35						1						111
Total perpetual securities		1,841						200						94						1,947
Equity securities:
Yen-denominated		472						19						4						487
Dollar-denominated		8						3						0						11
Total equity securities		480						22						4						498
Total securities available for sale		$	62,963					$	6,627					$	1,796					$	67,794

	2015
(In millions)	Cost or Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Yen-denominated:
Japan government and agencies		$	20,004					$	3,387					$	0					$	23,391
Municipalities		341						74						0						415
Mortgage- and asset-backed securities		36						2						0						38
Public utilities		3,092						205						94						3,203
Sovereign and supranational		2,555						182						26						2,711
Banks/financial institutions		4,431						168						53						4,546
Other corporate		3,000						260						44						3,216
Total yen-denominated		33,459						4,278						217						37,520
Total securities held to maturity		$	33,459					$	4,278					$	217					$	37,520

The methods of determining the fair values of our investments in fixed-maturity securities, perpetual securities and equity securities are described in Note 5.

Beginning in 2015 and continuing into 2016, we increased our investment in yen-denominated publicly traded equity securities. In 2016, we also increased our investment in U.S. dollar-denominated publicly traded equity securities. These securities are classified as available for sale and carried on our balance sheet at fair value.

During 2016 and 2015, we did not reclassify any investments from the held-to-maturity category to the available-for-sale category. During 2014, we reclassified three investments from the held-to-maturity category to the available-for-sale category as a result of the issuers being downgraded to below investment grade. At the time of the transfer, the securities had an aggregate amortized cost of $424 million and an aggregate unrealized loss of $54 million.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at December 31, 2016, were as follows:

	Aflac Japan												Aflac U.S.
(In millions)	Amortized Cost						Fair Value						Amortized Cost						Fair Value
Available for sale:
Due in one year or less		$	180					$	204					$	103					$	105
Due after one year through five years		3,441						3,696						617						668
Due after five years through 10 years		9,374						9,694						2,860						3,018
Due after 10 years		39,461						45,125						8,545						9,411
Mortgage- and asset-backed securities		1,144						1,184						43						48
Total fixed maturities available for sale		$	53,600					$	59,903					$	12,168					$	13,250
Held to maturity:
Due after one year through five years		2,009						2,112						0						0
Due after five years through 10 years		1,584						1,737						0						0
Due after 10 years		29,727						36,140						0						0
Mortgage- and asset-backed securities		30						32						0						0
Total fixed maturities held to maturity		$	33,350					$	40,021					$	0					$	0

At December 31, 2016, the Parent Company and other business segments had portfolios of available-for-sale fixed-maturity securities totaling $595 million at amortized cost and $607 million at fair value, which are not included in the table above.

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

The majority of our perpetual securities are subordinated to other debt obligations of the issuer, but rank higher than the issuer's equity securities. Perpetual securities have characteristics of both debt and equity investments, along with unique features that create economic maturity dates for the securities. Although perpetual securities have no contractual maturity date, they have stated interest coupons that were fixed at their issuance and subsequently change to a floating short-term interest rate after some period of time. The instruments are generally callable by the issuer at the time of changing from a fixed coupon rate to a new variable rate of interest, which is determined by the combination of some market index plus a fixed amount of basis points. The net effect is to create an expected maturity date for the instrument. The economic maturities of our investments in perpetual securities, which were all reported as available for sale at December 31, 2016, were as follows:

	Aflac Japan												Aflac U.S.
(In millions)	Amortized Cost						Fair Value						Amortized Cost						Fair Value
Due in one year or less		$	87					$	82					$	0					$	0
Due after one year through five years		189						213						0						0
Due after 10 years		1,191						1,282						39						56
Total perpetual securities available for sale		$	1,467					$	1,577					$	39					$	56

Investment Concentrations

Our process for investing in credit-related investments begins with an independent approach to underwriting each issuer's fundamental credit quality. We evaluate independently those factors which we believe could influence an issuer's ability to make payments under the contractual terms of our instruments. This includes a thorough analysis of a variety of items including the issuer's country of domicile (including political, legal, and financial considerations); the industry in which the issuer competes (with an analysis of industry structure, end-market dynamics, and regulation); company specific issues (such as management, assets, earnings, cash generation, and capital needs); and contractual provisions of the instrument (such as financial covenants and position in the capital structure). We further evaluate the investment considering broad business and portfolio management objectives, including asset/liability needs, portfolio diversification, and expected income.

Investment exposures that individually exceeded 10% of shareholders' equity as of December 31 were as follows:

	2016						2015
(In millions)	Credit Rating		Amortized Cost		Fair Value		Credit Rating		Amortized Cost		Fair Value
Japan National Government(1)	A		$42,931		$51,345		A		$36,859		$42,025

(1)Japan Government Bonds (JGBs) or JGB-backed securities

Realized Investment Gains and Losses

Information regarding pretax realized gains and losses from investments for the years ended December 31 follows:

(In millions)	2016				2015				2014
Realized investment gains (losses):
Fixed maturities:
Available for sale:
Gross gains from sales	$	77			$	224			$	192
Gross losses from sales	(134		)	(1)	(8		)		(12		)
Net gains (losses) from redemptions (1)	186				52				34
Other-than-temporary impairment losses	(24		)	(1)	(152		)		(31		)
Held to maturity:
Net gains (losses) from redemptions	0				0				1
Total fixed maturities	105				116				184
Perpetual securities:
Available for sale:
Net gains (losses) from redemptions	64				35				0
Other-than-temporary impairment losses	(2		)		0				0
Total perpetual securities	62				35				0
Equity securities:
Net gains (losses) from redemptions	22				0				0
Other-than-temporary impairment losses	(57		)		(1		)		0
Total equity securities	(35		)		(1		)		0
Derivatives and other:
Derivative gains (losses)	(255		)		(10		)		31
Total derivatives and other	(255		)		(10		)		31
Total realized investment gains (losses)	$	(123	)		$	140			$	215

(1) Primarily driven by foreign exchange

In 2016, the impairments we recorded related to fixed maturity securities were due to a change in intent to sell securities. In 2016, the impairments we recorded related to equity securities were a result of significant and/or prolonged declines in fair value, as well as expected portfolio rebalancing where we were not able to assert our ability and intent to hold certain securities until recovery.

Unrealized Investment Gains and Losses

Information regarding changes in unrealized gains and losses from investments for the years ended December 31 follows:

(In millions)	2016						2015						2014
Changes in unrealized gains (losses):
Fixed maturities:
Available for sale		$	2,690					$	(2,481	)				$	5,629
Transferred to held to maturity		0						0						(10		)
Perpetual securities:
Available for sale		21						(123		)				269
Equity securities		88						9						5
Total change in unrealized gains (losses)		$	2,799					$	(2,595	)				$	5,893

Effect on Shareholders' Equity

The net effect on shareholders' equity of unrealized gains and losses from investment securities at December 31 was as follows:

(In millions)	2016						2015
Unrealized gains (losses) on securities available for sale		$	7,630					$	4,831
Deferred income taxes		(2,825		)				(1,845		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	4,805					$	2,986

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of our available-for-sale and held-to-maturity investments that were in an unrealized loss position, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31.

	2016
	Total												Less than 12 months												12 months or longer
(In millions)	Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Fixed Maturities:
Japan government and agencies:
Yen-denominated		$	3,958					$	160					$	3,958					$	160					$	0					$	0
Municipalities:
Dollar-denominated		44						8						0						0						44						8
Yen-denominated		105						8						105						8						0						0
Mortgage- and asset- backed securities:
Yen-denominated		713						8						713						8						0						0
Public utilities:
Dollar-denominated		1,265						60						790						32						475						28
Yen-denominated		635						26						347						14						288						12
Sovereign and supranational:
Yen-denominated		244						13						38						5						206						8
Banks/financial institutions:
Dollar-denominated		268						16						238						10						30						6
Yen-denominated		1,521						100						636						19						885						81
Other corporate:
Dollar-denominated		10,462						690						7,252						346						3,210						344
Yen-denominated		321						10						321						10						0						0
Total fixed maturities		19,536						1,099						14,398						612						5,138						487
Perpetual securities:
Yen-denominated		479						49						85						1						394						48
Total perpetual securities		479						49						85						1						394						48
Equity securities:
Dollar-denominated		211						6						211						6						0						0
Yen-denominated		49						2						49						2						0						0
Total equity securities		260						8						260						8						0						0
Total		$	20,275					$	1,156					$	14,743					$	621					$	5,532					$	535

	2015
	Total												Less than 12 months												12 months or longer
(In millions)	Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
Fixed Maturities:
Municipalities:
Dollar-denominated		$	80					$	6					$	80					$	6					$	0					$	0
Public utilities:
Dollar-denominated		2,127						221						1,689						132						438						89
Yen-denominated		1,487						104						1,062						73						425						31
Sovereign and supranational:
Yen-denominated		580						26						385						13						195						13
Banks/financial institutions:
Dollar-denominated		366						21						348						11						18						10
Yen-denominated		2,350						158						1,147						14						1,203						144
Other corporate:
Dollar-denominated		13,430						1,302						11,068						770						2,362						532
Yen-denominated		1,151						77						343						5						808						72
Total fixed maturities		21,571						1,915						16,122						1,024						5,449						891
Perpetual securities:
Dollar-denominated		6						1						0						0						6						1
Yen-denominated		645						93						216						12						429						81
Total perpetual securities		651						94						216						12						435						82
Equity securities:
Yen-denominated		191						4						191						4						0						0
Total equity securities		191						4						191						4						0						0
Total		$	22,413					$	2,013					$	16,529					$	1,040					$	5,884					$	973

Analysis of Securities in Unrealized Loss Positions

The unrealized losses on our fixed income or perpetual securities investments have been primarily related to general market changes in interest rates, foreign exchange rates, and/or the levels of credit spreads rather than specific concerns with the issuer's ability to pay interest and repay principal. The unrealized losses on our investments in equity securities are primarily related to foreign exchange rates, general market conditions which reflect prospects for the economy as a whole, or specific information pertaining to an industry or an individual company.

For any significant declines in fair value of our fixed income or perpetual securities, we perform a more focused review of the related issuers' credit profile. For corporate issuers, we evaluate their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, we analyze all sources of credit support, including issuer-specific factors. We utilize information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. We also consider ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security we own including seniority in the issuer's capital structure, covenant predictions, or other relevant features. From these reviews, we evaluate the issuers' continued ability to service our investment through payment of interest and principal.

For any significant declines in fair value of our equity securities, we review the severity of the security’s decline in fair value coupled with the length of time the fair value of the security has been below cost. We also perform a more focused review of the financial condition and near-term prospects of the issuer as well as general market conditions reflecting the prospects for the economy as a whole, and determine whether we have the intent to hold the securities until they recover in value.

Assuming no credit-related factors develop, unrealized gains and losses on fixed maturities and perpetual securities are expected to diminish as investments near maturity. Based on our credit analysis, we believe that the issuers of our fixed maturity and perpetual security investments in the sectors shown in the table above have the ability to service their obligations to us.

Variable Interest Entities (VIEs)

As a condition to our involvement or investment in a VIE, we enter into certain protective rights and covenants that preclude changes in the structure of the VIE that would alter the creditworthiness of our investment or our beneficial interest in the VIE.

For those VIEs other than certain unit trust structures, our involvement is passive in nature. We are not, nor have we been, required to purchase any securities issued in the future by these VIEs.

Our ownership interest in VIEs is limited to holding the obligations issued by them. We have no direct or contingent obligations to fund the limited activities of these VIEs, nor do we have any direct or indirect financial guarantees related to the limited activities of these VIEs. We have not provided any assistance or any other type of financing support to any of the VIEs we invest in, nor do we have any intention to do so in the future. For those VIEs in which we hold debt obligations, the weighted-average lives of our notes are very similar to the underlying collateral held by these VIEs where applicable.

We also utilize unit trust structures in our Aflac Japan segment to invest in various asset classes. As the sole investor of these VIEs, we are required to consolidate these entities under U.S. GAAP.

Our risk of loss related to our interests in any of our VIEs is limited to the carrying value of the related investments held in the VIE.

VIEs - Consolidated

The following table presents the cost or amortized cost, fair value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported as of December 31.

Investments in Consolidated Variable Interest Entities

	2016												2015
(In millions)	Cost or Amortized Cost						Fair Value						Cost or Amortized Cost						Fair Value
Assets:
Fixed maturities, available for sale		$	4,168					$	4,982					$	3,739					$	4,554
Perpetual securities, available for sale		237						208						255						228
Equity securities		972						1,044						363						363
Other investments		819						789						0						0
Other assets		127						127						102						102
Total assets of consolidated VIEs		$	6,323					$	7,150					$	4,459					$	5,247
Liabilities:
Other liabilities		$	146					$	146					$	293					$	293
Total liabilities of consolidated VIEs		$	146					$	146					$	293					$	293

We are substantively the only investor in the consolidated VIEs listed in the table above. As the sole investor in these VIEs, we have the power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance and are therefore considered to be the primary beneficiary of the VIEs that we consolidate. We also participate in substantially all of the variability created by these VIEs. The activities of these VIEs are limited to holding invested assets and foreign currency, and/or CDS, as appropriate, and utilizing the cash flows from these securities to service our investment. Neither we nor any of our creditors are able to obtain the underlying collateral of the VIEs unless there is an event of default or other specified event. For those VIEs that contain a swap, we are not a direct counterparty to the swap contracts and have no control over them. Our loss exposure to these VIEs is limited to our

original investment. Our consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and swap contracts, if applicable. With the exception of our investments in unit trust structures, the underlying collateral assets and funding of our consolidated VIEs are generally static in nature and the underlying collateral and the reference corporate entities covered by any CDS contracts were all investment grade at the time of issuance.

Investments in Unit Trust Structures

We invest through unit trust structures in yen-denominated public equity securities, U.S. dollar-denominated public equity securities, bank loans, commercial mortgage loans, and middle market loans in which we are the only investor, requiring us to consolidate these trusts under U.S. GAAP. The yen-denominated and U.S. dollar-denominated equity securities are classified as available-for-sale in the financial statements. As of December 31, 2016, the amortized cost and fair value of these equity securities was $972 million and $1.0 billion, compared with amortized cost and fair value of $363 million as of December 31, 2015. The bank loans are classified as available-for-sale fixed-maturity securities in the financial statements. As of December 31, 2016, the amortized cost and fair value of our bank loan investments was $2.0 billion and $1.9 billion, respectively, compared with an amortized cost and fair value of $1.4 billion as of December 31, 2015. The commercial mortgage loans, all of which were purchased in 2016, are classified as held for investment and reflected in other investments on the consolidated balance sheets. As of December 31, 2016, the amortized cost of these loans, net of loan loss reserves, was $745 million. The middle market loans, which were purchased in 2016, are classified as held for investment and reflected in other investments on the consolidated balance sheets. As of December 31, 2016, the amortized cost of these loans, net of loan loss reserves, was $74 million.

VIEs - Not Consolidated

The table below reflects the amortized cost, fair value and balance sheet caption in which our investment in VIEs not consolidated are reported as of December 31.

Investments in Variable Interest Entities Not Consolidated

	2016												2015
(In millions)	Amortized Cost						Fair Value						Amortized Cost						Fair Value
Assets:
Fixed maturities, available for sale		$	4,729					$	5,261					$	4,731					$	5,093
Perpetual securities, available for sale		172						200						249						253
Fixed maturities, held to maturity		2,563						2,948						2,477						2,636
Other investments		1						1						0						0
Total investments in VIEs not consolidated		$	7,465					$	8,410					$	7,457					$	7,982

Prior year amounts have been adjusted for the adoption of accounting guidance on January 1, 2016 related to consolidations.

The VIEs that we are not required to consolidate are investments that are in the form of debt obligations from the VIEs that are irrevocably and unconditionally guaranteed by their corporate parents or sponsors. These VIEs are the primary financing vehicles used by their corporate sponsors to raise financing in the capital markets. The variable interests created by these VIEs are principally or solely a result of the debt instruments issued by them. We do not have the power to direct the activities that most significantly impact the entity's economic performance, nor do we have the obligation to absorb losses of the entity or the right to receive benefits from the entity. As such, we are not the primary beneficiary of these VIEs and are therefore not required to consolidate them. These VIE investments comprise securities from 145 separate issuers with an average credit rating of BBB as of December 31, 2016, compared with 169 separate issuers with an average credit rating of BBB as of December 31, 2015.

Loans and Loan Receivables

We classify our loans and loan receivables as held-for-investment and include them in the other investments line on the consolidated balance sheets. We carry them on the balance sheet at amortized cost less an estimated allowance for loan losses. Our loan allowance for losses is established using both specific and general allowances. The specific allowance is used on an individual loan basis for those impaired loans where we expect to incur a loss. The general allowance is used for loans grouped by similar risk characteristics where a loan-specific or market-specific risk has not been identified, but for which we anticipate to incur a loss.

Middle Market Loans

As of December 31, 2016 and 2015, our investment in middle market loan receivables, net of loan loss reserves and inclusive of those loans held in unit trust structures as discussed above, was $319 million and $118 million, respectively. These balances include an unfunded amount of $91 million and $53 million as of December 31, 2016 and 2015, respectively, that was reflected in other liabilities on the consolidated balance sheets. As of December 31, 2016 and 2015, we had no loans that were past due in regards to principal and/or interest payments. Additionally, we held no loans that were on nonaccrual status or considered impaired as of December 31, 2016 and 2015. Our middle market loan allowance for losses was immaterial as of December 31, 2016 and 2015. Our middle market loan allowance for losses is established using a general allowance methodology by applying industry average long term historical loss rates to our outstanding middle market loan balances. We had no troubled debt restructurings during December 31, 2016 and 2015.

As of December 31, 2016, we had commitments of $779 million to fund potential future loan originations related to this investment program, inclusive of loans held in unit trust structures. These commitments are contingent upon the availability of middle market loans that meet our underwriting criteria.

Commercial Mortgage Loans

In 2016, we began funding investments in commercial mortgage loans. As of December 31, 2016, the amortized cost of these investments, net of loan loss reserves and inclusive of those loans held in unit trust structures as discussed above, was $855 million. We had no loans that were past due in regards to principal and/or interest payments, and we held no loans that were on nonaccrual status or considered impaired as of December 31, 2016. Our commercial mortgage loan allowance for losses was immaterial as of December 31, 2016. We had no troubled debt restructurings during the year ended December 31, 2016.

As of December 31, 2016, we had $19 million in outstanding commitments to fund commercial mortgage loans, inclusive of loans held in unit trust structures. These commitments are contingent on the final underwriting and due diligence to be performed.

Securities Lending and Pledged Securities

We lend fixed-maturity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. Our security lending policy requires that the fair value of the securities and/or unrestricted cash received as collateral be 102% or more of the fair value of the loaned securities. These securities continue to be carried as investment assets on our balance sheet during the terms of the loans and are not reported as sales. We receive cash or other securities as collateral for such loans. For loans involving unrestricted cash or securities as collateral, the collateral is reported as an asset with a corresponding liability for the return of the collateral.

Details of our securities lending activities as of December 31 were as follows:

Securities Lending Transactions Accounted for as Secured Borrowings
2016
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous(1)				Up to 30 days					Total
Securities lending transactions:
Public utilities	$	62			$	0				$	62
Banks/financial institutions	34				0					34
Other corporate	430				0					430
Total borrowings	$	526			$	0				$	526
Gross amount of recognized liabilities for securities lending transactions										$	526
Amounts related to agreements not included in offsetting disclosure in Note 4										$	0

(1) These securities are pledged as collateral under our U.S. securities lending program and can be called at our discretion; therefore, they are classified as Overnight and Continuous.

Securities Lending Transactions Accounted for as Secured Borrowings
2015
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous(1)				Up to 30 days					Total
Securities lending transactions:
Japan government and agencies	$	0			$	499				$	499
Public utilities	108				0					108
Banks/financial institutions	13				0					13
Other corporate	321				0					321
Total borrowings	$	442			$	499				$	941
Gross amount of recognized liabilities for securities lending transactions										$	941
Amounts related to agreements not included in offsetting disclosure in Note 4										$	0

(1) These securities are pledged as collateral under our U.S. securities lending program and can be called at our discretion; therefore, they are classified as Overnight and Continuous.

We did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of December 31, 2016 and 2015, respectively.

Certain fixed-maturity securities can be pledged as collateral as part of derivative transactions, or pledged to support state deposit requirements on certain investment programs. For additional information regarding pledged securities related to derivative transactions, see Note 4.

At December 31, 2016, debt securities with a fair value of $17 million were on deposit with regulatory authorities in the United States (including U.S. territories) and Japan. We retain ownership of all securities on deposit and receive the related investment income.

For general information regarding our investment accounting policies, see Note 1.

4. DERIVATIVE INSTRUMENTS

Our freestanding derivative financial instruments have historically consisted of: (1) foreign currency swaps and credit default swaps that are associated with investments in special-purpose entities, including VIEs where we are the primary beneficiary; (2) foreign currency forwards and options used in hedging foreign exchange risk on U.S. dollar-denominated investments in Aflac Japan's portfolio; (3) foreign currency forwards and options used to hedge foreign exchange risk from our net investment in Aflac Japan and economically hedge certain portions of forecasted cash flows denominated in yen; (4) swaps associated with our notes payable, consisting of cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and our subordinated debentures; and (5) options on interest rate swaps (or interest rate swaptions) and futures used to hedge interest rate risk for certain available-for-sale securities. We do not use derivative financial instruments for trading purposes, nor do we engage in leveraged derivative transactions. Some of our derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting or we elect not to designate them as an accounting hedge. We utilize a net investment hedge to mitigate foreign exchange exposure resulting from our net investment in Aflac Japan. In addition to designating derivatives as hedging instruments, we have designated the majority of the Parent Company's yen-denominated liabilities (notes payable and loans) as non-derivative hedging instruments for this net investment hedge.

Derivative Types

We enter into foreign currency swaps pursuant to which we exchange an initial principal amount in one currency for an initial principal amount of another currency, with an agreement to re-exchange the currencies at a future date at an agreed upon exchange rate. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in our Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to

minimize cash flow fluctuations. We also use foreign currency swaps to economically convert certain of our dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations.

Foreign currency forwards and options are executed for the Aflac Japan segment in order to hedge the currency risk on the carrying value of certain U.S. dollar-denominated investments. The maturities of these forwards and options are typically two years or less. In forward transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. Aflac Japan also executes foreign currency option transactions in a collar strategy, where Aflac Japan agrees with another party to simultaneously purchase a fixed amount of U.S. dollar put options and sell U.S. dollar call options. The combination of these two actions results in no net premium being paid (i.e. a costless or zero-cost collar). The foreign currency forwards and options are used in fair value hedging relationships to mitigate the foreign exchange risk associated with U.S. dollar-denominated investments supporting yen-denominated liabilities.

Foreign currency forwards and options are also used to hedge the currency risk associated with the net investment in Aflac Japan. In these forward transactions, Aflac agrees with another party to buy a fixed amount of U.S. dollars and sell a corresponding amount of yen at a specified future date. In the option transactions, we use a combination of foreign currency options to protect expected future cash flows by simultaneously purchasing yen put options (options that protect against a weakening yen) and selling yen call options (options that limit participation in a strengthening yen). The combination of these two actions results in no net premium being paid (i.e. a costless or zero-cost collar).

The only CDS that we currently hold relates to components of an investment in a VIE and is used to assume credit risk related to an individual security. This CDS contract entitles the consolidated VIE to receive periodic fees in exchange for an obligation to compensate the derivative counterparties should the referenced security issuer experience a credit event, as defined in the contract.

Interest rate swaps involve the periodic exchange of cash flows with other parties, at specified intervals, calculated using agreed upon rates or other financial variables and notional principal amounts. Typically, at the time a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value. No cash or principal payments are exchanged at the inception of the contract. Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed-maturity securities contracts to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities.

Interest rate swaptions are options on interest rate swaps. Interest rate collars are combinations of two swaption positions and are executed in order to hedge certain U.S. dollar-denominated available-for-sale securities that are held in the Aflac Japan segment. We use collars to protect against significant changes in the fair value associated with our U.S. dollar-denominated available-for-sale securities due to interest rates. In order to maximize the efficiency of the collars while minimizing cost, we set the strike price on each collar so that the premium paid for the ‘payer leg’ is offset by the premium received for having sold the ‘receiver leg’.

Periodically, we may enter into other derivative transactions depending on general economic conditions.

Derivative Balance Sheet Classification

The tables below summarize the balance sheet classification of our derivative fair value amounts, as well as the gross asset and liability fair value amounts, at December 31. The fair value amounts presented do not include income accruals. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and are not reflective of exposure or credit risk.

	2016
(In millions)	Net Derivatives												Asset Derivatives						Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount						Fair Value						Fair Value						Fair Value
Cash flow hedges:
Foreign currency swaps		$	75					$	(10	)				$	0					$	(10	)
Total cash flow hedges		75						(10		)				0						(10		)
Fair value hedges:
Foreign currency forwards		10,965						(759		)				0						(759		)
Foreign currency options		4,224						(30		)				2						(32		)
Total fair value hedges		15,189						(789		)				2						(791		)
Net investment hedge:
Foreign currency forwards		209						3						5						(2		)
Foreign currency options		843						24						41						(17		)
Total net investment hedge		1,052						27						46						(19		)
Non-qualifying strategies:
Foreign currency swaps		6,266						270						490						(220		)
Foreign currency forwards		21,218						(289		)				667						(956		)
Foreign currency options		41						(2		)				0						(2		)
Credit default swaps		86						2						2						0
Total non-qualifying strategies		27,611						(19		)				1,159						(1,178		)
Total derivatives		$	43,927					$	(791	)				$	1,207					$	(1,998	)
Balance Sheet Location
Other assets		$	18,329					$	1,207					$	1,207					$	0
Other liabilities		25,598						(1,998		)				0						(1,998		)
Total derivatives		$	43,927					$	(791	)				$	1,207					$	(1,998	)

	2015
(In millions)	Net Derivatives												Asset Derivatives						Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount						Fair Value						Fair Value						Fair Value
Cash flow hedges:
Foreign currency swaps		$	75					$	(15	)				$	0					$	(15	)
Total cash flow hedges		75						(15		)				0						(15		)
Fair value hedges:
Foreign currency forwards		13,080						45						88						(43		)
Foreign currency options		1,250						0						0						0
Total fair value hedges		14,330						45						88						(43		)
Net investment hedge:
Foreign currency forwards		763						13						19						(6		)
Foreign currency options		266						(3		)				5						(8		)
Total net investment hedge		1,029						10						24						(14		)
Non-qualifying strategies:
Foreign currency swaps		6,599						264						563						(299		)
Foreign currency forwards		11						0						0						0
Credit default swaps		83						1						1						0
Total non-qualifying strategies		6,693						265						564						(299		)
Total derivatives		$	22,127					$	305					$	676					$	(371	)
Balance Sheet Location
Other assets		$	11,413					$	676					$	676					$	0
Other liabilities		10,714						(371		)				0						(371		)
Total derivatives		$	22,127					$	305					$	676					$	(371	)

The derivative notional amount increased from 2015 to 2016 primarily due to an increase in non-qualifying strategies. The increase in non-qualifying strategies related to entering into longer duration foreign currency forwards designated as fair value hedges that resulted in the dedesignation of existing foreign currency forwards. We also entered into offsetting foreign currency forwards for the remaining term of the foreign currency forwards that were dedesignated, both of which are included in the notional amounts presented for non-qualifying strategies.

Cash Flow Hedges

Certain of our consolidated VIEs have foreign currency swaps that qualify for hedge accounting treatment. For those that have qualified, we have designated the derivative as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). We expect to continue this hedging activity for a weighted-average period of approximately nine years. The remaining derivatives in our consolidated VIEs that have not qualified for hedge accounting are included in "non-qualifying strategies."

Fair Value Hedges

We designate and account for certain foreign currency forwards and options as fair value hedges when they meet the requirements for hedge accounting. These foreign currency forwards and options hedge the foreign currency exposure of certain U.S. dollar-denominated investments. We recognize gains and losses on these derivatives and the related hedged items in current earnings within derivative and other gains (losses). The change in the fair value of the foreign currency forwards related to the changes in the difference between the spot rate and the forward price is excluded from the assessment of hedge effectiveness. The change in fair value of the foreign currency option related to the time value of the option is excluded from the assessment of hedge effectiveness.

We designate and account for interest rate swaptions as fair value hedges when they meet the requirements for hedge accounting. These interest rate swaptions hedge the interest rate exposure of certain U.S. dollar-denominated fixed maturity securities within the investment portfolio of our Aflac Japan segment. We recognize gains and losses on

these derivatives and the related hedged items in current earnings within derivative and other gains (losses). The change in the fair value of the interest rate swaptions related to the time value of the option is excluded from the assessment of hedge effectiveness.

The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges for the years ended December 31.

Fair Value Hedging Relationships

(In millions)			Hedging Derivatives												Hedged Items
Hedging Derivatives	Hedged Items		Total Gains (Losses)				Gains (Losses) Excluded from Effectiveness Testing				Gains (Losses) Included in Effectiveness Testing				Gains (Losses)				Ineffectiveness Recognized for Fair Value Hedge
2016:
Foreign currency forwards	Fixed-maturity securities and equity securities		$	207			$	(338	)		$	545			$	(566	)		$	(21	)
Foreign currency options	Fixed-maturity securities		(95		)		(18		)		(77		)		70				(7		)
2015:
Foreign currency forwards	Fixed-maturity securities		$	(133	)		$	(136	)		$	3			$	(5	)		$	(2	)
Foreign currency options	Fixed-maturity securities		(4		)		3				(7		)		7				0
Interest rate swaptions	Fixed-maturity securities		(95		)		19				(114		)		99				(15		)
2014:
Foreign currency forwards	Fixed-maturity securities		$	(1,835	)		$	(38	)		$	(1,797	)		$	1,819			$	22
Foreign currency options	Fixed-maturity securities		(41		)		(4		)		(37		)		38				1
Interest rate swaptions	Fixed-maturity securities		(318		)		(36		)		(282		)		316				34

Net Investment Hedge

Our primary exposure to be hedged is our net investment in Aflac Japan, which is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, we have designated the Parent Company's yen-denominated liabilities (see Note 9) as non-derivative hedges and designated foreign currency forwards and options as derivative hedges of the foreign currency exposure of our net investment in Aflac Japan.

We used foreign exchange forwards and options to hedge foreign exchange risk on 114.0 billion yen of profit repatriation received from Aflac Japan in 2016. As of December 31, 2016, we had entered into foreign exchange forwards and options as part of a hedge on 122.6 billion yen of future profit repatriation.

Our net investment hedge was effective for the years ended December 31, 2016, 2015 and 2014.

Non-qualifying Strategies

For our derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within derivative and other gains (losses). The amount of gain or loss recognized in earnings for our VIEs is attributable to the derivatives in those investment structures. While the change in value of the swaps is recorded through current period earnings, the change in value of the available-for-sale fixed-maturity or perpetual securities associated with these swaps is recorded through other comprehensive income.

We have cross-currency interest rate swap agreements related to our $400 million senior notes due February 2017, $550 million senior notes due March 2020, $350 million senior notes due February 2022, $700 million senior notes due June 2023, $750 million senior notes due November 2024, $450 million senior notes due March 2025, and $500 million subordinated debentures due September 2052. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 9.

In the fourth quarter of 2016, we began using foreign exchange forwards to mitigate the currency risk of our U.S. dollar-denominated middle market loan portfolio held within the Aflac Japan segment. As of December 31, 2016, the outstanding derivative notional amounts associated with these U.S. dollar-denominated middle market loans was approximately $109 million. In the third quarter of 2016, we began using foreign exchange forwards to mitigate the currency risk of our U.S. dollar-denominated commercial loan portfolio held within the Aflac Japan segment. As of December 31, 2016, the outstanding derivative notional amounts associated with these U.S. dollar-denominated commercial mortgage loans was approximately $710 million. We have not elected to apply hedge accounting for these middle market loans and commercial mortgage loans. The change in fair value of the foreign exchange forwards and the foreign currency remeasurement of the middle market loans and commercial mortgage loans are each recorded through current period earnings, and generally offset each other.

Impact of Derivatives and Hedging Instruments

The following table summarizes the impact to realized investment gains (losses) and other comprehensive income (loss) from all derivatives and hedging instruments for the years ended December 31.

	2016										2015										2014
(In millions)	Realized Investment Gains (Losses)					Other Comprehensive Income (Loss)(1)					Realized Investment Gains (Losses)					Other Comprehensive Income (Loss)(1)					Realized Investment Gains (Losses)					Other Comprehensive Income (Loss)(1)
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps		$	1				$	3				$	0				$	0				$	(2	)			$	(17	)
Total cash flow hedges		1					3					0					0					(2		)			(17		)
Fair value hedges:
Foreign currency forwards (2)		(359		)			0					(138		)			0					(16		)			0
Foreign currency options (2)		(25		)			0					3					0					(3		)			0
Interest rate swaptions (2)		0					0					4					0					(2		)			0
Total fair value hedges		(384		)			0					(131		)			0					(21		)			0
Net investment hedge:
Non-derivative hedging instruments		0					0					0					3					0					39
Foreign currency forwards		0					(118		)			0					4					0					89
Foreign currency options		0					73					0					0					0					(3		)
Total net investment hedge		0					(45		)			0					7					0					125
Non-qualifying strategies:
Foreign currency swaps		117					0					16					0					151					0
Foreign currency forwards		9					0					100					0					(11		)			0
Credit default swaps		2					0					1					0					3					0
Interest rate swaps		0					0					5					0					(1		)			0
Interest rate swaptions		0					0					0					0					1					0
Futures		0					0					(1		)			0					(89		)			0
Total non- qualifying strategies		128					0					121					0					54					0
Total		$	(255	)			$	(42	)			$	(10	)			$	7				$	31				$	108

(1) Cash flow hedge items are recorded as unrealized gains (losses) on derivatives and net investment hedge items are recorded in the unrealized foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

(2) Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)

We reclassified a de minimus amount from accumulated other comprehensive income (loss) into earnings related to our designated cash flow hedges for the years ended December 31, 2016, 2015 and 2014, respectively. There was no gain or loss reclassified from accumulated other comprehensive income (loss) into earnings related to the net investment hedge for the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, deferred gains and losses on

derivative instruments recorded in accumulated other comprehensive income that are expected to be reclassified to earnings during the next twelve months were immaterial.

Credit Risk Assumed through Derivatives

For the foreign currency and credit default swaps associated with our VIE investments for which we are the primary beneficiary, we bear the risk of foreign exchange loss due to counterparty default even though we are not a direct counterparty to those contracts. We are a direct counterparty to the foreign currency swaps that we have entered into in connection with certain of our senior notes, subordinated debentures, and Samurai notes; foreign currency forwards; foreign currency options; and interest rate swaptions, and therefore we are exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for our VIE swaps, foreign currency swaps, certain foreign currency forwards, foreign currency options and interest rate swaptions is mitigated by collateral posting requirements that counterparties to those transactions must meet. As of December 31, 2016, there were 16 counterparties to our derivative agreements, with five comprising 63% of the aggregate notional amount. The counterparties to these derivatives are financial institutions with the following credit ratings as of December 31:

	2016															2015
(In millions)	Notional Amount of Derivatives					Asset Derivatives Fair Value					Liability Derivatives Fair Value					Notional Amount of Derivatives					Asset Derivatives Fair Value					Liability Derivatives Fair Value
Counterparties' credit rating:
AA		$	6,844				$	247				$	(308	)			$	2,187				$	166				$	(35	)
A		36,019					900					(1,621		)			19,940					510					(336		)
BBB		1,064					60					(69		)			0					0					0
Total		$	43,927				$	1,207				$	(1,998	)			$	22,127				$	676				$	(371	)

We engage in derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annexes (CSAs) provisions, which generally provide for two-way collateral postings at the first dollar of exposure. We mitigate the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction. In addition, a significant portion of the derivative transactions have provisions that give the counterparty the right to terminate the transaction upon a downgrade of Aflac’s financial strength rating. The actual amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade.

Collateral posted by us to third parties for derivative transactions can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was approximately $1.2 billion and $26 million as of December 31, 2016 and 2015, respectively. We are generally allowed to sell or repledge collateral obtained from our derivative counterparties, although we do not typically exercise such rights. (See the Offsetting tables below for collateral posted or received as of the reported balance sheet dates.)

Offsetting of Financial Instruments and Derivatives

Some of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Parent Company or Aflac and its respective counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements with the master netting arrangements generally provide that the Company will receive or pledge financial collateral at the first dollar of exposure.

We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities (see Note 3). When we have entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off allows us to keep and apply collateral received if the counterparty failed to return the securities borrowed from us as contractually agreed. For additional information on the Company's accounting policy for securities lending, see

Note 1.

The tables below summarize our derivatives and securities lending transactions as of December 31, and as reflected in the tables, in accordance with U.S. GAAP, our policy is to not offset these financial instruments in the Consolidated Balance Sheets.

Offsetting of Financial Assets and Derivative Assets

2016
																			Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets						Gross Amount Offset in Balance Sheet						Net Amount of Assets Presented in Balance Sheet						Financial Instruments						Securities Collateral				Cash Collateral Received						Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement		$	1,080					$	0					$	1,080					$	(698	)			$	0				$	(382	)				$	0
Derivative assets not subject to a master netting agreement or offsetting arrangement		127												127																						127
Total derivative assets		1,207						0						1,207						(698		)			0					(382		)				127
Securities lending and similar arrangements		513						0						513						0					0					(513		)				0
Total		$	1,720					$	0					$	1,720					$	(698	)			$	0				$	(895	)				$	127

2015
																			Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets						Gross Amount Offset in Balance Sheet						Net Amount of Assets Presented in Balance Sheet						Financial Instruments					Securities Collateral					Cash Collateral Received						Net Amount
Derivative assets:
Derivative assets subject to a master netting agreement or offsetting arrangement		$	574					$	0					$	574					$	(51	)			$	(190	)			$	(326	)				$	7
Derivative assets not subject to a master netting agreement or offsetting arrangement		102												102																						102
Total derivative assets		676						0						676						(51		)			(190		)			(326		)				109
Securities lending and similar arrangements		921						0						921						0					0					(921		)				0
Total		$	1,597					$	0					$	1,597					$	(51	)			$	(190	)			$	(1,247	)				$	109

Offsetting of Financial Liabilities and Derivative Liabilities

2016
																			Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities						Gross Amount Offset in Balance Sheet						Net Amount of Liabilities Presented in Balance Sheet						Financial Instruments						Securities Collateral				Cash Collateral Pledged						Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement		$	(1,852	)				$	0					$	(1,852	)				$	698				$	1,130				$	21					$	(3	)
Derivative liabilities not subject to a master netting agreement or offsetting arrangement		(146		)										(146		)																				(146		)
Total derivative liabilities		(1,998		)				0						(1,998		)				698					1,130					21						(149		)
Securities lending and similar arrangements		(526		)				0						(526		)				513					0					0						(13		)
Total		$	(2,524	)				$	0					$	(2,524	)				$	1,211				$	1,130				$	21					$	(162	)

2015
																			Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities						Gross Amount Offset in Balance Sheet						Net Amount of Liabilities Presented in Balance Sheet						Financial Instruments						Securities Collateral				Cash Collateral Pledged						Net Amount
Derivative liabilities:
Derivative liabilities subject to a master netting agreement or offsetting arrangement		$	(78	)				$	0					$	(78	)				$	51				$	18				$	3					$	(6	)
Derivative liabilities not subject to a master netting agreement or offsetting arrangement		(293		)										(293		)																				$	(293	)
Total derivative liabilities		(371		)				0						(371		)				51					18					3						(299		)
Securities lending and similar arrangements		(941		)				0						(941		)				921					0					0						(20		)
Total		$	(1,312	)				$	0					$	(1,312	)				$	972				$	18				$	3					$	(319	)

For additional information on our financial instruments, see the accompanying Notes 1, 3 and 5.

5.	FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

U.S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. These two types of inputs create three valuation hierarchy levels. Level 1 valuations reflect quoted market prices for identical assets or liabilities in active markets. Level 2 valuations reflect quoted market prices for similar assets or liabilities in an active market, quoted market prices for identical or similar assets or liabilities in non-active markets or model-derived valuations in which all significant valuation inputs are observable in active markets. Level 3 valuations reflect valuations in which one or more of the significant inputs are not observable in an active market.

The following tables present the fair value hierarchy levels of the Company's assets and liabilities that are measured and carried at fair value on a recurring basis as of December 31.

	2016
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturities:
Government and agencies		$	25,387					$	827					$	0					$	26,214
Municipalities		0						1,295						0						1,295
Mortgage- and asset-backed securities		0						1,139						198						1,337
Public utilities		0						7,667						16						7,683
Sovereign and supranational		0						1,469						0						1,469
Banks/financial institutions		0						6,038						25						6,063
Other corporate		0						29,699						0						29,699
Total fixed maturities		25,387						48,134						239						73,760
Perpetual securities:
Banks/financial institutions		0						1,420						0						1,420
Other corporate		0						213						0						213
Total perpetual securities		0						1,633						0						1,633
Equity securities		1,300						6						3						1,309
Other assets:
Foreign currency swaps		0						365						125						490
Foreign currency forwards		0						672						0						672
Foreign currency options		0						43						0						43
Credit default swaps		0						0						2						2
Total other assets		0						1,080						127						1,207
Other investments		276						0						0						276
Cash and cash equivalents		4,859						0						0						4,859
Total assets		$	31,822					$	50,853					$	369					$	83,044
Liabilities:
Foreign currency swaps		$	0					$	84					$	146					$	230
Foreign currency forwards		0						1,717						0						1,717
Foreign currency options		0						51						0						51
Total liabilities		$	0					$	1,852					$	146					$	1,998

	2015
(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Assets:
Securities available for sale, carried at fair value:
Fixed maturities:
Government and agencies		$	18,669					$	607					$	0					$	19,276
Municipalities		0						1,208						0						1,208
Mortgage- and asset-backed securities		0						362						220						582
Public utilities		0						7,479						0						7,479
Sovereign and supranational		0						1,407						0						1,407
Banks/financial institutions		0						5,993						26						6,019
Other corporate		0						29,378						0						29,378
Total fixed maturities		18,669						46,434						246						65,349
Perpetual securities:
Banks/financial institutions		0						1,742						0						1,742
Other corporate		0						205						0						205
Total perpetual securities		0						1,947						0						1,947
Equity securities		489						6						3						498
Other assets:
Foreign currency swaps		0						462						101						563
Foreign currency forwards		0						107						0						107
Foreign currency options		0						5						0						5
Credit default swaps		0						0						1						1
Total other assets		0						574						102						676
Other investments		176						0						0						176
Cash and cash equivalents		4,350						0						0						4,350
Total assets		$	23,684					$	48,961					$	351					$	72,996
Liabilities:
Foreign currency swaps		$	0					$	21					$	293					$	314
Foreign currency forwards		0						49						0						49
Foreign currency options		0						8						0						8
Total liabilities		$	0					$	78					$	293					$	371

The following tables present the carrying amount and fair value categorized by fair value hierarchy level for the Company's financial instruments that are not carried at fair value as of December 31.

	2016
(In millions)	Carrying Value					Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)					Total Fair Value
Assets:
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Government and agencies		$	20,702				$	26,040					$	0					$	0					$	26,040
Municipalities		350					0						457						0						457
Mortgage and asset-backed securities		30					0						10						22						32
Public utilities		3,201					0						3,536						0						3,536
Sovereign and supranational		2,602					0						2,877						0						2,877
Banks/financial institutions		3,731					0						3,900						0						3,900
Other corporate		2,734					0						3,179						0						3,179
Other investments		1,174					0						0						1,142						1,142
Total assets		$	34,524				$	26,040					$	13,959					$	1,164					$	41,163
Liabilities:
Other policyholders’ funds		$	6,659				$	0					$	0					$	6,540					$	6,540
Notes payable (excluding capital leases)		5,339					0						0						5,530						5,530
Total liabilities		$	11,998				$	0					$	0					$	12,070					$	12,070

						2015
(In millions)	Carrying Value					Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Assets:
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Government and agencies		$	20,004				$	23,391					$	0					$	0					$	23,391
Municipalities		341					0						415						0						415
Mortgage and asset-backed securities		36					0						12						26						38
Public utilities		3,092					0						3,203						0						3,203
Sovereign and supranational		2,555					0						2,711						0						2,711
Banks/financial institutions		4,431					0						4,546						0						4,546
Other corporate		3,000					0						3,216						0						3,216
Other investments		118					0						0						118						118
Total assets		$	33,577				$	23,391					$	14,103					$	144					$	37,638
Liabilities:
Other policyholders’ funds		$	6,285				$	0					$	0					$	6,160					$	6,160
Notes payable (excluding capital leases)		4,951					0						0						5,256						5,256
Total liabilities		$	11,236				$	0					$	0					$	11,416					$	11,416

Amounts have been adjusted for the adoption of accounting guidance on January 1, 2016 related to debt issuance costs.

Fair Value of Financial Instruments

U.S. GAAP requires disclosure of the fair value of certain financial instruments including those that are not carried at fair value. The carrying amounts for cash and cash equivalents, other investments (excluding loan receivables), receivables, accrued investment income, accounts payable, cash collateral and payables for security transactions approximated their fair values due to the nature of these instruments. Liabilities for future policy benefits and unpaid policy claims are not financial instruments as defined by U.S. GAAP.

Fixed maturities, perpetual securities, and equity securities

We determine the fair values of our fixed maturity securities, perpetual securities, and public and privately issued equity securities using the following approaches or techniques: price quotes and valuations from third party pricing vendors (including quoted market prices readily available from public exchange markets) and non-binding price quotes we obtain from outside brokers.

A third party pricing vendor has developed valuation models to determine fair values of privately issued securities to reflect the impact of the persistent economic environment and the changing regulatory framework. These models are discounted cash flow (DCF) valuation models, but also use information from related markets, specifically the CDS market to estimate expected cash flows. These models take into consideration any unique characteristics of the securities and make various adjustments to arrive at an appropriate issuer-specific loss adjusted credit curve. This credit curve is then used with the relevant recovery rates to estimate expected cash flows and modeling of additional features, including illiquidity adjustments, if necessary, to price the security by discounting those loss adjusted cash flows. In cases where a credit curve cannot be developed from the specific security features, the valuation methodology takes into consideration other market observable inputs, including: 1) the most appropriate comparable security(ies) of the issuer; 2) issuer-specific CDS spreads; 3) bonds or CDS spreads of comparable issuers with similar characteristics such as rating, geography, or sector; or 4) bond indices that are comparative in rating, industry, maturity and region.

The pricing data and market quotes we obtain from outside sources, including third party pricing services, are reviewed internally for reasonableness. If a fair value appears unreasonable, we will re-examine the inputs and assess the reasonableness of the pricing data with the vendor. Additionally, we may compare the inputs to relevant market indices and other performance measurements. The output of this analysis is presented to the Company's Valuation and Classifications Subcommittee, or VCS. Based on the analysis provided to the VCS, the valuation is confirmed or may be revised if there is evidence of a more appropriate estimate of fair value based on available market data. We have performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent reasonable estimates of fair value.

The fixed maturities classified as Level 3 consist of securities for which there are limited or no observable valuation inputs. For Level 3 securities that are investment grade, we estimate the fair value of these securities by obtaining non-binding broker quotes from a limited number of brokers. These brokers base their quotes on a combination of their knowledge of the current pricing environment and market conditions. We consider these inputs to be unobservable. For Level 3 investments that are below-investment-grade securities, we consider a variety of significant valuation inputs in the valuation process, including forward exchange rates, yen swap rates, dollar swap rates, interest rate volatilities, credit spread data on specific issuers, assumed default and default recovery rates, and certain probability assumptions. In obtaining these valuation inputs, we have determined that certain pricing assumptions and data used by our pricing sources are difficult to validate or corroborate by the market and/or appear to be internally developed rather than observed in or corroborated by the market. The use of these unobservable valuation inputs causes more subjectivity in the valuation process for these securities.

For the periods presented, we have not adjusted the quotes or prices we obtain from the pricing services and brokers we use.

The following tables present the pricing sources for the fair values of our fixed maturities, perpetual securities, and equity securities as of December 31.

		2016
(In millions)		Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Government and agencies:
Third party pricing vendor			$	25,387					$	827					$	0					$	26,214
Total government and agencies			25,387						827						0						26,214
Municipalities:
Third party pricing vendor			0						1,295						0						1,295
Total municipalities			0						1,295						0						1,295
Mortgage- and asset-backed securities:
Third party pricing vendor			0						1,139						0						1,139
Broker/other			0						0						198						198
Total mortgage- and asset-backed securities			0						1,139						198						1,337
Public utilities:
Third party pricing vendor			0						7,667						0						7,667
Broker/other			0						0						16						16
Total public utilities			0						7,667						16						7,683
Sovereign and supranational:
Third party pricing vendor			0						1,469						0						1,469
Total sovereign and supranational			0						1,469						0						1,469
Banks/financial institutions:
Third party pricing vendor			0						6,038						0						6,038
Broker/other			0						0						25						25
Total banks/financial institutions			0						6,038						25						6,063
Other corporate:
Third party pricing vendor			0						29,699						0						29,699
Total other corporate			0						29,699						0						29,699
Total fixed maturities			25,387						48,134						239						73,760
Perpetual securities:
Banks/financial institutions:
Third party pricing vendor			0						1,420						0						1,420
Total banks/financial institutions			0						1,420						0						1,420
Other corporate:
Third party pricing vendor			0						213						0						213
Total other corporate			0						213						0						213
Total perpetual securities			0						1,633						0						1,633
Equity securities:
Third party pricing vendor			1,300						6						0						1,306
Broker/other			0						0						3						3
Total equity securities			1,300						6						3						1,309
Total securities available for sale			$	26,687					$	49,773					$	242					$	76,702

		2016
(In millions)		Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Government and agencies:
Third party pricing vendor			$	26,040					$	0					$	0					$	26,040
Total government and agencies			26,040						0						0						26,040
Municipalities:
Third party pricing vendor			0						457						0						457
Total municipalities			0						457						0						457
Mortgage- and asset-backed securities:
Third party pricing vendor			0						10						0						10
Broker/other			0						0						22						22
Total mortgage- and asset-backed securities			0						10						22						32
Public utilities:
Third party pricing vendor			0						3,536						0						3,536
Total public utilities			0						3,536						0						3,536
Sovereign and supranational:
Third party pricing vendor			0						2,877						0						2,877
Total sovereign and supranational			0						2,877						0						2,877
Banks/financial institutions:
Third party pricing vendor			0						3,900						0						3,900
Total banks/financial institutions			0						3,900						0						3,900
Other corporate:
Third party pricing vendor			0						3,179						0						3,179
Total other corporate			0						3,179						0						3,179
Total securities held to maturity			$	26,040					$	13,959					$	22					$	40,021

		2015
(In millions)		Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Government and agencies:
Third party pricing vendor			$	18,669					$	607					$	0					$	19,276
Total government and agencies			18,669						607						0						19,276
Municipalities:
Third party pricing vendor			0						1,208						0						1,208
Total municipalities			0						1,208						0						1,208
Mortgage- and asset-backed securities:
Third party pricing vendor			0						362						0						362
Broker/other			0						0						220						220
Total mortgage- and asset-backed securities			0						362						220						582
Public utilities:
Third party pricing vendor			0						7,479						0						7,479
Total public utilities			0						7,479						0						7,479
Sovereign and supranational:
Third party pricing vendor			0						1,407						0						1,407
Total sovereign and supranational			0						1,407						0						1,407
Banks/financial institutions:
Third party pricing vendor			0						5,993						0						5,993
Broker/other			0						0						26						26
Total banks/financial institutions			0						5,993						26						6,019
Other corporate:
Third party pricing vendor			0						29,378						0						29,378
Total other corporate			0						29,378						0						29,378
Total fixed maturities			18,669						46,434						246						65,349
Perpetual securities:
Banks/financial institutions:
Third party pricing vendor			0						1,742						0						1,742
Total banks/financial institutions			0						1,742						0						1,742
Other corporate:
Third party pricing vendor			0						205						0						205
Total other corporate			0						205						0						205
Total perpetual securities			0						1,947						0						1,947
Equity securities:
Third party pricing vendor			489						6						0						495
Broker/other			0						0						3						3
Total equity securities			489						6						3						498
Total securities available for sale			$	19,158					$	48,387					$	249					$	67,794

		2015
(In millions)		Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Government and agencies:
Third party pricing vendor			$	23,391					$	0					$	0					$	23,391
Total government and agencies			23,391						0						0						23,391
Municipalities:
Third party pricing vendor			0						415						0						415
Total municipalities			0						415						0						415
Mortgage- and asset-backed securities:
Third party pricing vendor			0						12						0						12
Broker/other			0						0						26						26
Total mortgage- and asset-backed securities			0						12						26						38
Public utilities:
Third party pricing vendor			0						3,203						0						3,203
Total public utilities			0						3,203						0						3,203
Sovereign and supranational:
Third party pricing vendor			0						2,711						0						2,711
Total sovereign and supranational			0						2,711						0						2,711
Banks/financial institutions:
Third party pricing vendor			0						4,546						0						4,546
Total banks/financial institutions			0						4,546						0						4,546
Other corporate:
Third party pricing vendor			0						3,189						0						3,189
Broker/other			0						27						0						27
Total other corporate			0						3,216						0						3,216
Total securities held to maturity			$	23,391					$	14,103					$	26					$	37,520

The following is a discussion of the determination of fair value of our remaining financial instruments.

Derivatives

We use derivative instruments to manage the risk associated with certain assets. However, the derivative instrument may not be classified in the same fair value hierarchy level as the associated asset. Inputs used to value derivatives include, but are not limited to, interest rates, credit spreads, foreign currency forward and spot rates, and interest volatility.

The fair values of the foreign currency forwards, options, and interest rate swaptions associated with certain investments; the foreign currency forwards and options used to hedge foreign exchange risk from our net investment in Aflac Japan and economically hedge certain portions of forecasted cash flows denominated in yen; and the foreign currency swaps associated with certain senior notes and our subordinated debentures are based on the amounts we would expect to receive or pay. The determination of the fair value of these derivatives is based on observable market inputs, therefore they are classified as Level 2.

For derivatives associated with VIEs where we are the primary beneficiary, we are not the direct counterparty to the swap contracts. As a result, the fair value measurements incorporate the credit risk of the collateral associated with the VIE. We receive valuations from a third party pricing vendor for these derivatives. Based on an analysis of these derivatives and a review of the methodology employed by the pricing vendor, we determined that due to the long duration of these swaps and the need to extrapolate from short-term observable data to derive and measure long-term inputs, certain inputs, assumptions and judgments are required to value future cash flows that cannot be corroborated by current

inputs or current observable market data. As a result, the derivatives associated with our consolidated VIEs are classified as Level 3 of the fair value hierarchy.

Loan Receivables

Our loan receivables do not have readily determinable market prices and generally lack market liquidity. Fair values for loan receivables are determined based on the present value of expected future cash flows discounted at the applicable U.S. Treasury or London Interbank Offered Rate (LIBOR) yield plus an appropriate spread that considers other risk factors, such as credit and liquidity risk. These spreads are provided by the applicable asset managers based on their knowledge of the current loan pricing environment and market conditions. The spreads are a significant component of the pricing inputs and are generally considered unobservable. Therefore, these investments have been assigned a Level 3 within the fair value hierarchy. Loan receivables are included in other investments on the consolidated balance sheets.

Other policyholders' funds

The largest component of the other policyholders' funds liability is our annuity line of business in Aflac Japan. Our annuities have fixed benefits and premiums. For this product, we estimated the fair value to be equal to the cash surrender value. This is analogous to the value paid to policyholders on the valuation date if they were to surrender their policy. We periodically check the cash value against discounted cash flow projections for reasonableness. We consider our inputs for this valuation to be unobservable and have accordingly classified this valuation as Level 3.

Notes payable

The fair values of our publicly issued notes payable classified as Level 3 were obtained from a limited number of independent brokers. These brokers base their quotes on a combination of their knowledge of the current pricing environment and market conditions. We consider these inputs to be unobservable. The fair values of our yen-denominated loans approximate their carrying values.

Transfers between Hierarchy Levels and Level 3 Rollforward

There were no transfers between Level 1 and 2 for the years ended December 31, 2016 and 2015, respectively.

The following tables present the changes in fair value of our available-for-sale investments and derivatives classified as Level 3 as of December 31.

2016
	Fixed Maturities													Equity Securities				Derivatives(1)
(In millions)	Mortgage- and Asset- Backed Securities				Public Utilities				Banks/ Financial Institutions									Foreign Currency Swaps				Credit Default Swaps				Total
Balance, beginning of period	$	220			$	0			$	26				$	3			$	(192	)		$	1			$	58
Realized investment gains (losses) included in earnings	0				0				0					0				194				1				195
Unrealized gains (losses) included in other comprehensive income (loss)	38				0				(1		)			0				(22		)		0				15
Purchases, issuances, sales and settlements:
Purchases	0				16				0					0				0				0				16
Issuances	0				0				0					0				0				0				0
Sales	0				0				0					0				0				0				0
Settlements	(60		)		0				0					0				(1		)		0				(61		)
Transfers into Level 3	0				0				0					0				0				0				0
Transfers out of Level 3	0				0				0					0				0				0				0
Balance, end of period	$	198			$	16			$	25				$	3			$	(21	)		$	2			$	223
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0			$	0			$	0				$	0			$	194			$	1			$	195

(1) Derivative assets and liabilities are presented net

2015
	Fixed Maturities								Perpetual Securities				Equity Securities				Derivatives(1)
(In millions)	Mortgage- and Asset- Backed Securities				Banks/ Financial Institutions				Banks/ Financial Institutions								Foreign Currency Swaps				Credit Default Swaps				Total
Balance, beginning of period	$	223			$	26			$	149			$	3			$	(212	)		$	0			$	189
Realized investment gains (losses) included in earnings	0				0				0				0				(15		)		1				(14		)
Unrealized gains (losses) included in other comprehensive income (loss)	(1		)		0				(2		)		0				(1		)		0				(4		)
Purchases, issuances, sales and settlements:
Purchases	0				0				0				0				0				0				0
Issuances	0				0				0				0				0				0				0
Sales	0				0				(147		)		0				0				0				(147		)
Settlements	(2		)		0				0				0				36				0				34
Transfers into Level 3	0				0				0				0				0				0				0
Transfers out of Level 3	0				0				0				0				0				0				0
Balance, end of period	$	220			$	26			$	0			$	3			$	(192	)		$	1			$	58
Changes in unrealized gains (losses) relating to Level 3 assets and liabilities still held at the end of the period included in realized investment gains (losses)	$	0			$	0			$	0			$	0			$	(15	)		$	1			$	(14	)

(1) Derivative assets and liabilities are presented net

Fair Value Sensitivity

Level 3 Significant Unobservable Input Sensitivity

The following tables summarize the significant unobservable inputs used in the valuation of our Level 3 available-for-sale investments and derivatives as of December 31. Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments.

2016
(In millions)		Fair Value						Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Assets:
Securities available for sale, carried at fair value:
Fixed maturities:
Mortgage- and asset-backed securities			$	198				Consensus pricing		Offered quotes		N/A	(d)
Public utilities			16					Discounted cash flow		Historical volatility		N/A	(d)
Banks/financial institutions			25					Consensus pricing		Offered quotes		N/A	(d)
Equity securities			3					Net asset value		Offered quotes		$1 - $701 ($8)
Other assets:
Foreign currency swaps			16					Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										CDS spreads		17 - 172 bps
										Foreign exchange rates		21.47%	(c)
			29					Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										CDS spreads		16 - 88 bps
			80					Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										Foreign exchange rates		21.47%	(c)
Credit default swaps			2					Discounted cash flow		Base correlation		52.18% - 56.07%	(e)
										CDS spreads		54 bps
										Recovery rate		36.69%
Total assets			$	369

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of our swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of our swaps

(c) Based on 10 year volatility of JPY/USD exchange rate

(d) N/A represents securities where we receive unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques or unobservable inputs.

(e) Range of base correlation for our bespoke tranche for attachment and detachment points corresponding to market indices

2016
(In millions)		Fair Value						Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Liabilities:
Foreign currency swaps			$	113				Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										CDS spreads		17 - 172 bps
										Foreign exchange rates		21.47%	(c)
			23					Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										CDS spreads		24 - 216 bps
			10					Discounted cash flow		Interest rates (USD)		2.34% - 2.59%	(a)
										Interest rates (JPY)		.22% - .80%	(b)
										Foreign exchange rates		21.47%	(c)
Total liabilities			$	146

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of our swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of our swaps

(c) Based on 10 year volatility of JPY/USD exchange rate

2015
(In millions)		Fair Value						Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Assets:
Securities available for sale, carried at fair value:
Fixed maturities:
Mortgage- and asset-backed securities			$	220				Consensus pricing		Offered quotes		N/A	(d)
Banks/financial institutions			26					Consensus pricing		Offered quotes		N/A	(d)
Equity securities			3					Net asset value		Offered quotes		$1-$677 ($7)
Other assets:
Foreign currency swaps			7					Discounted cash flow		Interest rates (USD)		2.20% - 2.62%	(a)
										Interest rates (JPY)		.42% - 1.22%	(b)
										CDS spreads		32 - 147 bps
										Foreign exchange rates		20.05%	(c)
			94					Discounted cash flow		Interest rates (USD)		2.20% - 2.62%	(a)
										Interest rates (JPY)		.42% - 1.22%	(b)
										Foreign exchange rates		20.05%	(c)
Credit default swaps			1					Discounted cash flow		Base correlation		53.26% - 58.40%	(e)
										CDS spreads		123 bps
										Recovery rate		36.87%
Total assets			$	351

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of our swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of our swaps

(c) Based on 10 year volatility of JPY/USD exchange rate

(d) N/A represents securities where we receive unadjusted broker quotes and for which there is no transparency into the providers' valuation techniques or unobservable inputs.

(e) Range of base correlation for our bespoke tranche for attachment and detachment points corresponding to market indices

2015
(In millions)		Fair Value						Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Liabilities:
Foreign currency swaps			$	158				Discounted cash flow		Interest rates (USD)		2.20% - 2.62%	(a)
										Interest rates (JPY)		.42% - 1.22%	(b)
										CDS spreads		32 - 147 bps
										Foreign exchange rates		20.05%	(c)
			120					Discounted cash flow		Interest rates (USD)		2.20% - 2.62%	(a)
										Interest rates (JPY)		.42% - 1.22%	(b)
										CDS spreads		35 - 213 bps
			15					Discounted cash flow		Interest rates (USD)		2.20% - 2.62%	(a)
										Interest rates (JPY)		.42% - 1.22%	(b)
										Foreign exchange rates		20.05%	(c)
Total liabilities			$	293

(a) Inputs derived from U.S. long-term rates to accommodate long maturity nature of our swaps

(b) Inputs derived from Japan long-term rates to accommodate long maturity nature of our swaps

(c) Based on 10 year volatility of JPY/USD exchange rate

The following is a discussion of the significant unobservable inputs or valuation technique used in determining the fair value of securities and derivatives classified as Level 3.

Net Asset Value

We hold certain unlisted equity securities whose fair value is derived based on the financial statements published by the investee. These securities do not trade on an active market and the valuations derived are dependent on the availability of timely financial reporting of the investee. Net asset value is an unobservable input in the determination of fair value of equity securities.

Offered Quotes

In circumstances where our valuation model price is overridden because it implies a value that is not consistent with current market conditions, we will solicit bids from a limited number of brokers. We also receive unadjusted prices from brokers for our mortgage and asset-backed securities. These quotes are non-binding but are reflective of valuation best estimates at that particular point in time. Offered quotes are an unobservable input in the determination of fair value of mortgage- and asset-backed securities, certain banks/financial institutions, certain other corporate, and equity securities investments.

Interest Rates, CDS Spreads, Foreign Exchange Rates

The significant drivers of the valuation of the interest and foreign exchange swaps are interest rates, foreign exchange rates and CDS spreads. Our swaps have long maturities that increase the sensitivity of the swaps to interest rate fluctuations. Since most of our yen-denominated cross currency swaps are in a net liability position, an increase in interest rates will decrease the liabilities and increase the value of the swap.

Foreign exchange swaps also have a lump-sum final settlement of foreign exchange principal receivables at the termination of the swap. An increase in yen interest rates will decrease the value of the final settlement foreign exchange receivables and decrease the value of the swap, and an increase in U.S. dollar interest rates increase the swap value.

A similar sensitivity pattern is observed for the foreign exchange rates. When the spot U.S. dollar/Japanese yen (USD/JPY) foreign exchange rate decreases and the swap is receiving a final exchange payment in JPY, the swap value will increase due to the appreciation of the JPY. Most of our swaps are designed to receive payments in JPY at the termination and will thus be impacted by the USD/JPY foreign exchange rate in this way. In cases where there is no final foreign exchange receivable in JPY and we are paying JPY as interest payments and receiving USD, a decrease in the foreign exchange rate will lead to a decrease in the swap value.

The extinguisher feature in most of our swaps results in a cessation of cash flows and no further payments between the parties to the swap in the event of a default on the referenced or underlying collateral. To price this feature, we apply the survival probability of the referenced entity to the projected cash flows. The survival probability uses the CDS spreads and recovery rates to adjust the present value of the cash flows. For extinguisher swaps with positive values, an increase in CDS spreads decreases the likelihood of receiving the final exchange payments and reduces the value of the swap.

Due to the long duration of these swaps and the need to extrapolate from short-term observable data to derive and measure long-term inputs, certain inputs, assumptions and judgments are required to value future cash flows that cannot be corroborated by current inputs or current observable market data.

Interest rates, CDS spreads, and foreign exchange rates are unobservable inputs in the determination of fair value of foreign currency swaps.

Base Correlations, CDS Spreads, Recovery Rates

Our remaining CDO is a tranche on a basket of single-name credit default swaps. The risk in this synthetic CDO comes from the single-name CDS risk and the correlations between the single names. The valuation of synthetic CDOs is dependent on the calibration of market prices for interest rates, single name CDS default probabilities and base correlation using financial modeling tools. Since there is limited or no observable data available for this tranche, the base correlations must be obtained from commonly traded market tranches such as the CDX and iTraxx indices. From the historical prices of these indices, base correlations can be obtained to develop a pricing curve of CDOs with different seniorities. Since the reference entities of the market indices do not match those in the portfolio underlying the synthetic CDO to be valued, several processing steps are taken to map the CDO in our portfolio to the indices. With the base

correlation determined and the appropriate spreads selected, a valuation is calculated. An increase in the CDS spreads in the underlying portfolio leads to a decrease in the value due to higher probability of defaults and losses. The impact on the valuation due to base correlation depends on a number of factors, including the riskiness between market tranches and the modeled tranche based on our portfolio and the equivalence between detachment points in these tranches. Generally speaking, an increase in base correlation will decrease the value of the senior tranches while increasing the value of junior tranches. This may result in a positive or negative value change.

The CDO tranche in our portfolio is a senior mezzanine tranche and, due to the low level of credit support for this type of tranche, exhibits equity-like behavior. As a result, an increase in recovery rates tends to cause its value to decrease.

Base correlations, CDS spreads, and recovery rates are unobservable inputs in the determination of fair value of credit default swaps.

For additional information on our investments and financial instruments, see the accompanying Notes 1, 3 and 4.

6. DEFERRED POLICY ACQUISITION COSTS AND INSURANCE EXPENSES

Consolidated policy acquisition costs deferred were $1.4 billion in 2016, compared with $1.3 billion in 2015 and 2014. The following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31.

	2016												2015
(In millions)	Japan						U.S.						Japan						U.S.
Deferred policy acquisition costs:
Balance, beginning of year		$	5,370					$	3,141					$	5,211					$	3,062
Capitalization		864						583						738						578
Amortization		(644		)				(497		)				(578		)				(488		)
Foreign currency translation and other		175						1						(1		)				(11		)
Balance, end of year		$	5,765					$	3,228					$	5,370					$	3,141

Commissions deferred as a percentage of total acquisition costs deferred were 74% in 2016 and 2015, compared with 77% in 2014.

Personnel, compensation and benefit expenses as a percentage of insurance expenses were 53% in 2016, compared with 52% in 2015 and 2014. Advertising expense, which is included in insurance expenses in the consolidated statements of earnings, was as follows for the years ended December 31:

(In millions)	2016						2015						2014
Advertising expense:
Aflac Japan		$	100					$	82					$	103
Aflac U.S.		124						129						126
Total advertising expense		$	224					$	211					$	229

Depreciation and other amortization expenses, which are included in insurance expenses in the consolidated statements of earnings, were as follows for the years ended December 31:

(In millions)	2016						2015						2014
Depreciation expense		$	48					$	44					$	47
Other amortization expense		6						6						8
Total depreciation and other amortization expense		$	54					$	50					$	55

Lease and rental expense, which are included in insurance expenses in the consolidated statements of earnings, were as follows for the years ended December 31:

(In millions)	2016						2015						2014
Lease and rental expense:
Aflac Japan		$	53					$	46					$	52
Aflac U.S.		21						18						15
Other		1						1						1
Total lease and rental expense		$	75					$	65					$	68

7. POLICY LIABILITIES

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 81%, 4%, 8% and 7% of total policy liabilities at December 31, 2016, respectively. We regularly review the adequacy of our policy liabilities in total and by component.

The liability for future policy benefits as of December 31 consisted of the following:

			Liability Amounts									Interest Rates
(In millions)	Policy Issue Year		2016				2015					Year of Issue			In 20 Years
Health insurance:
Japan:	1992 - 2016		$	8,912			$	7,633				1.0 - 2.5	%		1.0 - 2.5	%
	1974 - 2013		1,118				1,078					2.7 - 2.75			2.25 - 2.75
	1998 - 2016		11,687				11,008					3.0			3.0
	1997 - 1999		2,485				2,435					3.5			3.5
	1994 - 1996		3,069				2,998					4.0 - 4.5			4.0 - 4.5
	1987 - 1994		14,372				14,161					5.5			5.5
	1985 - 1991		1,871				1,868					5.25 - 6.75			5.25 - 5.5
	1978 - 1984		2,134				2,163					6.5			5.5
U.S.:	2013 - 2016		75				57					3.0 - 3.5			3.0 - 3.5
	2012 - 2016		1,062				794					3.75			3.75
	2011		319				300					4.75			4.75
	2005 - 2010		3,004				2,986					5.5			5.5
	1988 - 2004		669				687					8.0			6.0
	1986 - 2004		1,265				1,276					6.0			6.0
	1981 - 1986		166				174					6.5 - 7.0			5.5 - 6.5
	1998 - 2004		1,295				1,279					7.0			7.0
	Other		19				21
Intercompany eliminations:	2015		(630		)	(1)	(646		)	(1)		2.0			2.0
Life insurance:
Japan:	2001 - 2016		7,255				5,441					1.0 - 1.85			1.0 - 1.85
	2011 - 2016		4,151				3,226					2.0			2.0
	2009 - 2011		2,861				2,332					2.25			2.25
	1992 - 2006		5				5					2.19			1.55
	2005 - 2011		1,488				1,330					2.5			2.5
	1985 - 2006		2,007				1,962					2.7			2.25
	2007 - 2011		1,220				1,105					2.75			2.75
	1999 - 2011		2,102				1,988					3.0			3.0
	1996 - 2009		657				635					3.5			3.5
	1994 - 1996		897				877					4.0 - 4.5			4.0 - 4.5
U.S.:	1956 - 2016		571				514					3.5 - 6.0			3.5 - 6.0
Total			$	76,106			$	69,687

(1) Elimination entry necessary due to recapture of a portion of policy liabilities ceded externally, as a result of the reinsurance retrocession transaction as described in Note 8 of the Notes to the Consolidated Financial Statements

The weighted-average interest rates reflected in the consolidated statements of earnings for future policy benefits for Japanese policies were 3.5% in 2016, compared with 3.6% in 2015 and 3.8% in 2014; and for U.S. policies, 5.5% in 2016, compared with 5.6% in 2015 and 5.7% in 2014.

Changes in the liability for unpaid policy claims were as follows for the years ended December 31:

(In millions)	2016						2015						2014
Unpaid supplemental health claims, beginning of year		$	3,548					$	3,412					$	3,537
Less reinsurance recoverables		26						7						9
Net balance, beginning of year		3,522						3,405						3,528
Add claims incurred during the year related to:
Current year		7,037						6,416						6,866
Prior years		(465		)				(353		)				(301		)
Total incurred		6,572						6,063						6,565
Less claims paid during the year on claims incurred during:
Current year		4,613						4,227						4,532
Prior years		1,865						1,718						1,873
Total paid		6,478						5,945						6,405
Effect of foreign exchange rate changes on unpaid claims		64						(1		)				(283		)
Net balance, end of year		3,680						3,522						3,405
Add reinsurance recoverables		27						26						7
Unpaid supplemental health claims, end of year		3,707						3,548						3,412
Unpaid life claims, end of year		338						254						218
Total liability for unpaid policy claims		$	4,045					$	3,802					$	3,630

Total incurred claims increased from 2015 to 2016 partially due to the impact of foreign exchange rates as well as normal increases in inforce and policyholder aging. The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates, primarily in our lines of business in Japan.

As of December 31, 2016 and 2015, unearned premiums consisted primarily of discounted advance premiums on deposit. Discounted advance premiums are premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period. These advanced premiums represented 76% of the December 31, 2016 and 77% of the December 31, 2015 unearned premiums balances.

As of December 31, 2016 and 2015, the largest component of the other policyholders' funds liability is our annuity line of business in Aflac Japan. Our annuities have fixed benefits and premiums. These annuities represented 98% of both the December 31, 2016 and 2015 other policyholders' funds liability.

8. REINSURANCE

We enter into fixed quota-share coinsurance agreements with other companies in the normal course of business. For each of our reinsurance agreements, we determine whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

Effective March 31, 2015, we entered into a coinsurance transaction whereby we ceded 30.0% of the sickness hospital benefit of one of Aflac Japan’s closed in-force blocks of business. We have an agreement for a $90 million letter of credit as collateral for this reinsurance transaction (see Note 13 for additional information). Effective April 1, 2015, we entered into a retrocession coinsurance transaction whereby we assumed 27.0% of the sickness hospital benefit of one of Aflac Japan’s closed in-force blocks of business through our subsidiary CAIC.

Effective October 1, 2014 and September 30, 2013, we entered into coinsurance reinsurance transactions whereby we ceded 16.7% and 33.3%, respectively, of the hospital benefit of one of Aflac Japan’s closed medical in-force blocks of business. Effective December 31, 2014, we entered into a retrocession coinsurance reinsurance transaction whereby we assumed 8.35% of the reinsured hospital benefit of one of Aflac Japan’s closed medical in-force blocks of business through our subsidiary CAIC.

For our reinsurance transactions to date, we have recorded a deferred profit liability related to the reinsurance transactions. The remaining deferred profit liability of $870 million, as of December 31, 2016, included in future policy benefits in the consolidated balance sheet, is being amortized into income over the expected lives of the policies. We also have recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $860 million and $805 million as of December 31, 2016 and 2015, respectively. The increase in the reinsurance recoverable balance was driven by two aggregating factors: yen strengthening and the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate strengthened by approximately 4% and ceded reserves increased approximately 3% from December 31, 2015 to December 31, 2016.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance for the years ended December 31.

(In millions)	2016					2015
Direct premium income		$	19,592				$	17,904
Ceded to other companies:
Ceded Aflac Japan closed blocks		(560		)			(481		)
Other		(48		)			(39		)
Assumed from other companies:
Retrocession activities		234					178
Other		7					8
Net premium income		$	19,225				$	17,570
Direct benefits and claims		$	13,240				$	12,041
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(509		)			(437		)
Eliminations		58					46
Other		(38		)			(30		)
Assumed from other companies:
Retrocession activities		222					167
Eliminations		(58		)			(46		)
Other		4					5
Benefits and claims, net		$	12,919				$	11,746

These reinsurance transactions are indemnity reinsurance that do not relieve us from our obligations to policyholders. In the event that the reinsurer is unable to meet their obligations, we remain liable for the reinsured claims.

As a part of our capital contingency plan, we entered into a committed reinsurance facility agreement on December 1, 2015 in the amount of approximately 110 billion yen. This reinsurance facility agreement was renewed in 2016 and is effective until December 31, 2017. There are also additional commitment periods of a one-year duration each which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac‘s Standard and Poor's (S&P) rating drops below BBB-. As of December 31, 2016, we have not executed a reinsurance treaty under this committed reinsurance facility.

9. NOTES PAYABLE

A summary of notes payable as of December 31 follows:

(In millions)	2016						2015
2.65% senior notes due February 2017		$	649					$	651
2.40% senior notes due March 2020		547						546
4.00% senior notes due February 2022		348						348
3.625% senior notes due June 2023		696						696
3.625% senior notes due November 2024		745						744
3.25% senior notes due March 2025		445						445
2.875% senior notes due October 2026		298						0
6.90% senior notes due December 2039		220						393
6.45% senior notes due August 2040		254						445
4.00% senior notes due October 2046		394						0
5.50% subordinated debentures due September 2052		486						486
Yen-denominated Uridashi notes:
2.26% notes paid September 2016 (principal amount 8 billion yen)		0						66
Yen-denominated Samurai notes:
1.84% notes paid July 2016 (principal amount 15.8 billion yen)		0						131
Yen-denominated loans:
Variable interest rate loan due September 2021 (.31% in 2016, principal amount 5.0 billion yen)		43						0
Variable interest rate loan due September 2023 (.46% in 2016, principal amount 25.0 billion yen)		214						0
Capitalized lease obligations payable through 2023		21						20
Total notes payable		$	5,360					$	4,971

Prior-year amounts have been adjusted for the adoption of accounting guidance on January 1, 2016 related to debt issuance costs.

Amounts in the table above are reported net of debt issuance costs and issuance premiums or discounts, if applicable, that are being amortized over the life of the notes.

In September 2016, the Parent Company issued two series of senior notes totaling $700 million through a U.S. public debt offering. The first series, which totaled $300 million, bears interest at a fixed rate of 2.875% per annum, payable semi-annually and has a 10-year maturity. The second series, which totaled $400 million, bears interest at a fixed rate of 4.00% per annum, payable semi-annually, and has a 30-year maturity.

In September 2016, the Parent Company entered into two series of senior unsecured term loan facilities totaling 30.0 billion yen. The first series, which totaled 5.0 billion yen, bears an interest rate per annum equal to the Tokyo interbank market rate (TIBOR), or alternate TIBOR, if applicable, plus the applicable TIBOR margin and has a five-year maturity. The applicable margin ranges between .20% and .60%, depending on the Parent Company's debt ratings as of the date of determination. The second series, which totaled 25.0 billion yen, bears an interest rate per annum equal to TIBOR, or alternate TIBOR, if applicable, plus the applicable TIBOR margin and has a seven-year maturity. The applicable margin ranges between .35% and .75%, depending on the Parent Company's debt ratings as of the date of determination.

In March 2015, the Parent Company issued two series of senior notes totaling $1.0 billion through a U.S. public debt offering. The first series, which totaled $550 million, bears interest at a fixed rate of 2.40% per annum, payable semi-

annually, and has a five-year maturity. The second series, which totaled $450 million, bears interest at a fixed rate of 3.25% per annum, payable semi-annually, and has a 10-year maturity. We have entered into cross-currency swaps that convert the U.S. dollar-denominated principal and interest on the senior notes into yen-denominated obligations which results in lower nominal net interest rates on the debt. By entering into these cross-currency swaps, we economically converted our $550 million liability into a 67.0 billion yen liability and reduced the interest rate on this debt from 2.40% in dollars to .24% in yen, and we economically converted our $450 million liability into a 55.0 billion yen liability and reduced the interest rate on this debt from 3.25% in dollars to .82% in yen.

In November 2014, the Parent Company issued $750 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.625% per annum, payable semi-annually, and have a 10-year maturity. These notes are redeemable at our option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the treasury rate plus 20 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date. We entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes we issued into yen-denominated obligations. By entering into the swaps, we economically converted our $750 million liability into an 85.3 billion yen liability and reduced the interest rate on this debt from 3.625% in dollars to 1.00% in yen.

In June 2013, the Parent Company issued $700 million of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of 3.625% per annum, payable semi-annually, and have a 10-year maturity. These notes are redeemable at our option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the aggregate principal amount of the notes to be redeemed or (ii) the amount equal to the sum of the present values of the remaining scheduled payments for principal of and interest on the notes to be redeemed, not including any portion of the payments of interest accrued as of such redemption date, discounted to such redemption date on a semiannual basis at the treasury rate plus 20 basis points, plus in each case, accrued and unpaid interest on the principal amount of the notes to be redeemed to, but excluding, such redemption date. We entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes we issued into yen-denominated obligations. By entering into these swaps, we economically converted our $700 million liability into a 69.8 billion yen liability and reduced the interest rate on this debt from 3.625% in dollars to 1.50% in yen.

In September 2012, the Parent Company issued $450 million of subordinated debentures through a U.S. public debt offering. The debentures bear interest at a fixed rate of 5.50% per annum, payable quarterly, and have a 40-year maturity. In five years, on or after September 26, 2017, we may redeem the debentures, in whole or in part, at their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption; provided that if the debentures are not redeemed in whole, at least $25 million aggregate principal amount of the debentures must remain outstanding after giving effect to such redemption. The debentures may only be redeemed prior to September 26, 2017, in whole but not in part, upon the occurrence of certain tax events or certain rating agency events, as specified in the indenture governing the terms of the debentures. We entered into cross-currency interest rate swaps to convert the U.S. dollar-denominated principal and interest on the subordinated debentures we issued into yen-denominated obligations. By entering into these swaps, we economically converted our $450 million liability into a 35.3 billion yen liability and reduced the interest rate on this debt from 5.50% in dollars to 4.41% in yen. The swaps will expire after the initial five-year non-callable period for the debentures. In October 2012, the underwriters exercised their option, pursuant to the underwriting agreement, to purchase an additional $50 million principal amount of the debentures discussed above. We entered into a cross-currency interest rate swap to economically convert this $50 million liability into a 3.9 billion yen liability and reduce the interest rate from 5.50% in dollars to 4.42% in yen. The swap will expire after the initial five-year non-callable period for the debentures.

In February 2012, the Parent Company issued two series of senior notes totaling $750 million through a U.S. public debt offering. The first series, which totaled $400 million, bears interest at a fixed rate of 2.65% per annum, payable semiannually, and has a five-year maturity. The second series, which totaled $350 million, bears interest at a fixed rate of 4.00% per annum, payable semiannually, and has a 10-year maturity. These notes are redeemable at our option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the principal amount of the notes or (ii) the present value of the remaining scheduled payments of principal and interest to be redeemed, discounted to the redemption date, plus accrued and unpaid interest. We entered into cross-currency interest rate swaps to reduce interest expense by converting the U.S. dollar-denominated principal and interest on the senior notes we issued into yen-denominated obligations. By entering into these swaps, we economically converted our $400 million liability into a 30.9 billion yen liability and reduced the interest rate on this debt from 2.65% in dollars to 1.22% in yen. We also economically converted our $350 million liability into a 27.0 billion yen liability and reduced the interest rate on this debt from 4.00% in

dollars to 2.07% in yen. In July 2012, the Parent Company issued $250 million of senior notes that are an addition to the original first series of senior notes issued in February 2012. These notes have a five-year maturity and a fixed rate of 2.65% per annum, payable semiannually.

In 2010 and 2009, we issued senior notes through U.S. public debt offerings; the details of these notes are as follows. In August 2010, we issued $450 million of senior notes that have a 30-year maturity. In December 2009, we issued $400 million of senior notes that have a 30-year maturity. These senior notes pay interest semiannually and are redeemable at our option in whole at any time or in part from time to time at a redemption price equal to the greater of: (i) the principal amount of the notes or (ii) the present value of the remaining scheduled payments of principal and interest to be redeemed, discounted to the redemption date, plus accrued and unpaid interest.

In December 2016, the Parent Company completed a tender offer in which it extinguished $176 million principal of its 6.90% senior notes due 2039 and $193 million principal of its 6.45% senior notes due 2040. The pretax loss due to the early redemption of these notes was $137 million.

In September 2016, we extinguished 8.0 billion yen of 2.26% fixed rate Uridashi notes upon their maturity and in July 2016, we extinguished 15.8 billion yen of 1.84% fixed rate Samurai notes upon their maturity.

For our yen-denominated notes and loans, the principal amount as stated in dollar terms will fluctuate from period to period due to changes in the yen/dollar exchange rate. We have designated the majority of our yen-denominated notes payable as a nonderivative hedge of the foreign currency exposure of our investment in Aflac Japan.

The aggregate contractual maturities of notes payable during each of the years after December 31, 2016, are as follows:

(In millions)	Long-term Debt						Capitalized Lease Obligations						Total Notes Payable
2017		$	650					$	6					$	656
2018		0						6						6
2019		0						5						5
2020		550						2						552
2021		43						1						44
Thereafter		4,145						1						4,146
Total		$	5,388					$	21					$	5,409

In October 2016, the Parent Company and Aflac renewed a 364-day uncommitted bilateral line of credit that provides for borrowings in the amount of $100 million. Borrowings will bear interest at the rate quoted by the bank and agreed upon at the time of making such loan and will have up to a three-month maturity period. There are no related facility fees, upfront expenses or financial covenant requirements. Borrowings under this credit agreement may be used for general corporate purposes. Borrowings under the financing agreement will mature no later than three months after the last drawdown date of October 14, 2017. As of December 31, 2016, we did not have any borrowings outstanding under our $100 million credit agreement.

In March 2016, the Parent Company entered into a three-year senior unsecured revolving credit facility agreement with a syndicate of financial institutions that provides for borrowings of up to 100.0 billion yen on a revolving basis. Borrowings bear interest at a rate per annum equal to TIBOR plus, at our option, either (a) the applicable TIBOR margin during the period from the closing date to the commitment termination date or (b) the applicable TIBOR margin during the term out period. The applicable margin ranges between .35% and .75% during the period from the closing date to the commitment termination date and .70% and 1.50% during the term out period, depending on the Parent Company’s debt ratings as of the date of determination. In addition, the Parent Company is required to pay a facility fee on the commitments ranging between .30% and .50%, also based on the Parent Company’s debt ratings as of the date of determination. Borrowings under this credit agreement may be used for general corporate purposes, including a capital contingency plan for the operations of the Parent Company, and will expire on the earlier of (a) March 31, 2019, or (b) the date the commitments are terminated pursuant to an event of default, as such term is defined in the credit agreement. The credit facility requires compliance with certain financial covenants on a quarterly basis. As of December 31, 2016, we did not have any borrowings outstanding under our 100.0 billion yen revolving credit agreement.

The Parent Company and Aflac have a five-year senior unsecured revolving credit facility agreement with a syndicate of financial institutions that provides for borrowings of up to 55.0 billion yen or the equivalent of yen in U.S. dollars on a revolving basis. This credit agreement provides for borrowings in Japanese yen or the equivalent of Japanese yen in U.S. dollars on a revolving basis. Borrowings bear interest at a rate per annum equal to, at our option, either (a) a eurocurrency rate determined by reference to the LIBOR for the interest period relevant to such borrowing adjusted for certain additional costs or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus ½ of 1%, (2) the rate of interest for such day announced by Mizuho Bank, Ltd. as its prime rate and (3) the eurocurrency rate for an interest period of one month plus 1.00%, in each case plus an applicable margin. The applicable margin ranges between .79% and 1.275% for eurocurrency rate borrowings and 0.0% and .275% for base rate borrowings, depending on the Parent Company’s debt ratings as of the date of determination. In addition, the Parent Company and Aflac are required to pay a facility fee on the commitments ranging between .085% and .225%, also based on the Parent Company’s debt ratings as of the date of determination. Borrowings under the amended and restated credit facility may be used for general corporate purposes, including a capital contingency plan for the operations of the Parent Company and Aflac. The amended and restated credit facility requires compliance with certain financial covenants on a quarterly basis and will expire on the earlier of (a) September 18, 2020, or (b) the date the commitments are terminated pursuant to an event of default, as such term is defined in the credit agreement. As of December 31, 2016, we did not have any borrowings outstanding under our 55.0 billion yen revolving credit agreement.

The Parent Company and Aflac have an uncommitted bilateral line of credit with a third party that provides for borrowings in the amount of $50 million. Borrowings will bear interest at the rate quoted by the bank and agreed upon at the time of making such loan and will have up to a three-month maturity period. There are no related facility fees, upfront expenses or financial covenant requirements. Borrowings under this credit agreement may be used for general corporate purposes. As of December 31, 2016, we did not have any borrowings outstanding under our $50 million credit agreement.

We were in compliance with all of the covenants of our notes payable and lines of credit at December 31, 2016. No events of default or defaults occurred during 2016 and 2015.

10. INCOME TAXES

The components of income tax expense (benefit) applicable to pretax earnings for the years ended December 31 were as follows:

(In millions)	Foreign						U.S.						Total
2016:
Current		$	650					$	234					$	884
Deferred		136						388						524
Total income tax expense		$	786					$	622					$	1,408
2015:
Current		$	1,063					$	225					$	1,288
Deferred		42						(1		)				41
Total income tax expense		$	1,105					$	224					$	1,329
2014:
Current		$	995					$	84					$	1,079
Deferred		125						336						461
Total income tax expense		$	1,120					$	420					$	1,540

The Japan income tax rate for the fiscal year 2014 was 33.3%. The rate was reduced to 30.8% for the fiscal year 2015 and reduced to 28.8% for the fiscal year 2016.

Income tax expense in the accompanying statements of earnings varies from the amount computed by applying the expected U.S. tax rate of 35% to pretax earnings. The principal reasons for the differences and the related tax effects for

the years ended December 31 were as follows:

(In millions)	2016						2015						2014
Income taxes based on U.S. statutory rates		$	1,424					$	1,352					$	1,572
Utilization of foreign tax credit		(30		)				(27		)				(32		)
Nondeductible expenses		8						3						5
Other, net		6						1						(5		)
Income tax expense		$	1,408					$	1,329					$	1,540

Total income tax expense for the years ended December 31 was allocated as follows:

(In millions)	2016						2015						2014
Statements of earnings		$	1,408					$	1,329					$	1,540
Other comprehensive income (loss):
Unrealized foreign currency translation gains (losses) during period		70						16						(419		)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment securities during period		962						(931		)				2,237
Reclassification adjustment for realized (gains) losses on investment securities included in net earnings		18						21						19
Unrealized gains (losses) on derivatives during period		1						0						(3		)
Pension liability adjustment during period		(16		)				(7		)				(31		)
Total income tax expense (benefit) related to items of other comprehensive income (loss)		1,035						(901		)				1,803
Additional paid-in capital (exercise of stock options)		(10		)				4						(7		)
Total income taxes		$	2,433					$	432					$	3,336

The income tax effects of the temporary differences that gave rise to deferred income tax assets and liabilities as of December 31 were as follows:

(In millions)	2016						2015
Deferred income tax liabilities:
Deferred policy acquisition costs		$	2,439					$	2,282
Unrealized gains on investment securities		2,636						1,684
Premiums receivable		111						139
Policy benefit reserves		1,638						1,313
Depreciation		70						61
Other		0						0
Total deferred income tax liabilities		6,894						5,479
Deferred income tax assets:
Other basis differences in investment securities		1,167						1,422
Unfunded retirement benefits		13						15
Other accrued expenses		11						7
Policy and contract claims		146						113
Foreign currency loss on Japan branch		185						208
Deferred compensation		210						181
Capital loss carryforwards		3						0
Other		103						95
Total deferred income tax assets		1,838						2,041
Net deferred income tax liability		5,056						3,438
Current income tax liability		331						902
Total income tax liability		$	5,387					$	4,340

Based upon a review of the Company's anticipated future taxable income, and including all other available evidence, both positive and negative, the Company's management has concluded that it is more likely than not that the net deferred tax assets will be realized.

Under U.S. income tax rules, only 35% of non-life operating losses can be offset against life insurance taxable income each year. For current U.S. income tax purposes, there were no unused operating loss carryforwards available to offset against future taxable income. The Company has capital loss carryforwards of $9 million available to offset capital gains which expire in 2021.

The Company files federal income tax returns in the United States and Japan as well as state or prefecture income tax returns in various jurisdictions in the two countries. The Company is currently under audit by the State of Illinois for tax years 2006-2012. There are currently no other open Federal, State, or local U.S. income tax audits. U.S. federal income tax returns for years before 2011 are no longer subject to examination. The Company is currently under a corporate income tax audit in Japan by the National Tax Agency (NTA) for tax years 2012-2015. Japan corporate income tax returns for years before 2012 are no longer subject to examination. Management believes it has established adequate tax liabilities and final resolution of all open audits is not expected to have a material impact on the Company's consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31:

(In millions)		2016					2015
Balance, beginning of year		$	264				$	309
Additions for tax positions of prior years		33					0
Reductions for tax positions of prior years		(3		)			(45		)
Balance, end of year		$	294				$	264

Included in the balance of the liability for unrecognized tax benefits at December 31, 2016, are $293 million of tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility, compared with $261 million at December 31, 2015. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period. The Company has accrued approximately $1 million as of December 31, 2016, for permanent uncertainties, which if reversed would not have a material effect on the annual effective rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized approximately $13 million in interest and penalties in 2016, compared with $11 million in 2015 and 2014. The Company has accrued approximately $26 million for the payment of interest and penalties as of December 31, 2016, compared with $22 million a year ago.

As of December 31, 2016, there were no material uncertain tax positions for which the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

11.	SHAREHOLDERS' EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the years ended December 31.

(In thousands of shares)	2016		2015		2014
Common stock - issued:
Balance, beginning of period	669,723		668,132		667,046
Exercise of stock options and issuance of restricted shares	1,526		1,591		1,086
Balance, end of period	671,249		669,723		668,132
Treasury stock:
Balance, beginning of period	245,343		225,687		207,633
Purchases of treasury stock:
Open market	21,618		21,179		19,660
Other	330		247		157
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(1,064)		(1,209)		(1,251)
Exercise of stock options	(683)		(465)		(391)
Other	(105)		(96)		(121)
Balance, end of period	265,439		245,343		225,687
Shares outstanding, end of period	405,810		424,380		442,445

Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic EPS. The following table presents the approximate number of share-based awards to purchase shares, on a weighted-average basis, that were considered to be anti-dilutive and were excluded from the calculation of diluted earnings per share at December 31:

(In thousands)	2016					2015					2014
Anti-dilutive share-based awards		911					1,862					1,215

The weighted-average shares used in calculating earnings per share for the years ended December 31 were as follows:

(In thousands of shares)	2016			2015			2014
Weighted-average outstanding shares used for calculating basic EPS	411,471			430,654			451,204
Dilutive effect of share-based awards	2,450			2,518			2,796
Weighted-average outstanding shares used for calculating diluted EPS	413,921			433,172			454,000

Share Repurchase Program: During 2016, we purchased 21.6 million shares of our common stock in the open market, compared with 21.2 million shares in 2015 and 19.7 million shares in 2014. As of December 31, 2016, a remaining balance of 26.8 million shares of our common stock was available for purchase under share repurchase authorizations by our board of directors.

Voting Rights: In accordance with the Parent Company's articles of incorporation, shares of common stock are generally entitled to one vote per share until they have been held by the same beneficial owner for a continuous period of 48 months, at which time they become entitled to 10 votes per share.

Reclassifications from Accumulated Other Comprehensive Income

The table below is a reconciliation of accumulated other comprehensive income by component for the years ended December 31.

Changes in Accumulated Other Comprehensive Income

2016
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)						Unrealized Gains (Losses) on Investment Securities						Unrealized Gains (Losses) on Derivatives						Pension Liability Adjustment						Total
Balance, beginning of period		$	(2,196	)				$	2,986					$	(26	)				$	(139	)				$	625
Other comprehensive income (loss) before reclassification		213						1,854						2						(32		)				2,037
Amounts reclassified from accumulated other comprehensive income (loss)		0						(35		)				0						3						(32		)
Net current-period other comprehensive income (loss)		213						1,819						2						(29		)				2,005
Balance, end of period		$	(1,983	)				$	4,805					$	(24	)				$	(168	)				$	2,630

All amounts in the table above are net of tax.

2015
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)						Unrealized Gains (Losses) on Investment Securities						Unrealized Gains (Losses) on Derivatives						Pension Liability Adjustment						Total
Balance, beginning of period		$	(2,541	)				$	4,672					$	(26	)				$	(126	)				$	1,979
Other comprehensive income (loss) before reclassification		345						(1,646		)				0						(13		)				(1,314		)
Amounts reclassified from accumulated other comprehensive income (loss)		0						(40		)				0						0						(40		)
Net current-period other comprehensive income (loss)		345						(1,686		)				0						(13		)				(1,354		)
Balance, end of period		$	(2,196	)				$	2,986					$	(26	)				$	(139	)				$	625

All amounts in the table above are net of tax.

2014
(In millions)	Unrealized Foreign Currency Translation Gains (Losses)						Unrealized Gains (Losses) on Investment Securities						Unrealized Gains (Losses) on Derivatives						Pension Liability Adjustment						Total
Balance, beginning of period		$	(1,505	)				$	1,035					$	(12	)				$	(81	)				$	(563	)
Other comprehensive income (loss) before reclassification		(1,036		)				3,672						(14		)				(44		)				2,578
Amounts reclassified from accumulated other comprehensive income (loss)		0						(35		)				0						(1		)				(36		)
Net current-period other comprehensive income (loss)		(1,036		)				3,637						(14		)				(45		)				2,542
Balance, end of period		$	(2,541	)				$	4,672					$	(26	)				$	(126	)				$	1,979

All amounts in the table above are net of tax.

The table below summarizes the amounts reclassified from each component of accumulated other comprehensive income based on source for the years ended December 31.

Reclassifications Out of Accumulated Other Comprehensive Income

(In millions)	2016
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income					Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	136			Sales and redemptions
		(83		)		Other-than-temporary impairment losses realized
		53				Total before tax
		(18		)		Tax (expense) or benefit(1)
		$	35			Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(15	)		Acquisition and operating expenses(2)
Prior service (cost) credit		11				Acquisition and operating expenses(2)
		1				Tax (expense) or benefit(1)
		$	(3	)		Net of tax
Total reclassifications for the period		$	32			Net of tax

(1) Based on 35% tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see

Note 14 for additional details).

(In millions)	2015
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income					Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	214			Sales and redemptions
		(153		)		Other-than-temporary impairment losses realized
		61				Total before tax
		(21		)		Tax (expense) or benefit(1)
		$	40			Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(17	)		Acquisition and operating expenses(2)
Prior service (cost) credit		17				Acquisition and operating expenses(2)
		0				Tax (expense) or benefit(1)
		$	0			Net of tax
Total reclassifications for the period		$	40			Net of tax

(1) Based on 35% tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).

(In millions)	2014
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income					Affected Line Item in the Statements of Earnings
Unrealized gains (losses) on available-for-sale securities		$	57			Sales and redemptions
		(3		)		Other-than-temporary impairment losses realized
		54				Total before tax
		(19		)		Tax (expense) or benefit(1)
		$	35			Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(15	)		Acquisition and operating expenses(2)
Prior service (cost) credit		17				Acquisition and operating expenses(2)
		(1		)		Tax (expense) or benefit(1)
		$	1			Net of tax
Total reclassifications for the period		$	36			Net of tax

(1) Based on 35% tax rate

(2) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 14 for additional details).

12. SHARE-BASED COMPENSATION

As of December 31, 2016, the Company has outstanding share-based awards under two long-term incentive compensation plans.

The first plan, which expired in February 2007, is a stock option plan which allowed grants for incentive stock options (ISOs) to employees and non-qualifying stock options (NQSOs) to employees and non-employee directors. The options have a term of 10 years. The exercise price of options granted under this plan is equal to the fair market value of a share of the Company's common stock at the date of grant. Options granted before the plan's expiration date remain outstanding in accordance with their terms.

The second long-term incentive compensation plan allows awards to Company employees for ISOs, NQSOs, restricted stock, restricted stock units, and stock appreciation rights. Non-employee directors are eligible for grants of

NQSOs, restricted stock, and stock appreciation rights. The ISOs and NQSOs have a term of 10 years, and the share-based awards generally vest upon time-based conditions or time- and performance-based conditions. Time-based vesting generally occurs after three years. Performance-based vesting conditions generally include the attainment of goals related to Company financial performance. As of December 31, 2016, approximately 8.8 million shares were available for future grants under this plan, and the only performance-based awards issued and outstanding were restricted stock awards.

Share-based awards granted to U.S.-based grantees are settled with authorized but unissued Company stock, while those issued to Japan-based grantees are settled with treasury shares.

The following table presents the impact of the expense recognized in connection with share-based awards for the periods ended December 31.

(In millions, except for per-share amounts)	2016						2015						2014
Impact on earnings from continuing operations		$	68					$	39					$	41
Impact on earnings before income taxes		68						39						41
Impact on net earnings		46						27						28
Impact on net earnings per share:
Basic		$	.11					$	.06					$	.06
Diluted		.11						.06						.06

We estimate the fair value of each stock option granted using the Black-Scholes-Merton multiple option approach. Expected volatility is based on historical periods generally commensurate with the estimated terms of the options. We use historical data to estimate option exercise and termination patterns within the model. Separate groups of employees that have similar historical exercise patterns are stratified and considered separately for valuation purposes. The expected term of options granted is derived from the output of our option model and represents the weighted-average period of time that options granted are expected to be outstanding. We base the risk-free interest rate on the Treasury note rate with a term comparable to that of the estimated term of the options. The weighted-average fair value of options at their grant date was $12.70 per share for 2016, compared with $9.46 for 2015 and $16.24 in 2014. The following table presents the assumptions used in valuing options granted during the years ended December 31.

	2016				2015				2014
Expected term (years)		6.4				6.3				6.3
Expected volatility		27.0	%			20.0	%			30.0	%
Annual forfeiture rate		3.2				2.8				2.7
Risk-free interest rate		2.2				2.0				2.8
Dividend yield		2.9				2.7				2.3

The following table summarizes stock option activity.

(In thousands of shares)	Stock Option Shares					Weighted-Average Exercise Price Per Share
Outstanding at December 31, 2013		9,980					$	47.03
Granted in 2014		678					61.81
Canceled in 2014		(115	)				52.01
Exercised in 2014		(1,236	)				41.04
Outstanding at December 31, 2014		9,307					48.84
Granted in 2015		855					61.47
Canceled in 2015		(231	)				55.70
Exercised in 2015		(2,013	)				45.15
Outstanding at December 31, 2015		7,918					50.94
Granted in 2016		664					61.39
Canceled in 2016		(181	)				55.63
Exercised in 2016		(2,061	)				48.91
Outstanding at December 31, 2016		6,340					$	52.56

(In thousands of shares)	2016					2015					2014
Shares exercisable, end of year		4,493					6,085					7,497

The following table summarizes information about stock options outstanding and exercisable at December 31, 2016.

(In thousands of shares)										Options Outstanding															Options Exercisable
	Range of Exercise Prices Per Share									Stock Option Shares Outstanding					Wgtd.-Avg. Remaining Contractual Life (Yrs.)				Wgtd.-Avg. Exercise Price Per Share						Stock Option Shares Exercisable					Wgtd.-Avg. Exercise Price Per Share
	$	14.99		-	$	47.06					1,639					3.0				$	36.38					1,639					$	36.38
	47.23			-	55.72						1,348					3.8				51.11						1,348					51.11
	56.24			-	61.45						1,706					7.0				59.05						632					57.92
	61.81			-	63.16						1,322					4.1				62.10						802					61.87
	63.34			-	72.42						325					8.5				67.36						72					67.50
	$	14.99		-	$	72.42					6,340					4.8				$	52.56					4,493					$	48.88

The aggregate intrinsic value represents the difference between the exercise price of the stock options and the quoted closing common stock price of $69.60 as of December 31, 2016, for those awards that have an exercise price currently below the closing price. As of December 31, 2016, the aggregate intrinsic value of stock options outstanding was $108 million, with a weighted-average remaining term of 4.8 years. The aggregate intrinsic value of stock options exercisable at that same date was $93 million, with a weighted-average remaining term of 3.3 years.

The following table summarizes stock option activity during the years ended December 31.

(In millions)	2016						2015						2014
Total intrinsic value of options exercised		$	41					$	36					$	25
Cash received from options exercised		68						68						39
Tax benefit realized as a result of options exercised and restricted stock releases		45						25						17

The value of restricted stock awards is based on the fair market value of our common stock at the date of grant. The following table summarizes restricted stock activity during the years ended December 31.

(In thousands of shares)	Shares					Weighted-Average Grant-Date Fair Value Per Share
Restricted stock at December 31, 2013		1,671					$	52.12
Granted in 2014		584					62.12
Canceled in 2014		(27	)				52.66
Vested in 2014		(348	)				56.95
Restricted stock at December 31, 2014		1,880					54.33
Granted in 2015		638					61.51
Canceled in 2015		(145	)				57.52
Vested in 2015		(558	)				48.41
Restricted stock at December 31, 2015		1,815					58.42
Granted in 2016		878					61.68
Canceled in 2016		(76	)				60.65
Vested in 2016		(749	)				53.68
Restricted stock at December 31, 2016		1,868					$	61.76

As of December 31, 2016, total compensation cost not yet recognized in our financial statements related to restricted stock awards was $33 million, of which $10 million (953 thousand shares) was related to restricted stock awards with a performance-based vesting condition. We expect to recognize these amounts over a weighted-average period of approximately 1.0 years. There are no other contractual terms covering restricted stock awards once vested.

13. STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS

Our insurance subsidiaries are required to report their results of operations and financial position to state insurance regulatory authorities on the basis of statutory accounting practices prescribed or permitted by such authorities. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis.

Aflac, the Company's most significant insurance subsidiary, reports statutory financial statements that are prepared on the basis of accounting practices prescribed or permitted by the Nebraska Department of Insurance (NDOI). The NDOI recognizes statutory accounting principles and practices prescribed or permitted by the state of Nebraska for determining and reporting the financial condition and results of operations of an insurance company, and for determining a company's solvency under Nebraska insurance law. The National Association of Insurance Commissioners' (NAIC) Accounting Practices and Procedures Manual (SAP) has been adopted by the state of Nebraska as a component of those prescribed or permitted practices. Additionally, the Director of the NDOI has the right to permit other specific practices which deviate from prescribed practices. Aflac has been given explicit permission by the Director of the NDOI for two such permitted practices. These permitted practices, which do not impact the calculation of net income on a statutory basis or prevent the triggering of a regulatory event in the Company's risk-based capital calculation, are as follows:

•	Aflac has reported as admitted assets the refundable lease deposits on the leases of commercial office space which house Aflac Japan's sales operations. These lease deposits are unique and part of the ordinary course of doing business in the country of Japan; these assets would be non-admitted under SAP.

•

Aflac entered into a reinsurance agreement effective March 31, 2015 with a then unauthorized reinsurer. The effective date of this agreement predated the effective date of Nebraska's Amended Credit for Reinsurance statute (44-416) allowing certified reinsurers and also predated the subsequent approval of the agreement's assuming reinsurer as a Certified Reinsurer, which occurred on August 30, 2015 and December 24, 2015, respectively. Aflac has obtained a permitted practice to recognize this treaty and counterparty as Certified Reinsurer for the purpose of determining the collateral required to receive reinsurance reserve credit.

A reconciliation of Aflac's capital and surplus between SAP and practices permitted by the state of Nebraska is shown below:

(In millions)	2016						2015
Capital and surplus, Nebraska state basis		$	11,221					$	11,298
State Permitted Practice:
Refundable lease deposits – Japan		(40		)				(38		)
Reinsurance - Japan		(764		)				(707		)
Capital and surplus, NAIC basis		$	10,417					$	10,553

As of December 31, 2016, Aflac's capital and surplus significantly exceeded the required company action level capital and surplus of $1.3 billion. As determined on a U.S. statutory accounting basis, Aflac's net income was $2.8 billion in 2016, $2.3 billion in 2015 and $2.4 billion in 2014.

Aflac Japan must report its results of operations and financial position to the Japanese Financial Services Agency (FSA) on a Japanese regulatory accounting basis as prescribed by the FSA. Capital and surplus of the Japan branch, based on Japanese regulatory accounting practices, was $5.6 billion at December 31, 2016, compared with $4.7 billion at December 31, 2015. Japanese regulatory accounting practices differ in many respects from U.S. GAAP. Under Japanese regulatory accounting practices, policy acquisition costs are expensed immediately; policy benefit and claim reserving methods and assumptions are different; premium income is recognized on a cash basis; different consolidation criteria apply to VIEs; reinsurance is recognized on a different basis; and investments can have a separate accounting classification and treatment referred to as policy reserve matching bonds (PRM).

The Parent Company depends on its subsidiaries for cash flow, primarily in the form of dividends and management fees. Consolidated retained earnings in the accompanying financial statements largely represent the undistributed earnings of our insurance subsidiary. Amounts available for dividends, management fees and other payments to the Parent Company by its insurance subsidiary may fluctuate due to different accounting methods required by regulatory authorities. These payments are also subject to various regulatory restrictions and approvals related to safeguarding the interests of insurance policyholders. Our insurance subsidiary must maintain adequate risk-based capital for U.S. regulatory authorities and our Japan branch must maintain adequate solvency margins for Japanese regulatory authorities. Additionally, the maximum amount of dividends that can be paid to the Parent Company by Aflac without prior approval of Nebraska's director of insurance is the greater of the net income from operations, which excludes net realized investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end. Dividends declared by Aflac during 2017 in excess of $2.8 billion would require such approval. Aflac declared dividends of $2.0 billion during 2016.

A portion of Aflac Japan earnings, as determined on a Japanese regulatory accounting basis, can be repatriated each year to Aflac U.S. after complying with solvency margin provisions and satisfying various conditions imposed by Japanese regulatory authorities for protecting policyholders. Profit repatriations to the United States can fluctuate due to changes in the amounts of Japanese regulatory earnings. Among other items, factors affecting regulatory earnings include Japanese regulatory accounting practices and fluctuations in currency translation of Aflac Japan's U.S. dollar-denominated investments and related investment income into yen. Profits repatriated by Aflac Japan to Aflac U.S. were as follows for the years ended December 31:

	In Dollars																		In Yen
(In millions of dollars and billions of yen)	2016						2015						2014						2016					2015					2014
Profit repatriation		$	1,286					$	2,139					$	1,704					138.5					259.0					181.4

We entered into foreign exchange forwards and options as part of an economic hedge on foreign exchange risk on 114.0 billion yen of profit repatriation received in 2016, resulting in $64 million less funds received when the yen were exchanged into dollars. As of December 31, 2016, we had foreign exchange forwards and options as part of a hedging strategy on 122.6 billion yen of future profit repatriation.

14. BENEFIT PLANS

Pension and Other Postretirement Plans

We have funded defined benefit plans in Japan and the United States, however the U.S. plan was frozen to new participants effective October 1, 2013. We also maintain non-qualified, unfunded supplemental retirement plans that

provide defined pension benefits in excess of limits imposed by federal tax law for certain Japanese, U.S. and former employees, however the U.S. plan was frozen to new participants effective January 1, 2015. U.S. employees who are not participants in the defined benefit plan receive a nonelective 401(k) employer contribution.

We provide certain health care benefits for eligible U.S. retired employees, their beneficiaries and covered dependents ("other postretirement benefits"). The health care plan is contributory and unfunded. On October 1, 2013, a change was made to postretirement medical benefits to limit the eligibility for the benefits beginning January 1, 2014 to include the following: (1) active employees whose age plus service, in years, equaled or exceeded 80 (rule of 80); (2) active employees who were age 55 or older and had met the 15 years of service requirement; (3) active employees who would meet the rule of 80 in the next five years; (4) active employees who were age 55 or older and who would meet the 15 years of service requirement within the next five years; and (5) current retirees. Effective October 1, 2013, this change was accounted for as a negative plan amendment and resulted in a reduction to the postretirement benefit obligation of approximately $51 million, with an offset to accumulated other comprehensive income (AOCI). Starting in the fourth quarter of 2013, this reduction is being amortized as a reduction to net periodic benefit cost over three years. The postretirement plan obligation was remeasured using a discount rate of 4.75% as of October 1, 2013. For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Information with respect to our benefit plans' assets and obligations as of December 31 was as follows:

		Pension Benefits																						Other
		Japan											U.S.											Postretirement Benefits
(In millions)		2016					2015						2016					2015						2016					2015
Projected benefit obligation:
Benefit obligation, beginning of year			$	276				$	267					$	735				$	717					$	40				$	44
Service cost			16					15						23					23						1					1
Interest cost			9					1						29					18						2					2
Actuarial (gain) loss			29					0						29					(6		)				(4		)			(5		)
Benefits and expenses paid			(8		)			(7		)				(18		)			(17		)				(2		)			(2		)
Effect of foreign exchange rate changes			7					0						0					0						0					0
Benefit obligation, end of year			329					276						798					735						37					40
Plan assets:
Fair value of plan assets, beginning of year			198					183						336					341						0					0
Actual return on plan assets			9					1						24					(6		)				0					0
Employer contributions			25					21						17					18						2					2
Benefits and expenses paid			(8		)			(7		)				(18		)			(17		)				(2		)			(2		)
Effect of foreign exchange rate changes			5					0						0					0						0					0
Fair value of plan assets, end of year			229					198						359					336						0					0
Funded status of the plans(1)			$	(100	)			$	(78	)				$	(439	)			$	(399	)				$	(37	)			$	(40	)
Amounts recognized in accumulated other comprehensive income:
Net actuarial (gain) loss			$	67				$	42					$	189				$	175					$	7				$	12
Prior service (credit) cost			(2		)			(2		)				(4		)			(4		)				0					(11		)
Total included in accumulated other comprehensive income			$	65				$	40					$	185				$	171					$	7				$	1
Accumulated benefit obligation			$	288				$	244					$	670				$	621					N/A			(2)		N/A			(2)

(1) Recognized in other liabilities in the consolidated balance sheets

(2) Not applicable

	Pension Benefits																				Other
	Japan										U.S.										Postretirement Benefits
	2016			2015			2014				2016			2015			2014				2016			2015			2014
Weighted-average actuarial assumptions:
Discount rate - net periodic benefit cost	1.75	%		1.75	%		2.25	%			4.50	%		4.50	%		4.75	%			4.50	%		4.50	%		4.75	%
Discount rate - benefit obligations	1.25			1.75			1.75				4.25			4.50			4.50				4.25			4.50			4.50
Expected long-term return on plan assets	2.00			2.00			2.00				7.00			7.25			7.50				N/A		(1)	N/A		(1)	N/A		(1)
Rate of compensation increase	N/A		(1)	N/A		(1)	N/A		(1)		4.00			4.00			4.00				N/A		(1)	N/A		(1)	N/A		(1)
Health care cost trend rates	N/A		(1)	N/A		(1)	N/A		(1)		N/A		(1)	N/A		(1)	N/A		(1)		5.20		(2)	5.30		(2)	5.70		(2)

(1) Not applicable

(2)For the years 2016, 2015 and 2014, the health care cost trend rates are expected to trend down to 4.5% in 74 years, 4.5% in 78 years, and 4.6% in 78 years, respectively.

We determine our discount rate assumption for our pension retirement obligations based on indices for AA corporate bonds with an average duration of approximately 20 years for the Japan pension plans and 17 years for the U.S. pension plans, and determination of the U.S. pension plans discount rate utilizes the 85-year extrapolated yield curve. In Japan, participant salary and future salary increases are not factors in determining pension benefit cost or the related pension benefit obligation.

We base our assumption for the long-term rate of return on assets on historical trends (10-year or longer historical rates of return for the Japanese plan assets and 15-year historical rates of return for the U.S. plan assets), expected future market movement, as well as the portfolio mix of securities in the asset portfolio including, but not limited to, style, class and equity and fixed income allocations. In addition, our consulting actuaries evaluate our assumptions for long-term rates of return under Actuarial Standards of Practice (ASOP). Under the ASOP, the actual portfolio type, mix and class is modeled to determine a best estimate of the long-term rate of return. We in turn use those results to further validate our own assumptions.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point increase and decrease in assumed health care cost trend rates would have the following effects as of December 31, 2016:

(In millions)
One percentage point increase:
Increase in total service and interest costs			$	0
Increase in postretirement benefit obligation			2
One percentage point decrease:
Decrease in total service and interest costs			$	0
Decrease in postretirement benefit obligation			2

Components of Net Periodic Benefit Cost

Pension and other postretirement benefit expenses, included in acquisition and operating expenses in the consolidated statements of earnings for the years ended December 31, included the following components:

		Pension Benefits																																				Other
			Japan																	U.S.																		Postretirement Benefits
(In millions)		2016						2015						2014						2016						2015						2014						2016						2015						2014
Service cost			$	16					$	15					$	15					$	23					$	23					$	20					$	1					$	1					$	1
Interest cost			9						1						9						29						18						38						2						2						2
Expected return on plan assets			(4		)				(4		)				(4		)				(23		)				(22		)				(20		)				0						0						0
Amortization of net actuarial loss			1						1						1						13						14						11						1						2						3
Amortization of prior service cost (credit)			0						0						0						0						0						0						(11		)				(17		)				(17		)
Net periodic (benefit) cost			$	22					$	13					$	21					$	42					$	33					$	49					$	(7	)				$	(12	)				$	(11	)

Changes in Accumulated Other Comprehensive Income

The following table summarizes the amounts recognized in other comprehensive loss (income) for the years ended December 31:

		Pension Benefits																																				Other
		Japan																		U.S.																		Postretirement Benefits
(In millions)		2016						2015						2014						2016						2015						2014						2016						2015						2014
Net actuarial loss (gain)			$	26					$	3					$	12					$	27					$	22					$	67					$	(4	)				$	(5	)				$	(3	)
Amortization of net actuarial loss			(1		)				(1		)				(1		)				(13		)				(14		)				(11		)				(1		)				(2		)				(3		)
Amortization of prior service cost			0						0						0						0						0						0						11						17						17
Total			$	25					$	2					$	11					$	14					$	8					$	56					$	6					$	10					$	11

Prior service credits of $51 million were incurred in 2013 for the plan amendment related to the change in eligibility for postretirement medical benefits, all of which had been amortized as of December 31, 2016. No transition obligations arose during 2016, and the transition obligations amortized to expense were immaterial for the years ended December 31, 2016, 2015 and 2014. Amortization of actuarial losses to expense in 2017 is estimated to be $2 million for the Japanese plans, $14 million for the U.S. plans and $1 million for the other postretirement benefits plan. Amortization of prior service costs and credits and transition obligations for all plans is expected to be negligible in 2017.

Benefit Payments

The following table provides expected benefit payments, which reflect expected future service, as appropriate.

		Pension Benefits											Other
(In millions)		Japan					U.S.						Postretirement Benefits
2017			$	13				$	22					$	2
2018			8					23						2
2019			9					24						3
2020			10					25						3
2021			10					27						3
2022-2026			74					180						18

Funding

We plan to make contributions of $21 million to the Japanese funded defined benefit plan and $10 million to the U.S. funded defined benefit plan in 2017. The funding policy for our non-qualified supplemental defined benefit pension plans and other postretirement benefits plan is to contribute the amount of the benefit payments made during the year.

Plan Assets

The investment objective of our Japanese and U.S. funded defined benefit plans is to preserve the purchasing power of the plan's assets and earn a reasonable inflation-adjusted rate of return over the long term. Furthermore, we seek to accomplish these objectives in a manner that allows for the adequate funding of plan benefits and expenses. In order to achieve these objectives, our goal is to maintain a conservative, well-diversified and balanced portfolio of high-quality equity, fixed-income and money market securities. As a part of our strategy, we have established strict policies covering quality, type and concentration of investment securities. For our Japanese plan, these policies include limitations on investments in derivatives including futures, options and swaps, and low-liquidity investments such as real estate, venture capital investments, and privately issued securities. For our U.S. plan, these policies prohibit investments in precious metals, limited partnerships, venture capital, and direct investments in real estate. We are also prohibited from trading on margin.

The plan fiduciaries for our funded defined benefit plans have developed guidelines for asset allocations reflecting a percentage of total assets by asset class, which are reviewed on an annual basis. Asset allocation targets as of December 31, 2016 were as follows:

		Japan Pension					U.S. Pension
Domestic equities			11	%				40	%
International equities			15					20
Fixed income securities			59					40
Other			15					0
Total			100	%				100	%

The following table presents the fair value of Aflac Japan's pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 2 in the fair value hierarchy, except cash and cash equivalents which are classified as Level 1.

(In millions)	2016						2015
Japan pension plan assets:
Equities:
Japanese equity securities		$	28					$	22
International equity securities		40						33
Fixed income securities:
Japanese bonds		79						71
International bonds		55						48
Insurance contracts		27						23
Cash and cash equivalents		0						1
Total		$	229					$	198

The following table presents the fair value of Aflac U.S.'s pension plan assets that are measured at fair value on a recurring basis as of December 31. All of these assets are classified as Level 1 in the fair value hierarchy.

(In millions)	2016						2015
U.S. pension plan assets:
Mutual funds:
Large cap equity funds		$	104					$	94
Mid cap equity funds		19						16
Real estate equity funds		10						10
International equity funds		85						77
Fixed income bond funds		136						134
Aflac Incorporated common stock		4						4
Cash and cash equivalents		1						1
Total		$	359					$	336

The fair values of our pension plan investments categorized as Level 1, consisting of mutual funds and common stock, are based on quoted market prices for identical securities traded in active markets that are readily and regularly available to us. The fair values of our pension plan investments classified as Level 2 are based on quoted prices for similar assets in markets that are not active, other inputs that are observable, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates, or other market-corroborated inputs.

401(k) Plan

The Company sponsors a 401(k) plan in which we match a portion of U.S. employees' contributions. The plan provides for salary reduction contributions by employees and, in 2016, 2015, and 2014, provided matching contributions by the Company of 50% of each employee's contributions which were not in excess of 6% of the employee's annual cash compensation.

On January 1, 2014, the Company began providing a nonelective contribution to the 401(k) plan of 2% of annual cash compensation for employees who elected to opt out of the future benefits of the U.S. defined benefit plan during the election period provided during the fourth quarter of 2013 and for new U.S. employees who started working for the Company after September 30, 2013.

The 401(k) contributions by the Company, included in acquisition and operating expenses in the consolidated statements of earnings, were $11 million in 2016, $9 million in 2015 and $7 million in 2014. The plan trustee held approximately one million shares of our common stock for plan participants at December 31, 2016.

Stock Bonus Plan

Aflac U.S. maintains a stock bonus plan for eligible U.S. sales associates. Plan participants receive shares of Aflac Incorporated common stock based on their new annualized premium sales and their first-year persistency of substantially all new insurance policies. The cost of this plan, which was capitalized as deferred policy acquisition costs, amounted to $31 million in 2016, compared with $34 million in 2015 and $36 million in 2014.

15. COMMITMENTS AND CONTINGENT LIABILITIES

We have two outsourcing agreements with a technology and consulting corporation. The first agreement provides mainframe computer operations, distributed mid-range server computer operations, and related support for Aflac Japan. It has a remaining term of four years and an aggregate remaining cost of 36.7 billion yen ($315 million using the December 31, 2016, exchange rate). The second agreement provides application maintenance and development services for Aflac Japan. It has a remaining term of five years and an aggregate remaining cost of 11.9 billion yen ($102 million using the December 31, 2016, exchange rate).

We have an outsourcing agreement with a management consulting and technology services company to provide application maintenance and development services for our Japanese operation. The agreement has a remaining term of five years with an aggregate remaining cost of 15.4 billion yen ($132 million using the December 31, 2016, exchange rate).

We have two outsourcing agreements with information technology and data services companies to provide application maintenance and development services for our Japanese operation. The first agreement has a remaining term of three years with an aggregate remaining cost of 6.1 billion yen ($53 million using the December 31, 2016, exchange rate). The second agreement has a remaining term of one year with an aggregate remaining cost of 740 million yen ($6 million using the December 31, 2016, exchange rate).

As of December 31, 2016, we have commitments of $779 million to fund potential future loan originations related to our investment in middle market loans. These commitments are contingent upon the availability of middle market loans that meet our underwriting criteria. In addition, we had commitments of $19 million to fund potential future loan originations related to our investment in commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed and may or may not be funded. See Note 3 of the Notes to the Consolidated Financial Statements for more details on these investment programs.

We lease office space and equipment under agreements that expire in various years through 2026. Future minimum lease payments due under non-cancelable operating leases at December 31, 2016, were as follows:

(In millions)
2017	$	62
2018	41
2019	18
2020	13
2021	11
Thereafter	0
Total future minimum lease payments	$	145

We are a defendant in various lawsuits considered to be in the normal course of business. Members of our senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. Although some of this litigation is pending in states where large punitive damages,

bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, we believe the outcome of pending litigation will not have a material adverse effect on our financial position, results of operations, or cash flows.

16. UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA

In management's opinion, the following quarterly financial information fairly presents the results of operations for such periods and is prepared on a basis consistent with our annual audited financial statements.

(In millions, except for per-share amounts)	March 31, 2016						June 30, 2016						September 30, 2016						December 31, 2016
Net premium income		$	4,602					$	4,823					$	5,022					$	4,778
Net investment income		801						822						842						813
Realized investment gains (losses)		73						(187		)				(146		)				137
Other income (loss)		(25		)				(21		)				(2		)				227
Total revenues		5,451						5,437						5,716						5,955
Total benefits and expenses		4,334						4,603						4,753						4,802
Earnings before income taxes		1,117						834						963						1,153
Total income tax		386						286						334						402
Net earnings		$	731					$	548					$	629					$	751
Net earnings per basic share		$	1.75					$	1.33					$	1.54					$	1.85
Net earnings per diluted share		1.74						1.32						1.53						1.84
Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.
(In millions, except for per-share amounts)	March 31, 2015						June 30, 2015						September 30, 2015						December 31, 2015
Net premium income		$	4,432					$	4,364					$	4,380					$	4,394
Net investment income		782						777						784						792
Realized investment gains (losses)		13						127						(114		)				114
Other income (loss)		(1		)				19						(10		)				19
Total revenues		5,226						5,287						5,040						5,319
Total benefits and expenses		4,213						4,413						4,176						4,209
Earnings before income taxes		1,013						874						864						1,110
Total income tax		350						301						297						380
Net earnings		$	663					$	573					$	567					$	730
Net earnings per basic share		$	1.52					$	1.33					$	1.32					$	1.72
Net earnings per diluted share		1.51						1.32						1.32						1.71

Quarterly amounts may not agree in total to the corresponding annual amounts due to rounding.

17. SUBSEQUENT EVENTS

In January 2017, the Parent Company issued 60.0 billion yen of senior notes through a U.S. public debt offering. The notes bear interest at a fixed rate of .932% per annum, payable semi-annually, and have a 10-year maturity. These notes may only be redeemed before maturity, in whole but not in part, upon the occurrence of certain changes affecting U.S. taxation, as specified in the indenture governing the terms of the issuance.