AFL 10-Q Quarterly Report March 31, 2016

AFLAC INC

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10-Q 1 afl-03311610q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07434

Aflac Incorporated

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Georgia		58-1167100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1932 Wynnton Road, Columbus, Georgia		31999
(Address of principal executive offices)		(ZIP Code)

706.323.3431

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		April 26, 2016
Common Stock, $.10 Par Value		413,987,033

Aflac Incorporated and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2016

Table of Contents



		Page
PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)

	Review by Independent Registered Public Accounting Firm	1

	Report of Independent Registered Public Accounting Firm	2

	Consolidated Statements of Earnings Three Months Ended March 31, 2016, and 2015	3

	Consolidated Statements of Comprehensive Income (Loss) Three Months Ended March 31, 2016, and 2015	4

	Consolidated Balance Sheets March 31, 2016 and December 31, 2015	5

	Consolidated Statements of Shareholders' Equity Three Months Ended March 31, 2016, and 2015	7

	Consolidated Statements of Cash Flows Three Months Ended March 31, 2016, and 2015	8

	Notes to the Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	62

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	99

Item 4.	Controls and Procedures	100

PART II.	OTHER INFORMATION:	101

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	101

Item 6.	Exhibits	102

Items other than those listed above are omitted because they are not required or are not applicable.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Review by Independent Registered Public Accounting Firm

The March 31, 2016 , and 2015 , consolidated financial statements included in this filing have been reviewed by KPMG LLP, an independent registered public accounting firm, in accordance with established professional standards and procedures for such a review.

The report of KPMG LLP commenting upon its review is included on the following page.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Aflac Incorporated:

We have reviewed the accompanying consolidated balance sheet of Aflac Incorporated and subsidiaries (the Company) as of March 31, 2016 , and the related consolidated statements of earnings, comprehensive income (loss), shareholders' equity and cash flows for the three -month periods ended March 31, 2016 and 2015 . These consolidated financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Aflac Incorporated and subsidiaries as of December 31, 2015 , and the related consolidated statements of earnings, comprehensive income (loss), shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2016 , we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2015 , is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Atlanta, Georgia

May 4, 2016

Aflac Incorporated and Subsidiaries

Consolidated Statements of Earnings



	Three Months Ended March 31,
(In millions, except for share and per-share amounts - Unaudited)	2016				2015
Revenues:
Net premiums, principally supplemental health insurance		$	4,602			$	4,432
Net investment income		801				782
Realized investment gains (losses):
Other-than-temporary impairment losses realized		(14		)		(6		)
Sales and redemptions		91				68
Derivative and other gains (losses)		(4		)		(49		)
Total realized investment gains (losses)		73				13
Other income (loss)		(25		)		(1		)
Total revenues		5,451				5,226
Benefits and expenses:
Benefits and claims, net		3,025				2,952
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs		292				277
Insurance commissions		333				330
Insurance expenses		563				530
Interest expense		65				83
Other expenses		56				41
Total acquisition and operating expenses		1,309				1,261
Total benefits and expenses		4,334				4,213
Earnings before income taxes		1,117				1,013
Income taxes		386				350
Net earnings		$	731			$	663
Net earnings per share:
Basic		$	1.75			$	1.52
Diluted		1.74				1.51
Weighted-average outstanding common shares used in computing earnings per share (In thousands):
Basic		418,748				437,306
Diluted		420,920				439,927
Cash dividends per share		$	.41			$	.39

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



	Three Months Ended March 31,
(In millions - Unaudited)	2016				2015
Net earnings		$	731			$	663
Other comprehensive income (loss) before income taxes:
Unrealized foreign currency translation gains (losses) during period		689				9
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment securities during period		2,689				593
Reclassification adjustment for realized (gains) losses on investment securities included in net earnings		(77		)		(50		)
Unrealized gains (losses) on derivatives during period		3				(4		)
Pension liability adjustment during period		(2		)		0
Total other comprehensive income (loss) before income taxes		3,302				548
Income tax expense (benefit) related to items of other comprehensive income (loss)		991				195
Other comprehensive income (loss), net of income taxes		2,311				353
Total comprehensive income (loss)		$	3,042			$	1,016

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Balance Sheets



(In millions)	March 31, 2016 (Unaudited)			December 31, 2015
Assets:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost $60,538 in 2016 and $56,903 in 2015)		$	67,267		$	60,795
Fixed maturities - consolidated variable interest entities (amortized cost $4,110 in 2016 and $3,739 in 2015)		4,861			4,554
Perpetual securities (amortized cost $1,695 in 2016 and $1,586 in 2015)		1,723			1,719
Perpetual securities - consolidated variable interest entities (amortized cost $244 in 2016 and $255 in 2015)		186			228
Equity securities (cost $192 in 2016 and $117 in 2015)		221			135
Equity securities - consolidated variable interest entities (cost $683 in 2016 and $363 in 2015)		648			363
Securities held to maturity, at amortized cost:
Fixed maturities (fair value $42,807 in 2016 and $37,520 in 2015)		35,515			33,459
Other investments		450			294
Cash and cash equivalents		3,449			4,350
Total investments and cash		114,320			105,897
Receivables		723			705
Accrued investment income		750			768
Deferred policy acquisition costs		8,929			8,511
Property and equipment, at cost less accumulated depreciation		443			427
Other ⁽¹⁾		2,601			1,948
Total assets		$	127,766		$	118,256

⁽¹⁾ Includes $114 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)



(In millions, except for share and per-share amounts)	March 31, 2016 (Unaudited)				December 31, 2015
Liabilities and shareholders’ equity:
Liabilities:
Policy liabilities:
Future policy benefits		$	75,071			$	69,687
Unpaid policy claims		3,990				3,802
Unearned premiums		8,286				7,857
Other policyholders’ funds		6,781				6,285
Total policy liabilities		94,128				87,631
Income taxes		5,106				4,340
Payables for return of cash collateral on loaned securities		830				941
Notes payable		4,984				4,971
Other ⁽²⁾		2,697				2,665
Total liabilities		107,745				100,548
Commitments and contingent liabilities (Note 11)
Shareholders’ equity:
Common stock of $.10 par value. In thousands: authorized 1,900,000 shares in 2016 and 2015; issued 670,401 shares in 2016 and 669,723 shares in 2015		67				67
Additional paid-in capital		1,866				1,828
Retained earnings		24,565				24,007
Accumulated other comprehensive income (loss):
Unrealized foreign currency translation gains (losses)		(1,584		)		(2,196		)
Unrealized gains (losses) on investment securities		4,684				2,986
Unrealized gains (losses) on derivatives		(24		)		(26		)
Pension liability adjustment		(140		)		(139		)
Treasury stock, at average cost		(9,413		)		(8,819		)
Total shareholders’ equity		20,021				17,708
Total liabilities and shareholders’ equity		$	127,766			$	118,256

⁽²⁾ Includes $175 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



	Three Months Ended March 31,
(In millions - Unaudited)		2016			2015
Common stock:
Balance, beginning of period		$	67		$	67
Balance, end of period		67			67
Additional paid-in capital:
Balance, beginning of period		1,828			1,711
Exercise of stock options		10			17
Share-based compensation		21			7
Gain (loss) on treasury stock reissued		7			10
Balance, end of period		1,866			1,745
Retained earnings:
Balance, beginning of period		24,007			22,156
Net earnings		731			663
Dividends to shareholders		(173		)	(171		)
Balance, end of period		24,565			22,648
Accumulated other comprehensive income (loss):
Balance, beginning of period		625			1,979
Unrealized foreign currency translation gains (losses) during period, net of income taxes		612			1
Unrealized gains (losses) on investment securities during period, net of income taxes and reclassification adjustments		1,698			354
Unrealized gains (losses) on derivatives during period, net of income taxes		2			(2		)
Pension liability adjustment during period, net of income taxes		(1		)	0
Balance, end of period		2,936			2,332
Treasury stock:
Balance, beginning of period		(8,819		)	(7,566		)
Purchases of treasury stock		(612		)	(610		)
Cost of shares issued		18			21
Balance, end of period		(9,413		)	(8,155		)
Total shareholders’ equity		$	20,021		$	18,637

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Consolidated Statements of Cash Flows



	Three Months Ended March 31,
(In millions - Unaudited)	2016				2015
Cash flows from operating activities:
Net earnings		$	731			$	663
Adjustments to reconcile net earnings to net cash provided by operating activities:
Change in receivables and advance premiums		32				141
Increase in deferred policy acquisition costs		(37		)		(29		)
Increase in policy liabilities		919				835
Change in income tax liabilities		(367		)		(156		)
Realized investment (gains) losses		(73		)		(13		)
Other, net		126				19
Net cash provided (used) by operating activities		1,331				1,460
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed maturities sold		266				484
Fixed maturities matured or called		408				66
Perpetual securities matured or called		35				156
Securities held to maturity:
Fixed maturities matured or called		277				85
Costs of investments acquired:
Available-for-sale fixed maturities acquired		(1,911		)		(1,442		)
Available-for-sale equity securities acquired		(364		)		0
Other investments, net		(123		)		(7		)
Settlement of derivatives, net		273				(1,983		)
Cash received (pledged or returned) as collateral, net		(189		)		503
Other, net		(159		)		60
Net cash provided (used) by investing activities		(1,487		)		(2,078		)
Cash flows from financing activities:
Purchases of treasury stock		(612		)		(610		)
Proceeds from borrowings		0				989
Dividends paid to shareholders		(167		)		(165		)
Change in investment-type contracts, net		45				84
Treasury stock reissued		7				13
Other, net		(39		)		11
Net cash provided (used) by financing activities		(766		)		322
Effect of exchange rate changes on cash and cash equivalents		21				1
Net change in cash and cash equivalents		(901		)		(295		)
Cash and cash equivalents, beginning of period		4,350				4,658
Cash and cash equivalents, end of period		$	3,449			$	4,363
Supplemental disclosures of cash flow information:
Income taxes paid		$	779			$	517
Interest paid		54				47
Noncash interest		12				36
Impairment losses included in realized investment losses		14				6
Noncash financing activities:
Capital lease obligations		(1		)		0
Treasury stock issued for:
Associate stock bonus		8				8
Shareholder dividend reinvestment		6				6
Share-based compensation grants		4				4

See the accompanying Notes to the Consolidated Financial Statements.

Aflac Incorporated and Subsidiaries

Notes to the Consolidated Financial Statements

(Interim period data – Unaudited)


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 74% and 70% of the Company's total revenues in the three -month periods ended March 31, 2016 , and 2015 , respectively. The percentage of the Company's total assets attributable to Aflac Japan was 84% at March 31, 2016 , compared with 83% at December 31, 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 Codification ^TM (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 unaudited 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.

In the opinion of management, the accompanying unaudited consolidated financial statements of the Company contain all adjustments, consisting of normal recurring accruals, which are necessary to fairly present the consolidated balance sheets as of March 31, 2016 and December 31, 2015 , the consolidated statements of earnings, comprehensive income (loss), shareholders' equity and cash flows for the three -month periods ended March 31, 2016 and 2015 . Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report to shareholders for the year ended December 31, 2015 .

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 or results of operations.

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 financial position, results of operations, or 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.

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 variable interest entities (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 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 or results of operations.

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 or results of operations.

Accounting Pronouncements Pending Adoption

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. We are currently evaluating the impact of this guidance 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. The adoption of this guidance is not expected to have a significant impact on our financial position or results of operations.

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. The adoption of this guidance is not expected to have a significant impact on our financial position or results of operations.

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. The adoption of this guidance is not expected to have a significant impact on our financial position or results of operations.

Leases: In January 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 least term. Under the new guidance, lessor accounting is largely unchanged. 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 permitted, including adoption in an interim period. We are currently evaluating the impact of this guidance on our financial position, results of operations or disclosures.

Financial Instruments - 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 are evaluating whether the adoption of this guidance will 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. The amendments are effective for public business entities for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early application of the amendments is permitted. The adoption of this guidance will not have a significant impact on our financial position or results of operations.

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 amendment is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this guidance will not have a significant impact on our financial position or results of operations.

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. Early application is not permitted. We are currently evaluating the impact of this guidance on our financial position, results of operations or 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.

For additional information on new accounting pronouncements and recent accounting guidance and their impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .


2.	BUSINESS SEGMENT 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. 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 follows:



	Three Months Ended March 31,
(In millions)	2016			2015
Revenues:
Aflac Japan:
Net earned premiums	$	3,179		$	3,078
Net investment income	622			613
Other income	8			8
Total Aflac Japan	3,809			3,699
Aflac U.S.:
Net earned premiums	1,367			1,339
Net investment income	174			166
Other income	3			3
Total Aflac U.S.	1,544			1,508
Other business segments	65			26
Total business segment revenues	5,418			5,233
Realized investment gains (losses) ⁽¹⁾	51			(4		)
Corporate	67			97
Intercompany eliminations	(42		)	(82		)
Other non-operating income (loss)	(43		)	(18		)
Total revenues	$	5,451		$	5,226

⁽¹⁾ Excluding a gain of $22 and $17 for the three -month periods ended March 31, 2016 , and 2015 , respectively, 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



	Three Months Ended March 31,
(In millions)	2016			2015
Pretax earnings:
Aflac Japan	$	838		$	819
Aflac U.S.	332			285
Other business segments	3			1
Total business segment pretax operating earnings	1,173			1,105
Interest expense, noninsurance operations	(29		)	(49		)
Corporate and eliminations	(35		)	(21		)
Pretax operating earnings	1,109			1,035
Realized investment gains (losses) ⁽¹⁾	51			(4		)
Other non-operating income (loss)	(43		)	(18		)
Total earnings before income taxes	$	1,117		$	1,013
Income taxes applicable to pretax operating earnings	$	383		$	357
Effect of foreign currency translation on operating earnings	13			(58		)

Assets were as follows:



(In millions)	March 31, 2016				December 31, 2015
Assets:
Aflac Japan		$	107,153			$	97,646
Aflac U.S.		19,413				18,537
Other business segments		216				188
Total business segment assets		126,782				116,371
Corporate		25,627				23,375
Intercompany eliminations		(24,643		)		(21,490		)
Total assets		$	127,766			$	118,256

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


3.	INVESTMENTS

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 are shown in the following tables.



	March 31, 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		$	19,715		$	3,950		$	0		$	23,665
Municipalities		142			36			0			178
Mortgage- and asset-backed securities		336			40			0			376
Public utilities		1,497			221			18			1,700
Sovereign and supranational		847			160			0			1,007
Banks/financial institutions		2,514			326			156			2,684
Other corporate		3,591			516			72			4,035
Total yen-denominated		28,642			5,249			246			33,645
Dollar-denominated:
U.S. government and agencies		104			12			0			116
Municipalities		940			161			9			1,092
Mortgage- and asset-backed securities		207			22			0			229
Public utilities		5,584			667			132			6,119
Sovereign and supranational		340			104			0			444
Banks/financial institutions		2,654			533			15			3,172
Other corporate		26,177			2,069			935			27,311
Total dollar-denominated		36,006			3,568			1,091			38,483
Total fixed maturities		64,648			8,817			1,337			72,128
Perpetual securities:
Yen-denominated:
Banks/financial institutions		1,692			100			172			1,620
Other corporate		196			21			0			217
Dollar-denominated:
Banks/financial institutions		51			21			0			72
Total perpetual securities		1,939			142			172			1,909
Equity securities:
Yen-denominated		602			26			48			580
Dollar-denominated		273			16			0			289
Total equity securities		875			42			48			869
Total securities available for sale		$	67,462		$	9,001		$	1,557		$	74,906



	March 31, 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		$	21,409		$	6,186		$	0		$	27,595
Municipalities		365			122			0			487
Mortgage- and asset-backed securities		37			3			0			40
Public utilities		3,309			282			71			3,520
Sovereign and supranational		2,735			263			11			2,987
Banks/financial institutions		4,566			215			50			4,731
Other corporate		3,094			393			40			3,447
Total yen-denominated		35,515			7,464			172			42,807
Total securities held to maturity		$	35,515		$	7,464		$	172		$	42,807



	December 31, 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



	December 31, 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.

In 2015 and continuing into the first quarter of 2016, we increased our investment in yen-denominated publicly traded equity securities. During the first quarter of 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 the first quarter of 2016 and 2015, we did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at March 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		$	182		$	192		$	74		$	76
Due after one year through five years		3,305			3,560			712			768
Due after five years through 10 years		11,490			11,675			2,222			2,381
Due after 10 years		36,829			42,681			8,885			9,763
Mortgage- and asset-backed securities		388			444			35			41
Total fixed maturities available for sale		$	52,194		$	58,552		$	11,928		$	13,029
Held to maturity:
Due in one year or less		$	222		$	223		$	0		$	0
Due after one year through five years		1,811			1,904			0			0
Due after five years through 10 years		1,904			2,038			0			0
Due after 10 years		31,541			38,602			0			0
Mortgage- and asset-backed securities		37			40			0			0
Total fixed maturities held to maturity		$	35,515		$	42,807		$	0		$	0

At March 31, 2016 , the Parent Company and other business segments had portfolios of available-for-sale fixed-maturity securities totaling $526 million at amortized cost and $547 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 March 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		$	322		$	284		$	0		$	0
Due after one year through five years		284			295			0			0
Due after 10 years		1,294			1,276			39			54
Total perpetual securities available for sale		$	1,900		$	1,855		$	39		$	54

Investment Concentrations

Our process for 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 March 31, 2016 and December 31, 2015 were as follows:



	March 31, 2016			December 31, 2015
(In millions)	Credit Rating	Amortized Cost	Fair Value	Credit Rating	Amortized Cost	Fair Value
Japan National Government ⁽¹⁾	A	$40,655	$50,636	A	$36,859	$42,025

⁽¹⁾ JGBs or JGB-backed securities

Realized Investment Gains and Losses

Information regarding pretax realized gains and losses from investments is as follows:



	Three Months Ended March 31,
(In millions)	2016			2015
Realized investment gains (losses) on securities:
Fixed maturities:
Available for sale:
Gross gains from sales	$	2		$	49
Gross losses from sales	(4		)	0
Net gains (losses) from redemptions	83			19
Other-than-temporary impairment losses	(12		)	(6		)
Total fixed maturities	69			62
Perpetual securities:
Available for sale:
Net gains (losses) from redemptions	10			0
Other-than-temporary impairment losses	(2		)	0
Total perpetual securities	8			0
Derivatives and other:
Derivative gains (losses)	(4		)	(49		)
Total derivatives and other	(4		)	(49		)
Total realized investment gains (losses)	$	73		$	13

Other-than-temporary Impairment

The majority of our fixed maturity and perpetual security 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 fair values of our fixed maturity and perpetual security investments fluctuate based on changes in interest rates, foreign exchange, and credit spreads in the global financial markets. Fair values can also be heavily influenced by the values of the assets of the issuer and expected ultimate recovery values upon a default, bankruptcy or other financial restructuring. Credit spreads are most impacted by the general credit environment and global market liquidity. Interest rates are driven by numerous factors including, but not limited to, supply and demand, governmental monetary actions, expectations of inflation and economic growth. We believe that fluctuations in the fair values of our investment securities related to general changes in the level of credit spreads or interest rates have little bearing on underlying credit quality of the issuer, and whether our investment is ultimately recoverable. Generally, we consider such declines in fair values to be temporary even in situations where an investment remains in an unrealized loss position for an extended period of time.

In the course of our review process, we may determine that it is unlikely that our fixed maturity or perpetual security investment will recover in value within an acceptable time frame. Factors which may influence this determination include the severity of the price decline, the length of time the price has been impaired, if the price decline was driven by issuer credit deterioration, and our view of the likelihood of the security defaulting or otherwise being subject to an unfavorable restructuring. In those cases where we believe the security will not recover in price within an acceptable period of time, we consider such a decline in the investment's fair value, to the extent it is below the investment's cost or amortized cost, to be an other-than-temporary impairment of the investment and reduce the book value of the investment to its fair value.

The perpetual securities we hold were largely issued by banks that are integral to the financial markets of the sovereign country of the issuer. As a result of the issuer's position within the economy of the sovereign country, our perpetual securities may be subject to a higher risk of nationalization of their issuers in connection with capital injections from an issuer's sovereign government. We cannot be assured that such capital support will extend to all levels of an issuer's capital structure. In addition, certain governments or regulators may consider imposing interest and principal

payment restrictions on issuers of hybrid securities to preserve cash and preserve the issuer's capital. Beyond the cash flow impact that additional deferrals would have on our portfolio, such deferrals could result in ratings downgrades of the affected securities, which in turn could result in a reduction of fair value of the securities and increase our regulatory capital requirements. We consider these factors in our credit review process.

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.

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 cost or amortized cost and the financial condition and near-term prospects of the issuer. For equity securities, we also verify our intent to hold the securities until they recover in value. The fair value of our investments in equity securities may decline for various reasons, such as general market conditions which reflect prospects for the economy as a whole, or due to specific information pertaining to an industry or an individual company. For those equity securities evaluated for impairment under the equity impairment model that are in an unrealized loss position, if we believe the security will not recover in price within an acceptable period of time, or we do not have the intent to hold until recovery, we will record an other-than-temporary impairment of the investment and reduce the cost of the investment to its fair value on that date.

The following table details our pretax other-than-temporary impairment losses by investment category that resulted from our impairment evaluation process.



	Three Months Ended March 31,
(In millions)	2016		2015
Perpetual securities	$	2	$	0
Corporate bonds	12		2
Bank/financial institution bonds	0		4
Total other-than-temporary impairment losses realized ⁽¹⁾	$	14	$	6

⁽¹⁾ Includes $14 and $6 for the three -month periods ended March 31, 2016 and 2015 , respectively, from change in intent to sell securities

Unrealized Investment Gains and Losses

Effect on Shareholders’ Equity

The net effect on shareholders’ equity of unrealized gains and losses from investment securities was as follows:



(In millions)	March 31, 2016				December 31, 2015
Unrealized gains (losses) on securities available for sale		$	7,444			$	4,831
Deferred income taxes		(2,760		)		(1,845		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	4,684			$	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.



	March 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:
Municipalities:
Dollar-denominated		$	44		$	9		$	0		$	0		$	44		$	9
Public utilities:
Dollar-denominated		1,491			132			662			38			829			94
Yen-denominated		1,526			89			725			47			801			42
Sovereign and supranational:
Yen-denominated		309			11			97			1			212			10
Banks/financial institutions:
Dollar-denominated		211			15			184			6			27			9
Yen-denominated		2,108			206			949			12			1,159			194
Other corporate:
Dollar-denominated		10,079			935			4,167			282			5,912			653
Yen-denominated		1,786			112			919			39			867			73
Total fixed maturities		17,554			1,509			7,703			425			9,851			1,084
Perpetual securities:
Yen-denominated		815			172			392			49			423			123
Total perpetual securities		815			172			392			49			423			123
Equity securities:
Yen-denominated		355			48			355			48			0			0
Total equity securities		355			48			355			48			0			0
Total		$	18,724		$	1,729		$	8,450		$	522		$	10,274		$	1,207



	December 31, 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 maturity 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 general market conditions which reflect prospects for the economy as a whole or due to 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, and determine whether we have the intent to hold the securities until they recover in value.

The following table provides more information on our unrealized loss position on fixed maturities, perpetual securities and equity securities.



		March 31, 2016									December 31, 2015
(In millions)	Investments in an Unrealized Loss Position			Gross Unrealized Losses			Gross Unrealized Losses that are Investment Grade			Investments in an Unrealized Loss Position			Gross Unrealized Losses			Gross Unrealized Losses that are Investment Grade
Fixed Maturities:
Public utilities		16	%		13	%		92	%		16	%		16	%		93	%
Sovereign and supranational		2			1			100			3			1			100
Banks/financial institutions		13			13			46			12			9			59
Other corporate		63			60			64			66			69			86
Total fixed maturities		94			87						97			95
Perpetual securities		4			10			100			3			5			100
Equity securities		2			3						0			0
Total		100	%		100	%					100	%		100	%

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 of 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.

Our involvement with all of the VIEs in which we have an interest is passive in nature, and we are not the arranger of these entities. We are not, nor have we been, required to purchase any securities issued in the future by these VIEs.

Our ownership interest in the 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. The weighted-average lives of our notes are very similar to the underlying collateral held by these VIEs where applicable.

Our risk of loss related to our interests in any of our VIEs is limited to our investment in the debt securities issued by them.

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.

Investments in Consolidated Variable Interest Entities



	March 31, 2016						December 31, 2015
(In millions)	Cost or Amortized Cost			Fair Value			Cost or Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	4,110		$	4,861		$	3,739		$	4,554
Perpetual securities, available for sale		244			186			255			228
Equity securities		683			648			363			363
Other investments		20			21			0			0
Other assets		114			114			102			102
Total assets of consolidated VIEs		$	5,171		$	5,830		$	4,459		$	5,247
Liabilities:
Other liabilities		$	175		$	175		$	293		$	293
Total liabilities of consolidated VIEs		$	175		$	175		$	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 a 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 debt, equity, and perpetual securities and foreign currency, and/or credit default swaps (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 investment in senior secured bank loans (bank loans), commercial mortgage loans, and certain equity securities through 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.

We invest in bank loans through unit trust structures in which we are the only investor, requiring us to consolidate these trusts. These bank loans are classified as available-for-sale fixed-maturity securities in the financial statements. As of March 31, 2016 , the amortized cost and fair value of our bank loan investments was $1.6 billion , compared with an amortized cost and fair value of $1.4 billion as of December 31, 2015. During the fourth quarter of 2015, we began investing in yen-denominated public equities through a unit trust structure in which we are the only investor, requiring us to consolidate the trust under U.S. GAAP. In the first quarter of 2016, we began investing in dollar-denominated public equities through a unit trust structure in which we are the only investor, requiring us to consolidate the trust under U.S. GAAP. These equities are classified as available-for-sale in the financial statements. As of March 31, 2016 , the amortized cost and fair value of these equities held in a unit trust structure was $683 million and $648 million , respectively, compared with amortized cost and fair value of $363 million as of December 31, 2015 . In the first quarter of 2016, we began investing in commercial mortgage loans through a unit trust structure in which we are the only investor, requiring us to consolidate the trust under U.S. GAAP. These loans are classified as held for investment and reflected in other investments on the consolidated balance sheets. As of March 31, 2016, the amortized cost and fair value of these loans was $20 million and $21 million, respectively.

We are exposed to credit losses within our consolidated collateralized debt obligation (CDO) that could result in principal losses to our investment. However, we have mitigated the risk of credit loss through the structure of the VIE, which contractually requires the subordinated tranches within the VIE to absorb the majority of the expected losses from the underlying credit default swaps. We currently own only senior mezzanine CDO tranches. Based on our statistical analysis models and the current subordination levels in our CDO, the VIE can sustain a reasonable number of defaults in the underlying reference entities in the CDS with no loss to our investment.

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.

Investments in Variable Interest Entities Not Consolidated



	March 31, 2016						December 31, 2015
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	4,908		$	5,291		$	4,731		$	5,093
Perpetual securities, available for sale		266			256			249			253
Fixed maturities, held to maturity		2,651			2,886			2,477			2,636
Total investments in VIEs not consolidated		$	7,825		$	8,433		$	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 (1) the obligation to absorb losses of the entity or (2) 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 .

Loans and Loan Receivables

We classify our loans and loan receivables as held-for-investment, and 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 expect to incur a loss.

Middle Market Loans

As of March 31, 2016 , and December 31, 2015 , our investment in middle market loan receivables, net of reserves, was $219 million and $118 million , respectively, which includes an unfunded amount of $75 million and $53 million , respectively, that was reflected in other liabilities on the consolidated balance sheets. As of March 31, 2016 and December 31, 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 March 31, 2016 and December 31, 2015 . Our middle market loan allowance for losses was immaterial as of March 31, 2016 and December 31, 2015 . We had no troubled debt restructurings during the three months ended March 31, 2016 and 2015 .

As of March 31, 2016 , we had commitments of $80 million to fund potential future loan originations related to this investment program. These commitments are contingent upon the availability of middle market loans that meet our underwriting criteria.

Commercial Mortgage Loans

During the first quarter of 2016 , we began funding investments in commercial mortgage loans. As of March 31, 2016 , we held $33 million of commercial mortgage loans, and 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 March 31, 2016 . Our commercial mortgage loan allowance for losses was immaterial as of March 31, 2016 . We had no troubled debt restructurings during the three months ended March 31, 2016 .

As of March 31, 2016 , we had $35 million in outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed, and may or may not be funded.

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 were as follows:



Securities Lending Transactions Accounted for as Secured Borrowings
March 31, 2016
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	$	392	$	392
Public utilities	109		0		109
Banks/financial institutions	19		0		19
Other corporate	310		0		310
Total borrowings	$	438	$	392	$	830
Gross amount of recognized liabilities for securities lending transactions					$	830
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
December 31, 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 March 31, 2016 and December 31, 2015 , respectively.

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


4.	DERIVATIVE INSTRUMENTS

Our freestanding derivative financial instruments consist 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 securities 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 our yen-denominated Samurai and Uridashi notes as nonderivative 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 fair value of certain fixed-maturity U.S. dollar-denominated securities. The majority of these forwards and options have short-term maturities (12 months 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 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 interest rate changes of our U.S. dollar-denominated available-for-sale securities. 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, depending on general economic conditions, we may enter into other derivative transactions.

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 March 31, 2016 , there were 15 counterparties to our derivative agreements, with five comprising 62% of the aggregate notional amount. The counterparties to these derivatives are financial institutions with the following credit ratings:



	March 31, 2016										December 31, 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		$	2,366		$	153		$	(58	)		$	2,187		$	166		$	(35	)
A		18,157			926			(199		)		19,940			510			(336		)
BBB		1,635			65			(75		)		0			0			0
Total		$	22,158		$	1,144		$	(332	)		$	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 Annex (CSA) provisions, which generally provide for two-way collateral postings, in certain cases at the first dollar of exposure and in other cases once various rating and exposure threshold levels are triggered. 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 or that additional collateral be posted upon the occurrence of certain events or circumstances. In addition, a significant portion of the derivative transactions have provisions that require collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the transaction upon a downgrade of Aflac’s financial strength rating. The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the aggregate 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.

The fair value of the collateral posted by us to third parties for derivative transactions was $74 million at March 31, 2016 , which consisted entirely of cash, compared with $20 million at December 31, 2015 , which consisted of $17 million of pledged securities and $3 million of cash. This collateral 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 $62 million and $26 million as of March 31, 2016 and December 31, 2015 , respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2016 , we would not be required to post any additional collateral to these derivative counterparties. Collateral obtained by us from third parties for derivative transactions was $938 million and $412 million at March 31, 2016 and December 31, 2015 , respectively. We are generally allowed to sell or repledge collateral obtained from our derivative counterparties, although we do not typically exercise such rights.

Accounting for Derivative Financial Instruments

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 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.

Hedge Documentation and Effectiveness Testing

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).

Discontinuance of Hedge Accounting

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.

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. 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. Notional amounts are not reflective of credit risk.



		March 31, 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		12,711			629				635			(6		)
Foreign currency options		1,485			(1		)		1			(2		)
Total fair value hedges		14,196			628				636			(8		)
Net investment hedge:
Foreign currency forwards		773			(25		)		5			(30		)
Foreign currency options		384			(18		)		4			(22		)
Total net investment hedge		1,157			(43		)		9			(52		)
Non-qualifying strategies:
Foreign currency swaps		6,580			231				493			(262		)
Foreign currency forwards		61			4				4			0
Credit default swaps		89			2				2			0
Total non-qualifying strategies		6,730			237				499			(262		)
Total derivatives		$	22,158		$	812			$	1,144		$	(332	)
Balance Sheet Location
Other assets		$	16,012		$	1,144			$	1,144		$	0
Other liabilities		6,146			(332		)		0			(332		)
Total derivatives		$	22,158		$	812			$	1,144		$	(332	)



		December 31, 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	)

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 10 years. The remaining derivatives in our consolidated VIEs that have not qualified for hedge accounting have been designated as held for other investment purposes (“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 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 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.

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
Three Months Ended March 31, 2016:
Foreign currency forwards	Fixed-maturity securities	$	857		$	(44	)	$	901		$	(882	)	$	19
Foreign currency options	Fixed-maturity securities	(1		)	(1		)	0			0			0
Three Months Ended March 31, 2015:
Foreign currency forwards	Fixed-maturity securities	$	37		$	(15	)	$	52		$	(39	)	$	13
Foreign currency options	Fixed-maturity securities	2			3			(1		)	1			0
Interest rate swaptions	Fixed-maturity securities	(91		)	19			(110		)	94			(16		)

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 (Samurai and Uridashi notes - see Note 7) 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 25.0 billion yen of profit repatriation received from Aflac Japan in February 2016. As of March 31, 2016 , we had entered into foreign exchange forwards and options as part of a hedge on 130.4 billion yen of future profit repatriation.

Our net investment hedge was effective during the three -month periods ended March 31, 2016 and 2015 , respectively.

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 7 in this report and Note 9 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .

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.



	Three Months Ended March 31,
	2016								2015
(In millions)	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		$	0			$	3			$	0			$	(4	)
Total cash flow hedges		0				3				0				(4		)
Fair value hedges:
Foreign currency forwards ⁽²⁾		(25		)		0				(2		)		0
Foreign currency options ⁽²⁾		(1		)		0				3				0
Interest rate swaptions ⁽²⁾		0				0				3				0
Total fair value hedges		(26		)		0				4				0
Net investment hedge:
Non-derivative hedging instruments		0				(15		)		0				(1		)
Foreign currency forwards		0				(50		)		0				2
Foreign currency options		0				(16		)		0				0
Total net investment hedge		0				(81		)		0				1
Non-qualifying strategies:
Foreign currency swaps		10				0				(57		)		0
Foreign currency forwards		11				0				0				0
Credit default swaps		1				0				1				0
Interest rate swaps		0				0				3				0
Total non- qualifying strategies		22				0				(53		)		0
Total		$	(4	)		$	(78	)		$	(49	)		$	(3	)

⁽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)

There was no gain or loss reclassified from accumulated other comprehensive income (loss) into earnings related to our designated cash flow hedges and net investment hedge for the three-month periods ended March 31, 2016 and 2015 . As of March 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.

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 certain of the master netting arrangements provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached.

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.

The tables below summarize our derivatives and securities lending transactions, 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



March 31, 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			Carrying Value of Financial Instruments			Collateral Received					Net Amount
Derivative assets:
Foreign currency swaps		$	493		$	0		$	493		$	0		$	(308	)			$	185
Foreign currency forwards		644			0			644			0			(630		)			14
Foreign currency options		5			0			5			0			0					5
Credit default swaps		2			0			2			0			0					2
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		1,144			0			1,144			0			(938		)	⁽¹⁾		206
Securities lending and similar arrangements		790			0			790			0			(790		)			0
Total		$	1,934		$	0		$	1,934		$	0		$	(1,728	)			$	206

⁽¹⁾ Consists of $661 of pledged securities and $277 of cash.



December 31, 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			Carrying Value of Financial Instruments			Collateral Received					Net Amount
Derivative assets:
Foreign currency swaps		$	563		$	0		$	563		$	0		$	(313	)			$	250
Foreign currency forwards		107			0			107			0			(96		)			11
Foreign currency options		5			0			5			0			(3		)			2
Credit default swaps		1			0			1			0			0					1
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		676			0			676			0			(412		)	⁽¹⁾		264
Securities lending and similar arrangements		921			0			921			0			(921		)			0
Total		$	1,597		$	0		$	1,597		$	0		$	(1,333	)			$	264

⁽¹⁾ Consists of $86 of pledged securities and $326 of cash.

Offsetting of Financial Liabilities and Derivative Liabilities



March 31, 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				Carrying Value of Financial Instruments			Collateral Pledged				Net Amount
Derivative liabilities:
Foreign currency swaps		$	(272	)		$	0		$	(272	)		$	0		$	33			$	(239	)
Foreign currency forwards		(36		)		0			(36		)		0			24				(12		)
Foreign currency options		(24		)		0			(24		)		0			17				(7		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(332		)		0			(332		)		0			74		⁽¹⁾		(258		)
Securities lending and similar arrangements		(830		)		0			(830		)		790			0				(40		)
Total		$	(1,162	)		$	0		$	(1,162	)		$	790		$	74			$	(298	)

⁽¹⁾ Consists entirely of cash.



December 31, 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				Carrying Value of Financial Instruments			Collateral Pledged				Net Amount
Derivative liabilities:
Foreign currency swaps		$	(314	)		$	0		$	(314	)		$	0		$	1			$	(313	)
Foreign currency forwards		(49		)		0			(49		)		0			18				(31		)
Foreign currency options		(8		)		0			(8		)		0			1				(7		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(371		)		0			(371		)		0			20		⁽¹⁾		(351		)
Securities lending and similar arrangements		(941		)		0			(941		)		921			0				(20		)
Total		$	(1,312	)		$	0		$	(1,312	)		$	921		$	20			$	(371	)

⁽¹⁾ Consists of $17 of pledged securities and $3 of cash.

For additional information on our financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .


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.



	March 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		$	23,075		$	706		$	0		$	23,781
Municipalities		0			1,270			0			1,270
Mortgage- and asset-backed securities		0			368			237			605
Public utilities		0			7,819			0			7,819
Sovereign and supranational		0			1,451			0			1,451
Banks/financial institutions		0			5,830			26			5,856
Other corporate		0			31,346			0			31,346
Total fixed maturities		23,075			48,790			263			72,128
Perpetual securities:
Banks/financial institutions		0			1,692			0			1,692
Other corporate		0			217			0			217
Total perpetual securities		0			1,909			0			1,909
Equity securities		860			6			3			869
Other assets:
Foreign currency swaps		0			381			112			493
Foreign currency forwards		0			644			0			644
Foreign currency options		0			5			0			5
Credit default swaps		0			0			2			2
Total other assets		0			1,030			114			1,144
Other investments		198			0			0			198
Cash and cash equivalents		3,449			0			0			3,449
Total assets		$	27,582		$	51,735		$	380		$	79,697
Liabilities:
Foreign currency swaps		$	0		$	97		$	175		$	272
Foreign currency forwards		0			36			0			36
Foreign currency options		0			24			0			24
Total liabilities		$	0		$	157		$	175		$	332



	December 31, 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.



	March 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		$	21,409		$	27,595		$	0		$	0		$	27,595
Municipalities		365			0			487			0			487
Mortgage and asset-backed securities		37			0			13			27			40
Public utilities		3,309			0			3,520			0			3,520
Sovereign and supranational		2,735			0			2,987			0			2,987
Banks/financial institutions		4,566			0			4,731			0			4,731
Other corporate		3,094			0			3,447			0			3,447
Other investments		252			0			0			253			253
Total assets		$	35,767		$	27,595		$	15,185		$	280		$	43,060
Liabilities:
Other policyholders’ funds		$	6,781		$	0		$	0		$	6,649		$	6,649
Notes payable (excluding capital leases)		4,965			0			0			5,353			5,353
Total liabilities		$	11,746		$	0		$	0		$	12,002		$	12,002



	December 31, 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)		4,991			0			0			5,285			5,285
Total liabilities		$	11,276		$	0		$	0		$	11,445		$	11,445

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 (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.



	March 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		$	23,075		$	706		$	0		$	23,781
Total government and agencies		23,075			706			0			23,781
Municipalities:
Third party pricing vendor		0			1,270			0			1,270
Total municipalities		0			1,270			0			1,270
Mortgage- and asset-backed securities:
Third party pricing vendor		0			368			0			368
Broker/other		0			0			237			237
Total mortgage- and asset-backed securities		0			368			237			605
Public utilities:
Third party pricing vendor		0			7,819			0			7,819
Total public utilities		0			7,819			0			7,819
Sovereign and supranational:
Third party pricing vendor		0			1,451			0			1,451
Total sovereign and supranational		0			1,451			0			1,451
Banks/financial institutions:
Third party pricing vendor		0			5,830			0			5,830
Broker/other		0			0			26			26
Total banks/financial institutions		0			5,830			26			5,856
Other corporate:
Third party pricing vendor		0			31,346			0			31,346
Total other corporate		0			31,346			0			31,346
Total fixed maturities		23,075			48,790			263			72,128
Perpetual securities:
Banks/financial institutions:
Third party pricing vendor		0			1,648			0			1,648
Broker/other		0			44			0			44
Total banks/financial institutions		0			1,692			0			1,692
Other corporate:
Third party pricing vendor		0			217			0			217
Total other corporate		0			217			0			217
Total perpetual securities		0			1,909			0			1,909
Equity securities:
Third party pricing vendor		860			6			0			866
Broker/other		0			0			3			3
Total equity securities		860			6			3			869
Total securities available for sale		$	23,935		$	50,705		$	266		$	74,906



	March 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 held to maturity, carried at amortized cost:
Fixed maturities:
Government and agencies:
Third party pricing vendor		$	27,595		$	0		$	0		$	27,595
Total government and agencies		27,595			0			0			27,595
Municipalities:
Third party pricing vendor		0			487			0			487
Total municipalities		0			487			0			487
Mortgage- and asset-backed securities:
Third party pricing vendor		0			13			0			13
Broker/other		0			0			27			27
Total mortgage- and asset-backed securities		0			13			27			40
Public utilities:
Third party pricing vendor		0			3,520			0			3,520
Total public utilities		0			3,520			0			3,520
Sovereign and supranational:
Third party pricing vendor		0			2,987			0			2,987
Total sovereign and supranational		0			2,987			0			2,987
Banks/financial institutions:
Third party pricing vendor		0			4,731			0			4,731
Total banks/financial institutions		0			4,731			0			4,731
Other corporate:
Third party pricing vendor		0			3,447			0			3,447
Total other corporate		0			3,447			0			3,447
Total securities held to maturity		$	27,595		$	15,185		$	27		$	42,807



	December 31, 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



	December 31, 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.

Loan Receivables

For investments accounted for as loan receivables, we record those investments at amortized cost on the acquisition date and carry at adjusted amortized cost. 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. Loan receivables are included in the other investments line item on the consolidated balance sheet.

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 fixed-maturity securities; 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.

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 three -month periods ended March 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.



Three Months Ended March 31, 2016
	Fixed Maturities											Perpetual Securities		Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate		Banks/ Financial Institutions				Interest Rate Swaps		Foreign Currency Swaps			Credit Default Swaps		Total
Balance, beginning of period	$	220		$	0	$	0	$	26	$	0	$	0	$	3	$	0	$	(192	)	$	1	$	58
Realized investment gains (losses) included in earnings	0			0		0		0		0		0		0		0		125			1		126
Unrealized gains (losses) included in other comprehensive income (loss)	21			0		0		0		0		0		0		0		4			0		25
Purchases, issuances, sales and settlements:
Purchases	0			0		0		0		0		0		0		0		0			0		0
Issuances	0			0		0		0		0		0		0		0		0			0		0
Sales	0			0		0		0		0		0		0		0		0			0		0
Settlements	(4		)	0		0		0		0		0		0		0		0			0		(4		)
Transfers into Level 3	0			0		0		0		0		0		0		0		0			0		0
Transfers out of Level 3	0			0		0		0		0		0		0		0		0			0		0
Balance, end of period	$	237		$	0	$	0	$	26	$	0	$	0	$	3	$	0	$	(63	)	$	2	$	205
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	$	0	$	0	$	0	$	0	$	125		$	1	$	126

⁽¹⁾ Derivative assets and liabilities are presented net



Three Months Ended March 31, 2015
	Fixed Maturities											Perpetual Securities		Equity Securities		Derivatives ⁽¹⁾
(In millions)	Mortgage- and Asset- Backed Securities			Public Utilities		Sovereign and Supranational		Banks/ Financial Institutions		Other Corporate		Banks/ Financial Institutions				Interest Rate Swaps		Foreign Currency Swaps			Credit Default Swaps		Total
Balance, beginning of period	$	223		$	0	$	0	$	26	$	0	$	149	$	3	$	0	$	(212	)	$	0	$	189
Realized investment gains (losses) included in earnings	0			0		0		0		0		0		0		0		(83		)	1		(82		)
Unrealized gains (losses) included in other comprehensive income (loss)	(1		)	0		0		0		0		1		0		0		(4		)	0		(4		)
Purchases, issuances, sales and settlements:
Purchases	0			0		0		0		0		0		0		0		0			0		0
Issuances	0			0		0		0		0		0		0		0		0			0		0
Sales	0			0		0		0		0		0		0		0		0			0		0
Settlements	(1		)	0		0		0		0		0		0		0		16			0		15
Transfers into Level 3	0			0		0		0		0		0		0		0		0			0		0
Transfers out of Level 3	0			0		0		0		0		0		0		0		0			0		0
Balance, end of period	$	221		$	0	$	0	$	26	$	0	$	150	$	3	$	0	$	(283	)	$	1	$	118
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	$	0	$	0	$	0	$	0	$	(83	)	$	1	$	(82	)

⁽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. Included in the tables are the inputs or range of possible inputs that have an effect on the overall valuation of the financial instruments.

March 31, 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

237

Consensus pricing

Offered quotes

N/A

^(d)

Banks/financial institutions

Consensus pricing

Offered quotes

N/A

^(d)

Equity securities

Net asset value

Offered quotes

$1 - $724 ($8)

Other assets:

Foreign currency swaps

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

CDS spreads

32 - 147 bps

Foreign exchange rates

20.34%

^(c)

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

CDS spreads

12 - 82 bps

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

Foreign exchange rates

20.34%

^(c)

Credit default swaps

Discounted cash flow

Base correlation

64.18% - 69.87%

^(e)

CDS spreads

84 bps

Recovery rate

36.95%

Total assets

380

(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

(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.

March 31, 2016

(In millions)

Fair Value

Valuation Technique(s)

Unobservable Input

Range
(Weighted Average)

Liabilities:

Foreign currency swaps

119

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

CDS spreads

32 - 147 bps

Foreign exchange rates

20.34%

^(c)

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

CDS spreads

35 - 213 bps

Discounted cash flow

Interest rates (USD)

1.64% - 2.14%

^(a)

Interest rates (JPY)

.15% - .60%

^(b)

Foreign exchange rates

20.34%

^(c)

Total liabilities

175

(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

December 31, 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

Consensus pricing

Offered quotes

N/A

^(d)

Equity securities

Net asset value

Offered quotes

$1-$677 ($7)

Other assets:

Foreign currency swaps

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)

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

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

(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

December 31, 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

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

The following is a discussion of the significant unobservable inputs or valuation techniques 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 will 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 and Notes 1, 3 and 4 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .


6.	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.

We have recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $856 million , as of March 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 $869 million as of March 31, 2016 .

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance.



	Three Months Ended March 31,
(In millions)	2016				2015
Direct premium income		$	4,690			$	4,514
Ceded to other companies:
Ceded Aflac Japan closed blocks		(134		)		(90		)
Other		(12		)		(10		)
Assumed from other companies:
Retrocession activities		56				15
Other		2				3
Net premium income		$	4,602			$	4,432

Direct benefits and claims		$	3,103			$	3,025
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(121		)		(80		)
Other		4				(7		)
Assumed from other companies:
Retrocession activities		53				14
Other		(14		)		0
Benefits and claims, net		$	3,025			$	2,952

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 is effective from December 1, 2015 until December 31, 2016. 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 March 31, 2016 , we have not executed a reinsurance treaty under this committed reinsurance facility.


7.	NOTES PAYABLE

A summary of notes payable follows:



(In millions)	March 31, 2016				December 31, 2015
2.65% senior notes due February 2017		$	650	⁽¹⁾		$	651	⁽¹⁾
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		744		⁽²⁾		744		⁽²⁾
3.25% senior notes due March 2025		446		⁽²⁾		445		⁽²⁾
6.90% senior notes due December 2039		393		⁽²⁾		393		⁽²⁾
6.45% senior notes due August 2040		444		⁽²⁾		445		⁽²⁾
5.50% subordinated debentures due September 2052		486				486
Yen-denominated Uridashi notes:
2.26% notes due September 2016 (principal amount 8 billion yen)		71				66
Yen-denominated Samurai notes:
1.84% notes due July 2016 (principal amount 15.8 billion yen)		140				131
Capitalized lease obligations payable through 2023		19				20
Total notes payable		$	4,984			$	4,971

⁽¹⁾ Principal amount plus an issuance premium that is being amortized over the life of the notes

⁽²⁾ Principal amount net of an issuance discount that is being amortized over the life of the notes

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

In March 2016, the Parent Company entered into a three -year senior unsecured revolving credit facility agreement with a group 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 the Tokyo interbank market rate (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 March 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 364 -day uncommitted bilateral line of credit with a third party 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 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 15, 2016. As of March 31, 2016 , we did not have any borrowings outstanding under our $100 million 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 London Interbank Offered Rate (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 March 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 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 March 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 March 31, 2016 . No events of default or defaults occurred during the three -month period ended March 31, 2016 .

For additional information, see Notes 4 and 9 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .


8.	SHAREHOLDERS’ EQUITY

The following table is a reconciliation of the number of shares of the Company's common stock for the three -month periods ended March 31 .



(In thousands of shares)	2016		2015
Common stock - issued:
Balance, beginning of period	669,723		668,132
Exercise of stock options and issuance of restricted shares	678		722
Balance, end of period	670,401		668,854
Treasury stock:
Balance, beginning of period	245,343		225,687
Purchases of treasury stock:
Open market	10,152		9,827
Other	189		162
Dispositions of treasury stock:
Shares issued to AFL Stock Plan	(311	)	(295	)
Exercise of stock options	(64	)	(192	)
Other	(111	)	(106	)
Balance, end of period	255,198		235,083
Shares outstanding, end of period	415,203		433,771

Outstanding share-based awards are excluded from the calculation of weighted-average shares used in the computation of basic earnings per share (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 for the following periods.



	Three Months Ended March 31,
(In thousands)	2016		2015
Anti-dilutive share-based awards		2,682		1,878

Share Repurchase Program

During the first three months of 2016 , we repurchased 10.2 million shares of our common stock in the open market for $600 million as part of our share repurchase program. During the first three months of 2015 , we repurchased 9.8 million shares of our common stock in the open market for $600 million as part of our share repurchase program. As of March 31, 2016 , a remaining balance of 38.2 million shares of our common stock was available for purchase under share repurchase authorizations by our board of directors.

Reclassifications from Accumulated Other Comprehensive Income

The tables below are reconciliations of accumulated other comprehensive income by component for the following periods.

Changes in Accumulated Other Comprehensive Income



Three Months Ended March 31, 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		612				1,748				2				(1		)		2,361
Amounts reclassified from accumulated other comprehensive income (loss)		0				(50		)		0				0				(50		)
Net current-period other comprehensive income (loss)		612				1,698				2				(1		)		2,311
Balance, end of period		$	(1,584	)		$	4,684			$	(24	)		$	(140	)		$	2,936

All amounts in the table above are net of tax.



Three Months Ended March 31, 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		1				386				(2		)		0				385
Amounts reclassified from accumulated other comprehensive income (loss)		0				(32		)		0				0				(32		)
Net current-period other comprehensive income (loss)		1				354				(2		)		0				353
Balance, end of period		$	(2,540	)		$	5,026			$	(28	)		$	(126	)		$	2,332

All amounts in the table above are net of tax.

The tables below summarize the amounts reclassified from each component of accumulated other comprehensive income based on source for the following periods.

Reclassifications Out of Accumulated Other Comprehensive Income



(In millions)	Three Months Ended March 31, 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		$	91		Sales and redemptions
		(14		)	Other-than-temporary impairment losses realized
		77			Total before tax
		(27		)	Tax (expense) or benefit ⁽¹⁾
		$	50		Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(3	)	Acquisition and operating expenses ⁽²⁾
Prior service (cost) credit		3			Acquisition and operating expenses ⁽²⁾
		0			Tax (expense) or benefit ⁽¹⁾
		$	0		Net of tax
Total reclassifications for the period		$	50		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 10 for additional details).



(In millions)	Three Months Ended March 31, 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		$	56		Sales and redemptions
		(6		)	Other-than-temporary impairment losses realized
		50			Total before tax
		(18		)	Tax (expense) or benefit ⁽¹⁾
		$	32		Net of tax
Amortization of defined benefit pension items:
Actuarial gains (losses)		$	(4	)	Acquisition and operating expenses ⁽²⁾
Prior service (cost) credit		4			Acquisition and operating expenses ⁽²⁾
		0			Tax (expense) or benefit ⁽¹⁾
		$	0		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 10 for additional details).

9. SHARE-BASED COMPENSATION

As of March 31, 2016 , the Company had 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 March 31, 2016 , approximately 9.0 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 provides information on stock options outstanding and exercisable at March 31, 2016 .



	Stock Option Shares (in thousands)		Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value (in millions)			Weighted-Average Exercise Price Per Share
Outstanding		7,920		4.8		$	90		$	51.79
Exercisable		5,979		3.4		86			48.86

We received cash from the exercise of stock options in the amount of $10 million during the first three months of 2016 , compared with $22 million in the first three months of 2015 . The tax benefit realized as a result of stock option exercises and restricted stock releases was $13 million in the first three months of 2016 , compared with $15 million in the first three months of 2015 .

As of March 31, 2016 , total compensation cost not yet recognized in our financial statements related to restricted stock awards was $52 million , of which $15 million ( 305 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 1.7 years. There are no other contractual terms covering restricted stock awards once vested.

For additional information on our long-term share-based compensation plans and the types of share-based awards, see Note 12 of the Notes to the Consolidated Financial Statements included in our annual report to shareholders for the year ended December 31, 2015 .


10.	BENEFIT PLANS

We have funded defined benefit plans in Japan and the United States, which cover substantially all of our full-time employees. Additionally, we 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. Effective October 1, 2013, the U.S. tax-qualified defined benefit plan was frozen to new employees hired on or after October 1, 2013 and to employees rehired on or after October 1, 2013. U.S. employees who are not participants in the defined benefit plan receive a nonelective 401(k) employer contribution. Additionally, effective January 1, 2015, the U.S. non-qualified supplemental retirement plan was frozen to new participants.

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. Effective January 1, 2014, employees eligible for benefits included 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 have 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. For certain employees and former employees, additional coverage is provided for all medical expenses for life.

Pension and other postretirement benefit expenses, included in acquisition and operating expenses in the consolidated statement of earnings, included the following components:



	Three Months Ended March 31,
	Pension Benefits																Other
	Japan								U.S.								Postretirement Benefits
(In millions)	2016				2015				2016				2015				2016				2015
Components of net periodic benefit cost:
Service cost		$	4			$	4			$	6			$	6			$	0			$	0
Interest cost		2				2				8				8				0				1
Expected return on plan assets		(1		)		(1		)		(6		)		(6		)		0				0
Amortization of net actuarial loss		0				0				3				4				0				0
Amortization of prior service cost (credit)		0				0				0				0				(3		)		(4		)
Net periodic (benefit) cost		$	5			$	5			$	11			$	12			$	(3	)		$	(3	)

During the three months ended March 31, 2016 , Aflac Japan contributed approximately $5 million (using the weighted-average yen/dollar exchange rate for the three -month period ending March 31, 2016 ) to the Japanese funded defined benefit plan, and Aflac U.S. did not make a contribution to the U.S. funded defined benefit plan.

For additional information regarding our Japanese and U.S. benefit plans, see Note 14 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .


11.	COMMITMENTS AND CONTINGENT LIABILITIES

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.

As of March 31, 2016 , we had commitments of $80 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 $35 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. We desire to take advantage of these provisions. This report contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein, and in any other statements made by Company officials in communications with the financial community and contained in documents filed with the Securities and Exchange Commission (SEC). Forward-looking statements are not based on historical information and relate to future operations, strategies, financial results or other developments. Furthermore, forward-looking information is subject to numerous assumptions, risks and uncertainties. In particular, statements containing words such as “expect,” “anticipate,” “believe,” “goal,” “objective,” “may,” “should,” “estimate,” “intends,” “projects,” “will,” “assumes,” “potential,” “target” or similar words as well as specific projections of future results, generally qualify as forward-looking. Aflac undertakes no obligation to update such forward-looking statements.

We caution readers that the following factors, in addition to other factors mentioned from time to time, could cause actual results to differ materially from those contemplated by the forward-looking statements:


•	difficult conditions in global capital markets and the economy


•	governmental actions for the purpose of stabilizing the financial markets


•	defaults and credit downgrades of securities in our investment portfolio


•	exposure to significant interest rate risk


•	concentration of business in Japan


•	limited availability of acceptable yen-denominated investments


•	failure to comply with restrictions on patient privacy and information security


•	foreign currency fluctuations in the yen/dollar exchange rate


•	deviations in actual experience from pricing and reserving assumptions


•	subsidiaries' ability to pay dividends to Aflac Incorporated


•	ability to continue to develop and implement improvements in information technology systems


•	concentration of our investments in any particular single-issuer or sector


•	decline in creditworthiness of other financial institutions


•	ability to attract and retain qualified sales associates and employees


•	differing judgments applied to investment valuations


•	significant valuation judgments in determination of amount of impairments taken on our investments


•	credit and other risks associated with Aflac's investment in perpetual securities


•	decreases in our financial strength or debt ratings


•	inherent limitations to risk management policies and procedures


•	extensive regulation and changes in law or regulation by governmental authorities


•	interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems


•	catastrophic events including, but not necessarily limited to, epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, acts of terrorism and damage incidental to such events


•	changes in U.S. and/or Japanese accounting standards


•	ability to effectively manage key executive succession


•	level and outcome of litigation


•	increased expenses and reduced profitability resulting from changes in assumptions for pension and other postretirement benefit plans


•	ongoing changes in our industry


•	loss of consumer trust resulting from events external to our operations


•	failure of internal controls or corporate governance policies and procedures

MD&A OVERVIEW

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to inform the reader about matters affecting the financial condition and results of operations of Aflac Incorporated and its subsidiaries for the three -month periods ended March 31, 2016 and 2015 . Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, the following discussion should be read in conjunction with the consolidated financial statements and notes that are included in our annual report to shareholders for the year ended December 31, 2015 . This MD&A is divided into the following sections:


•	Our Business


•	Performance Highlights


•	Critical Accounting Estimates


•	Results of Operations, consolidated and by segment


•	Analysis of Financial Condition, including discussion of market risks of financial instruments


•	Capital Resources and Liquidity, including discussion of availability of capital and the sources and uses of cash

OUR BUSINESS

PERFORMANCE HIGHLIGHTS

Yen-denominated income statement accounts are translated to U.S. dollars using a weighted-average Japanese yen/U.S. dollar foreign exchange rate, while yen-denominated balance sheet accounts are translated to U.S. dollars using a spot Japanese yen/U.S. dollar foreign exchange rate. The spot yen/dollar exchange rate at March 31, 2016 was 112.68 , or 7.0% stronger than the spot yen/dollar exchange rate of 120.61 at December 31, 2015 . The weighted-average yen/dollar exchange rate for the three -month period ended March 31, 2016 was 115.35 , or 3.3% stronger than the weighted-average yen/dollar exchange rate of 119.16 for the same period in 2015 .

Reflecting the stronger yen/dollar exchange rate, revenues were $5.5 billion in the first quarter of 2016 , compared with $5.2 billion in the first quarter of 2015 . Net earnings were $731 million , or $1.74 per diluted share, compared with $663 million , or $1.51 per diluted share, in the first quarter of 2015 .

Results in the first quarter of 2016 included pretax net realized investment gains of $73 million ( $47 million after-tax), compared with net realized investment gains of $13 million ( $8 million after-tax) in the first quarter of 2015 . Net investment gains in the first quarter of 2016 included $14 million ( $10 million after-tax) of other-than-temporary impairment losses; $91 million of net gains ( $60 million after-tax) from the sale or redemption of securities; and $4 million of net losses ( $3 million after-tax) from valuing derivatives.

Shareholders’ equity included a net unrealized gain on investment securities and derivatives of $4.7 billion at March 31, 2016 , compared with a net unrealized gain of $3.0 billion at December 31, 2015 .

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 billion yen. For further information regarding this transaction, see Note 7 of the Notes to the Consolidated Financial Statements and the Capital Resources and Liquidity section of this MD&A.

In the first three months of 2016 , we repurchased 10.2 million shares of our common stock in the open market for $600 million under our share repurchase program.

CRITICAL ACCOUNTING ESTIMATES

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 this MD&A, references to U.S. GAAP issued by the FASB are derived from the FASB Accounting Standards Codification ^™ (ASC). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates based on currently available information when recording transactions resulting from business operations. The estimates that we deem to be most critical to an understanding of Aflac’s results of operations and financial condition are those related to the valuation of investments and derivatives, deferred policy acquisition costs (DAC), liabilities for future policy benefits and unpaid policy claims, and income taxes. The preparation and evaluation of these critical accounting estimates involve the use of various assumptions developed from management’s analyses and judgments. The application of these critical accounting estimates determines the values at which 94% of our assets and 78% of our liabilities are reported as of March 31, 2016 , and thus has a direct effect on net earnings and shareholders’ equity. Subsequent experience or use of other assumptions could produce significantly different results.

There have been no changes in the items that we have identified as critical accounting estimates during the three months ended March 31, 2016 . For additional information, see the Critical Accounting Estimates section of MD&A included in our annual report to shareholders for the year ended December 31, 2015 .

New Accounting Pronouncements

For information on new accounting pronouncements and the impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements.

RESULTS OF OPERATIONS

The following discussion includes references to our performance measures, operating earnings and operating earnings per diluted share, that are not based on U.S. GAAP. Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with U.S. GAAP accounting guidance for segment reporting, operating earnings is our measure of segment performance. Aflac believes that an analysis of operating earnings is vitally important to an understanding of our underlying profitability drivers and trends of our insurance business. Furthermore, because a significant portion of our business is conducted in Japan, we believe it is equally important to understand the impact of translating Japanese yen into U.S. dollars.

Aflac defines operating earnings (a non-U.S. GAAP financial measure) as the profits derived from operations. Operating earnings includes interest cash flows associated with notes payable but excludes items that cannot be predicted or that are outside of management's control, such as realized investment gains and losses from securities transactions, impairments, and derivative and hedging activities; nonrecurring items; and other non-operating income (loss) from net earnings. Aflac's derivative activities are primarily used to hedge foreign exchange and interest rate risk in our investment portfolio as well as manage foreign exchange risk for certain notes payable and forecasted cash flows denominated in yen. Our management uses operating earnings to evaluate the financial performance of Aflac’s insurance operations because realized gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items, tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with the Company’s insurance operations, and therefore may obscure the underlying fundamentals and trends in Aflac’s insurance operations.

The following table is a reconciliation of items impacting operating and net earnings and operating and net earnings per diluted share.

Reconciliation of Operating Earnings to Net Earnings



	In Millions								Per Diluted Share
	Three Months Ended March 31,
	2016				2015				2016			2015
Operating earnings	$	726			$	678			$	1.73		$	1.54
Items impacting net earnings, net of tax:
Realized investment gains (losses):
Securities transactions and impairments	50				40				.12			.10
Impact of derivative and hedging activities:
Hedge costs related to foreign currency investments	(29		)		(9		)		(.07		)	(.02		)
Other derivative and hedging activities	12			⁽¹⁾	(34		)	⁽¹⁾	.03			(.08		)
Other and non-recurring income (loss)	(28		)		(12		)		(.07		)	(.03		)
Net earnings	$	731			$	663			$	1.74		$	1.51

⁽¹⁾ Excludes a gain of $14 and $11 , after tax, for the three -month periods ended March 31, 2016 and 2015 , respectively, 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

Realized Investment Gains and Losses

Our investment strategy is to invest primarily in fixed-maturity securities to provide a reliable stream of investment income, which is one of the drivers of the Company’s growth and profitability. This investment strategy incorporates asset-liability matching (ALM) to align the expected cash flows of the portfolio to the needs of the Company's liability structure. We do not purchase securities with the intent of generating capital gains or losses. However, investment gains and losses may be realized as a result of changes in the financial markets and the creditworthiness of specific issuers, tax planning strategies, and/or general portfolio management and rebalancing. The realization of investment gains and losses is independent of the underwriting and administration of our insurance products, which are the principal drivers of our profitability.

Securities Transactions and Impairments

During the three -month period ended March 31, 2016 , we realized pretax investment gains , net of losses , of $91 million ( $60 million after-tax) from sales and redemptions of securities. We realized pretax investment losses of $14 million ( $10 million after-tax) as a result of the recognition of other-than-temporary impairment losses on certain securities.

During the three -month period ended March 31, 2015 , we realized pretax investment gains, net of losses, of $68 million ( $44 million after-tax) from sales and redemptions of securities. We realized pretax investment losses of $6 million ( $4 million after-tax) as a result of the recognition of other-than-temporary impairment losses on certain securities.

See Note 3 of the Notes to the Consolidated Financial Statements for a more detailed discussion of these investment activities.

The following table details our pretax impairment losses by investment category.



	Three Months Ended March 31,
(In millions)	2016		2015
Perpetual securities	$	2	$	0
Corporate bonds	12		2
Bank/financial institution bonds	0		4
Total other-than-temporary impairment losses realized ⁽¹⁾	$	14	$	6

⁽¹⁾ Includes $14 and $6 for the three -month periods ended March 31, 2016 and 2015 , respectively, from change in intent to sell securities

Impact of Derivative and Hedging Activities

Our derivative activities include foreign currency swaps and credit default swaps held in consolidated variable interest entities (VIEs); foreign currency forwards and options, interest rate swaptions and futures on certain fixed-maturity securities; foreign currency forwards and options that economically hedge certain portions of forecasted cash flows denominated in yen; and foreign currency swaps associated with certain senior notes and our subordinated debentures. During the three -month period ended March 31, 2016 , we realized pretax investment losses , net of gains , of $4 million ( $3 million after-tax), compared with pretax investment losses, net of gains, of $49 million ( $32 million after-tax) for the same period in 2015 , as a result of valuing these derivatives, net of the effects of hedge accounting. For a description of other items that could be included in the Impact of Derivative and Hedging Activities, see the Hedging Activities subsection of MD&A and Note 4 of the accompanying Notes to the Consolidated Financial Statements.

For additional information regarding realized investment gains and losses, see Notes 3 and 4 of the Notes to the Consolidated Financial Statements.

Foreign Currency Translation

Aflac Japan’s premiums and most of its investment income are received in yen. Claims and expenses are paid in yen, and we have yen-denominated assets that support yen-denominated policy liabilities. These and other yen-denominated financial statement items are translated into dollars for financial reporting purposes. We translate Aflac Japan’s yen-denominated income statement into dollars using an average exchange rate for the reporting period, and we translate its yen-denominated balance sheet using the exchange rate at the end of the period.

Due to the size of Aflac Japan, where our functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on our reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. As a result, we view foreign currency translation as a financial reporting issue for Aflac rather than an economic event to our Company or shareholders. Because changes in exchange rates distort the growth rates of our operations, management evaluates Aflac’s financial performance excluding the impact of foreign currency translation.

Income Taxes

Our combined U.S. and Japanese effective income tax rate on pretax earnings was 34.6% for the three -month period ended March 31, 2016 , compared with 34.5% for the same period in 2015 .

Earnings Guidance

Our objective for 2016 is to produce stable operating earnings per diluted share compared with 2015. With interest rates at significantly depressed levels and a return to volatile financial markets, it is difficult to invest cash flows at attractive yields while maintaining a prudent risk tolerance. Additionally, we expect 2016 benefit ratios in both the U.S. and Japan to have continued favorable experience. If we achieve our objective for 2016, the following table shows the likely results for operating earnings per diluted share, including the impact of foreign currency translation using various yen/dollar exchange rate scenarios.

2016 Operating Earnings Per Diluted Share Scenarios ⁽¹⁾



Weighted-Average Yen/Dollar Exchange Rate		Operating Earnings Per Diluted Share		% Growth Over 2015					Yen Impact
	105		$6.66 - 6.90	8.1		-	12.0	%		$	.49
	110		6.49 - 6.73	5.4		-	9.3				.32
	115		6.34 - 6.58	2.9		-	6.8				.17
	120.99 ⁽²⁾		6.17 - 6.41	.2		-	4.1				.00
	125		6.07 - 6.31	(1.5	)	-	2.4				(.10	)

⁽¹⁾ Excludes realized investment gains/losses (securities transactions, impairments, and the impact of derivative and hedging activities), nonrecurring items, and other non-operating income (loss) in 2016 and 2015

⁽²⁾ Actual 2015 weighted-average exchange rate

Using the 2015 average yen/dollar exchange rate of 120.99, our annual objective is to report operating earnings per diluted share of $6.17 to $6.41. If the yen/dollar exchange rate averages 105 to 115 for the second quarter of 2016, we would expect earnings in the second quarter to be approximately $1.55 to $1.82 per diluted share.

INSURANCE OPERATIONS

Aflac's insurance business consists of two segments: Aflac Japan and Aflac U.S. Aflac Japan, which operates as a branch of Aflac, is the principal contributor to consolidated earnings. U.S. GAAP financial reporting requires that a company report financial and descriptive information about operating segments in its annual and interim period financial statements. Furthermore, we are required to report a measure of segment profit or loss, certain revenue and expense items, and segment assets.

We evaluate our sales efforts using new annualized premium sales, an industry operating measure. New annualized premium sales, which include both new sales and the incremental increase in premiums due to conversions, represent the premiums that we would collect over a 12-month period, assuming the policies remain in force. For Aflac Japan, new annualized premium sales are determined by applications submitted during the reporting period. For Aflac U.S., new annualized premium sales are determined by applications that are issued during the reporting period. Premium income, or earned premiums, is a financial performance measure that reflects collected or due premiums that have been earned ratably on policies in force during the reporting period.

AFLAC JAPAN SEGMENT

Aflac Japan Pretax Operating Earnings

Changes in Aflac Japan’s pretax operating earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac Japan.

Aflac Japan Summary of Operating Results



	Three Months Ended March 31,
(In millions)	2016		2015
Net premium income	$	3,179	$	3,078
Net investment income:
Yen-denominated investment income	322		319
Dollar-denominated investment income	300		294
Net investment income	622		613
Other income (loss)	8		8
Total operating revenues	3,809		3,699
Benefits and claims, net	2,283		2,228
Operating expenses:
Amortization of deferred policy acquisition costs	151		149
Insurance commissions	187		183
Insurance and other expenses	350		320
Total operating expenses	688		652
Total benefits and expenses	2,971		2,880
Pretax operating earnings ⁽¹⁾	$	838	$	819
Weighted-average yen/dollar exchange rate	115.35		119.16



	In Dollars				In Yen
Percentage change over previous period:	Three Months Ended March 31,					Three Months Ended March 31,
Percentage change over previous period:	2016		2015			2016		2015
Net premium income	3.3	%	(13.5	)%		.1	%	.2	%
Net investment income	1.4		(7.5	)		(1.7	)	7.2
Total operating revenues	3.0		(12.6	)		(.2	)	1.3
Pretax operating earnings ⁽¹⁾	2.4		(12.2	)		(.8	)	1.8

⁽¹⁾ See the Insurance Operations section of this MD&A for our definition of segment operating expenses.

Annualized premiums in force increased 1.3% to 1.62 trillion yen as of March 31, 2016 , compared with 1.60 trillion yen as of March 31, 2015 . The increase in annualized premiums in force in yen reflects the sales of new policies combined with the high persistency of Aflac Japan's business. Annualized premiums in force, translated into dollars at respective period-end exchange rates, were $14.4 billion at March 31, 2016 , compared with $13.3 billion a year ago.

Aflac Japan's investment portfolios include U.S. dollar-denominated securities and reverse-dual currency securities (yen-denominated debt securities with dollar coupon payments). U.S. dollar-denominated investment income from these assets accounted for approximately 48% of Aflac Japan’s investment income in the first three months of 2016 and 2015. In years when the yen strengthens in relation to the dollar, translating Aflac Japan's U.S. dollar-denominated investment income into yen lowers growth rates for net investment income, total operating revenues, and pretax operating earnings in yen terms. In years when the yen weakens, translating U.S. dollar-denominated investment income into yen magnifies growth rates for net investment income, total operating revenues, and pretax operating earnings in yen terms. Excluding foreign currency changes from the prior period, U.S. dollar-denominated investment income accounted for approximately 49% of Aflac Japan’s investment income during the first three months of 2016 , compared with 44% a year ago.

The following table illustrates the effect of translating Aflac Japan’s U.S. dollar-denominated investment income and related items into yen by comparing certain segment results with those that would have been reported had yen/dollar exchange rates remained unchanged from the comparable period in the prior year.

Aflac Japan Percentage Changes Over Previous Period

(Yen Operating Results)

For the Periods Ended March 31 ,



	Including Foreign Currency Changes					Excluding Foreign Currency Changes ⁽²⁾
	Three Months						Three Months
	2016			2015			2016			2015
Net investment income	(1.7	)	%	7.2	%		(.2	)	%	.1		%
Total operating revenues	(.2	)		1.3			.1			.2
Pretax operating earnings ⁽¹⁾	(.8	)		1.8			.2			(2.9	)

⁽¹⁾ See the Insurance Operations section of this MD&A for our definition of segment operating earnings.

⁽²⁾ Amounts excluding foreign currency changes on dollar-denominated items were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year.

The following table presents a summary of operating ratios in yen terms for Aflac Japan.



	Three Months Ended March 31,
Ratios to total revenues:	2016		2015
Benefits and claims, net	59.9	%	60.2	%
Operating expenses:
Amortization of deferred policy acquisition costs	4.0		4.0
Insurance commissions	4.9		5.0
Insurance and other expenses	9.2		8.7
Total operating expenses	18.1		17.7
Pretax operating earnings ⁽¹⁾	22.0		22.1

⁽¹⁾ See the Insurance Operations section of this MD&A for our definition of segment operating earnings.

In the three -month period ended March 31, 2016 , the benefit ratio decreased compared to the same respective period in the prior year, resulting from the impact of reinsurance and favorable claims experience. The three reinsurance agreements that we entered into since the end of the third quarter of 2013 reduced the benefit ratio by approximately 104 basis points for the three-month period ended March 31, 2016 . In the three -month period ended March 31, 2016 , the operating expense ratio increased primarily due to activities related to sales promotions, IT infrastructure enhancement and personnel. In total, the pretax operating profit margin remained relatively stable in the three-month period ended March 31, 2016 , compared with the same period in 2015. For the full year of 2016, we anticipate the pretax operating profit margin to be comparable with 2015 levels.

Aflac Japan Sales

The following table presents Aflac Japan’s new annualized premium sales for the periods ended March 31 .



	In Dollars						In Yen
	Three Months						Three Months
(In millions of dollars and billions of yen)	2016			2015			2016		2015
New annualized premium sales	$	271		$	226		31.2		27.0
Increase (decrease) over prior period	19.7		%	(15.7		)%	15.5	%	(2.2	)%

The following table details the contributions to new annualized premium sales by major insurance product for the periods ended March 31 .



	Three Months
	2016		2015
Medical	23.2	%	25.6	%
Cancer	35.4		41.5
Ordinary life:
Child endowment	9.1		10.3
WAYS	25.1		11.7
Other ordinary life	5.5		7.2
Other	1.7		3.7
Total	100.0	%	100.0	%

The foundation of Aflac Japan's product portfolio has been, and continues to be, our third sector cancer and medical products. Sales of third sector products increased 1.0% during the first quarter of 2016 , compared with the same period in 2015 . We have been focusing more on promotion of our cancer and medical products in this low-interest-rate environment. These products are less interest-rate sensitive and more profitable compared to first sector products.

Cancer insurance sales were down 1.3% during the first quarter of 2016 , compared with the same period in 2015 . Aflac Japan enhanced its medical product with new riders in June 2015. This revision provides better protection against critical diseases such as cancer, heart attack and stroke. With continued cost pressure on Japan’s health care system, we expect the need for third sector products will continue to rise in the future, and we remain convinced that the medical and cancer products Aflac Japan provides will continue to be an important part of our product portfolio.

Aflac Japan’s first sector product sales, which include WAYS and child endowment, were up 45.0% in the first quarter of 2016 , compared to the same period in the prior year. Sales of first sector products were elevated in the quarter, consistent with our expectations. As we further implement various measures in the second quarter, we expect to see a sharp decline in first sector sales in the second half of the year. Our focus remains on less interest-sensitive third sector products.

We remain committed to selling through our traditional channels. These channels, consisting of affiliated corporate agencies, independent corporate agencies and individual agencies, accounted for 85.4% of total new annualized premium sales for Aflac Japan in the first quarter of 2016 . During the three -month period ended March 31, 2016 , we recruited 50 new sales agencies. At March 31, 2016 , Aflac Japan was represented by approximately 12,900 sales agencies and approximately 113,000 licensed sales associates employed by those agencies.

At March 31, 2016 , we had agreements to sell our products at 370 banks, approximately 90% of the total number of banks in Japan. Bank channel sales accounted for 14.6% of new annualized premium sales in the first quarter of 2016 for Aflac Japan, compared with 17.3% during the first quarter of 2015 .

Aflac Japan and Japan Post Holdings entered into a new agreement in July 2013, further expanding a partnership that was established in 2008 (see Japanese Regulatory Environment). At the end of June 2014, Japan Post Insurance (Kampo) received Financial Services Agency (FSA) regulatory approval to enter into an agency contract with Aflac Japan to begin distributing Aflac Japan's cancer insurance products at all of Kampo's 79 directly managed sales offices. Aflac Japan has developed a unique Aflac-branded cancer product for Japan Post and Kampo that was introduced on October 1, 2014. In the fourth quarter of 2014, the number of postal outlets selling our cancer products expanded to approximately 10,000, and starting July 1, 2015, Japan Post expanded the number of post offices that offer Aflac's cancer products to more than 20,000 postal outlets. We believe this alliance with Japan Post will further benefit our cancer insurance sales.

We believe that there is still a continued need for our products in Japan. Our sales target and focus in 2016 will continue to be centered around the sale of Aflac Japan's third sector products, including cancer and medical. Although our traditional channels remain key to our success, we have developed partnerships with new channels to help increase our overall sales growth. These channels include Japan Post, and we are making steady progress with our sales through postal outlets. In 2016, we believe that third sector sales will be down mid-single digits in comparison to 2015. We believe that the long-term compound annual growth rate will be in the range of 4% to 6%.

Japanese Regulatory Environment

In 2005, legislation aimed at privatizing Japan's postal system (Japan Post) was enacted into law. The privatization laws split Japan Post into four operating entities that began operations in October 2007. In 2007, one of these entities selected Aflac Japan as its provider of cancer insurance to be sold through its post offices, and, in 2008, we began selling cancer insurance through these post offices. Japan Post has historically been a popular place for consumers to purchase insurance products. Legislation to reform the postal system passed the Diet in April 2012 and resulted in the merger of two of the postal operating entities (the one that delivers the mail and the one that runs the post offices) on October 1, 2012. In July 2013, Aflac Japan entered into a new agreement with Japan Post Holdings to further expand a partnership that was established in 2008 (see Aflac Japan Sales).

In June 2013, a revision to the Financial Instruments and Exchange Act established a post-funded Orderly Resolution Regime for financial institutions to prevent a financial crisis in the event of a financial institution’s failure. This regime came into effect in March 2014, but is not expected to have a material impact on the Company's operations in Japan.

Aflac Japan Investments

The level of investment income in yen is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, the effect of yen/dollar exchange rates on U.S. dollar-denominated investment income, and other factors.

Aflac Japan invests in U.S. dollar-denominated securities, including publicly-traded investment grade and below investment grade corporate fixed-maturity securities, and has entered into foreign currency forwards and options to hedge the currency risk on the fair value of the U.S. dollar securities. In 2015, as part of our portfolio management and asset allocation process, Aflac Japan increased its allocation to U.S. dollar-denominated investments, including senior secured bank loans and high yield corporate bonds, and initiated a commercial mortgage loan investment program. In the first quarter of 2016, Aflac Japan purchased an additional $249 million of bank loans and invested $20 million in commercial mortgage loans. As of March 31, 2016 , we had $25 million in outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed, and may or may not be funded. In addition, starting in the first quarter of 2016, Aflac Japan initiated an allocation to a dividend focused U.S. public equities program and purchased $199 million of those investments during the quarter.

Starting in 2015, we increased Aflac Japan's investment in dividend focused yen-denominated publicly traded equity securities, including investments in exchange traded funds (ETFs) holding Japan real estate investment trusts. In the first quarter of 2016, Aflac Japan purchased $139 million of yen-denominated publicly traded equity securities, which are classified as available for sale and carried on our balance sheet at fair value.

See the Analysis of Financial Condition section of this MD&A for further discussion of these investment programs, and see Note 3 of the Notes to the Consolidated Financial Statements and Notes 1 and 3 of Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 for more information regarding loans and loans receivables.

The following table presents the results of Aflac Japan’s investment yields for the periods ended March 31 .



	Three Months
	2016	⁽¹⁾	2015	⁽¹⁾
New money yield ⁽²⁾	2.14	%	3.88	%
Return on average invested assets, net of investment expenses ⁽³⁾	2.79		2.86
Portfolio book yield, including dollar-denominated investments, end of period ⁽²⁾	2.75	%	2.81	%

⁽¹⁾ Yields are reported before the cost of foreign currency forwards that hedge foreign exchange risk of U.S. dollar-denominated publicly

traded corporate bonds.

⁽²⁾ Includes fixed maturities and perpetual securities, loan receivables, and equities

⁽³⁾ Net of investment expenses, year-to-date number reflected on a quarterly average basis

On January 1, 2016, the company revised its definition of purchases to include "swap" purchase activity. New purchases include all purchases related to fixed maturities and perpetuals, loan receivables, and equities. Securities lending/repurchase agreement activity and capital contributions to alternatives are excluded. The definition of new money

yield has also been revised to reflect this change. Yields for equities are based on the assumed dividend yield at the time of purchase. Historical amounts have been revised to reflect the new definitions.

The decrease in the Aflac Japan new money yield in the three-month period ended March 31, 2016 was primarily due to the front-loaded allocation to JGBs.

See Notes 3, 4 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on our investments and hedging strategies.

AFLAC U.S. SEGMENT

Aflac U.S. Pretax Operating Earnings

Changes in Aflac U.S. pretax operating earnings and profit margins are primarily affected by morbidity, mortality, expenses, persistency and investment yields. The following table presents a summary of operating results for Aflac U.S.

Aflac U.S. Summary of Operating Results



	Three Months Ended March 31,
(In millions)	2016			2015
Net premium income	$	1,367		$	1,339
Net investment income	174			166
Other income	3			3
Total operating revenues	1,544			1,508
Benefits and claims	690			710
Operating expenses:
Amortization of deferred policy acquisition costs	141			128
Insurance commissions	146			147
Insurance and other expenses	235			238
Total operating expenses	522			513
Total benefits and expenses	1,212			1,223
Pretax operating earnings ⁽¹⁾	$	332		$	285
Percentage change over previous period:
Net premium income	2.1		%	3.5			%
Net investment income	5.1			3.3
Total operating revenues	2.3			3.6
Pretax operating earnings ⁽¹⁾	16.6			(6.1		)

⁽¹⁾ See the Insurance Operations section of this MD&A for our definition of segment operating earnings.

Annualized premiums in force increased 2.3% to $5.7 billion at March 31, 2016 , compared with $5.6 billion at March 31, 2015 .

The following table presents a summary of operating ratios for Aflac U.S.



	Three Months Ended March 31,
Ratios to total revenues:	2016		2015
Benefits and claims	44.7	%	47.1	%
Operating expenses:
Amortization of deferred policy acquisition costs	9.1		8.5
Insurance commissions	9.5		9.7
Insurance and other expenses	15.2		15.8
Total operating expenses	33.8		34.0
Pretax operating earnin gs ⁽¹⁾	21.5		18.9

⁽¹⁾ See the Insurance Operations section of this MD&A for our definition of segment operating earnings.

The benefit ratio in the three -month period ended March 31, 2016 , decreased compared with the same periods in 2015 due to normal seasonality of claims and lapses, mix of business changes, and continued favorable claims experience. The expense ratio decreased during these periods primarily due to lower advertising expenses. In total, the pretax operating profit margin improved in the three -month period ended March 31, 2016 , compared with the same relative periods in 2015. For the remainder of 2016, we expect the benefit and expense ratios to be relatively stable compared with 2015 .

Aflac U.S. Sales

The following table presents Aflac's U.S. new annualized premium sales for the periods ended March 31 .



	Three Months
(In millions)	2016			2015
New annualized premium sales	$	328		$	316
Increase (decrease) over prior period	3.7		%	(.5		)	%

The following table details the contributions to new annualized premium sales by major insurance product category for the periods ended March 31 .



	Three Months
	2016		2015
Income-loss protection:
Short-term disability	23.4	%	23.6	%
Life	5.6		6.0
Asset-loss protection:
Accident	30.0		29.0
Critical care ⁽¹⁾	21.4		21.1
Supplemental medical:
Hospital indemnity	14.0		14.6
Dental/vision	5.6		5.7
Total	100.0	%	100.0	%

⁽¹⁾ Includes cancer, critical illness, and hospital intensive care products

New annualized premium sales for accident insurance, our leading product category, increased 7.0% , short-term disability sales increased 3.1% , critical care insurance sales (including cancer insurance) increased 5.2% , and hospital indemnity insurance sales decreased .6% in the first quarter of 2016 , compared with the same period in 2015 .

In the first quarter of 2016 , our traditional U.S. sales forces included more than 9,000 U.S. associates who were actively producing business on a weekly basis. We believe that the average weekly producing sales associates metric allows our sales management to actively monitor progress and needs on a real-time basis. Beyond expanding the size and capabilities of our traditional sales force, we remain encouraged about establishing and developing relationships with insurance brokers that typically handle the larger-case market.

The addition of group products has expanded our reach and enabled us to generate more sales opportunities with larger employers, brokers, and our traditional sales agents. We anticipate that the appeal of our group products will continue to enhance our opportunities to connect with larger businesses and their employees. Our portfolio of group and individual products offers businesses the opportunity to give their employees a more valuable and comprehensive selection of benefit options.

We believe that changes we made to our career and broker management infrastructure over the last 18 months are laying the foundation for expanded long-term growth opportunities. During 2014, Aflac U.S. implemented tactical initiatives centered around providing competitive compensation to our career agent sales hierarchy and positioning us to more effectively and consistently execute on the U.S. sales strategy across all states. These measures are designed to more effectively link sales management's success to Aflac's success. For example, we enhanced compensation through an incentive bonus for the first level of our sales management, district sales coordinators, who are primarily responsible for selling Aflac products and training new sales associates. Additionally, we eliminated the commission-based position of

state sales coordinator. To better manage our state operations, we introduced the new position of market director, effective October 1, 2014. Market directors are salaried with the opportunity to earn sales-related bonuses. We believe these changes have enhanced and will continue to enhance performance management and better align compensation with new business results.

One Day Pay ^SM is a claims initiative that we have focused on at Aflac U.S. to process, approve and pay eligible claims in just one day. We believe that along with our brand and relevant products, this claims practice will help Aflac stand out from competitors.

With the evolving business market and the coverage standardization that will result from health care reform in the United States, we believe Aflac's voluntary products will become more relevant than ever. Our products provide cash benefits that can be used to help with increasing out-of-pocket medical expenses, help cover household costs, or protect against income and asset loss. Our group products and relationships with insurance brokers that handle the larger-case market are helping us as we expand our reach selling to larger businesses. We are regularly evaluating the marketplace to identify opportunities to bring the most relevant, cost-effective products to our customers. We believe the need for our products remains very strong, and we continue to work on enhancing our distribution capabilities to access employers of all sizes, including initiatives that benefit our field force and the broker community. At the same time, we are seeking opportunities to leverage our brand strength and attractive product portfolio in the evolving health care environment. For 2016, our objective is for Aflac U.S. new annualized premium sales to increase in the range of 3% to 5%. We anticipate the achievement of our annual U.S. sales target will be increasingly reliant on fourth quarter 2016 production as more of our business comes from larger employers that have fourth quarter enrollments.

U.S. Regulatory Environment

The Affordable Care Act (ACA) is intended to give Americans of all ages and income levels access to comprehensive major medical health insurance. The major elements of the bill became effective on January 1, 2014. The primary subject of the legislation is major medical insurance; as enacted, the ACA does not materially affect the design of our insurance products. However, indirect consequences of the legislation and regulations, including uncertainty related to implementation, could present challenges and/or opportunities that could potentially have an impact on our sales model, financial condition and results of operations. Our experience with Japan’s national health care environment leads us to believe that the need for supplemental insurance will only increase over the coming years.

On December 18, 2015, the president signed into law the Consolidated Appropriations Act which included a revision to delay implementation of the Excise Tax on High Cost Plans, better known as the "Cadillac tax.” This tax was originally scheduled to begin in 2017, was previously delayed until 2018, and is now scheduled to begin in 2020. The tax consists of 40% of the cost of employer sponsored health coverage in excess of certain dollar thresholds. In general, only Aflac specified disease and fixed indemnity (i.e. supplemental health) products offered on a pre-tax basis are taken into account under this tax.

The legislation also makes the tax deductible by the payer. If employers fund coverage on a pre-tax basis, Aflac, as the insurer, would be liable for its pro-rata share of any tax on excess coverage, determined based on the cost of Aflac coverage compared to the total cost of the applicable health coverage in which each employee is enrolled. Making the tax deductible would then reduce the economic impact of any tax that is imposed and payable by Aflac.

Many employers are concerned about the tax and what impact it will have on benefit offerings in the future. There is confusion in the market about how the tax is calculated and who pays the tax, presenting a risk that some employers will mistakenly conclude that all supplemental health products are included in the calculation for the tax regardless of pre-tax funding status or whether an employer’s health coverage exceeds the trigger for the tax. Some employers may decide simply to drop coverage of affected supplemental health products, rather than convert it to an after-tax basis. During this extended implementation period, Aflac will be assessing the impact of this tax; educating employers about the tax; and investigating ways to mitigate the impact of the tax. Having employees pay for the coverage on an after-tax basis would exempt affected supplemental health products from the tax.

The Dodd-Frank Act, which was signed into law in 2010, created, among other things, a Financial Stability Oversight Council (the Council). In April 2012, the Council released a final rule describing the general process it will follow in determining whether to designate a nonbank financial company for supervision by the Board of Governors of the U.S. Federal Reserve System (the Board). The Council may designate by a two-thirds vote whether certain nonbank financial companies, including certain insurance companies and insurance holding companies, could pose a threat to the financial stability of the United States, in which case such nonbank financial companies would become subject to prudential regulation by the Board. On April 3, 2013, the Board published a final rule that establishes the requirements for

determining when a nonbank financial company is "predominantly engaged in financial activities" - a prerequisite for designation by the Council. Prudential regulation by the Board includes supervision of capital requirements, leverage limits, liquidity requirements and examinations. The Board may limit such company’s ability to enter into mergers, acquisitions and other business combination transactions, restrict its ability to offer financial products, require it to terminate one or more activities, or impose conditions on the manner in which it conducts activities. The Council designated two insurers in 2013 as a Systemically Important Financial Institution (SIFI). On December 18, 2014, the president signed the Insurance Capital Standards Clarification Act into law. This legislation will clarify the Board’s authority to apply insurance-based capital standards for insurance companies subject to federal supervision. Although Aflac is a nonbank financial company predominantly engaged in financial activities as defined in the Dodd-Frank Act, we do not believe Aflac will be considered a company that poses a threat to the financial stability of the United States.

Title VII of the Dodd-Frank Act and regulations issued thereunder may have an impact on Aflac's derivative activity, including activity on behalf of Aflac Japan, in particular rules to require central clearing and collateral for certain types of derivatives. In 2014, the five U.S. banking regulators and the U.S. Commodity Futures Trading Commission (CFTC) re-proposed for comment their rules regarding collateral for uncleared swaps. Final rules were issued by the five U.S. banking regulators on October 22, 2015 and by the CFTC on December 16, 2015. Such rules may result in increased collateral requirements or affect other aspects of Aflac's derivatives activity.

The Dodd-Frank Act also established a Federal Insurance Office (FIO) under the U.S. Treasury Department to monitor all aspects of the insurance industry and of lines of business other than certain health insurance, certain long-term care insurance and crop insurance. Traditionally, U.S. insurance companies have been regulated primarily by state insurance departments. In December 2013, the FIO released a report entitled "How To Modernize And Improve The System Of Insurance Regulation In The United States." The report was required by the Dodd-Frank Act, and included 18 recommended areas of near-term reform for the states, including addressing capital adequacy and safety/soundness issues, reform of insurer resolution practices, and reform of marketplace regulation. The report also listed nine recommended areas for direct federal involvement in insurance regulation. Some of the recommendations outlined in the FIO report released in December 2013 have been implemented. Of the nine recommended areas for direct federal involvement in insurance regulation that are applicable to Aflac, the president signed the National Association of Registered Agents and Brokers Reform Act into law in January 2015, which simplifies the agent and broker licensing process across state lines. The FIO has also engaged with the supervisory colleges to monitor financial stability and identify regulatory gaps for large national and internationally active insurers.

The process of implementing the Dodd-Frank Act is ongoing and continues to involve additional rulemaking from time to time. At the current time, it is not possible to predict with any degree of certainty what impact, if any, the Dodd-Frank Act will have on our U.S. business, financial condition, or results of operations.

Under state insurance guaranty association laws and similar laws in international jurisdictions, we are subject to assessments, based on the share of business we write in the relevant jurisdiction, for certain obligations of insolvent insurance companies to policyholders and claimants. In the United States, some states permit member insurers to recover assessments paid through full or partial premium tax offsets. The Company's policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile's statutory definition of insolvency, the amount of the loss is reasonably estimable and the related premium upon which the assessment is based is written. In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction.

Penn Treaty Network Company and its subsidiary American Network Insurance Company (collectively referred to as Penn Treaty) were placed in rehabilitation on January 6, 2009, and remain in rehabilitation as of March 31, 2016 . As of March 31, 2016 , we were unable to estimate when or to what extent Penn Treaty will ultimately be declared insolvent, or the amount of the insolvency. As such, we have not established any accruals for guaranty fund assessments associated with Penn Treaty as of March 31, 2016 .

Aflac U.S. Investments

The level of investment income is affected by available cash flow from operations, the timing of investing the cash flow, yields on new investments, and other factors.

Historically, Aflac U.S. has invested primarily in investment grade corporate bonds. In 2015, as part of our portfolio management and asset allocation process, Aflac U.S. purchased high yield corporate bonds and middle market loan receivables and initiated a commercial mortgage loan investment program. In the first quarter of 2016, Aflac U.S. purchased an additional $11 million of high yield corporate bonds; $111 million of middle market loan receivables, net of reserves and including $75 million which was unfunded; and $13 million in commercial mortgage loans. As of March 31,

2016 , we had commitments of $80 million to fund potential future loan originations related to the middle market loan investment program. These commitments are contingent upon the availability of middle market loans that meet our underwriting criteria. As of March 31, 2016 , we had $10 million in outstanding commitments to fund 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 and Notes 1 and 3 of Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 for more information regarding loans and loans receivables.

Starting in the first quarter of 2016, we initiated an allocation to dividend focused U.S. public equities and purchased $66 million of those investments during the quarter.

The following table presents the results of Aflac's U.S. investment yields for the periods ended March 31 .



	Three Months
	2016		2015
New money yield ⁽¹⁾	4.67	%	3.79	%
Return on average invested assets, net of investment expenses ⁽²⁾	5.02		5.21
Portfolio book yield, end of period ⁽¹⁾	5.74	%	5.85	%

⁽¹⁾ Includes fixed maturities and perpetual securities, loan receivables, and equities

⁽²⁾ Net of investment expenses, year-to-date number reflected on a quarterly average basis

The increase in the Aflac U.S. new money yield for the three-month period ended March 31, 2016 was primarily due to an increased allocation to middle market loans. See Notes 3 and 5 of the Notes to the Consolidated Financial Statements and the Analysis of Financial Condition section of this MD&A for additional information on our investments.

ANALYSIS OF FINANCIAL CONDITION

Our financial condition has remained strong in the functional currencies of our operations. The yen/dollar exchange rate at the end of each period is used to translate yen-denominated balance sheet items to U.S. dollars for reporting purposes.

The following table demonstrates the effect of the change in the yen/dollar exchange rate by comparing select balance sheet items as reported at March 31, 2016 , with the amounts that would have been reported had the exchange rate remained unchanged from December 31, 2015 .

Impact of Foreign Exchange on Balance Sheet Items



(In millions)	As Reported			Exchange Effect			Net of Exchange Effect
Yen/dollar exchange rate ⁽¹⁾		112.68						120.61
Investments and cash		$	114,320		$	4,738		$	109,582
Deferred policy acquisition costs		8,929			381			8,548
Total assets		127,766			5,318			122,448
Policy liabilities		94,128			5,536			88,592
Total liabilities		107,745			5,932			101,813

⁽¹⁾ The exchange rate at March 31, 2016 , was 112.68 yen to one dollar, or 7.0% stronger than the December 31, 2015 , exchange rate of 120.61 .

Market Risks of Financial Instruments

Our investment philosophy is to fulfill our fiduciary responsibility to invest assets in a prudent manner to meet the present and future needs of our policyholders’ contractual obligations while maximizing the long-term financial return on assets consistent with the company goal of maximizing long-term shareholder value within defined risk appetites, limits, and maintaining adequate liquidity.

The following table details investment securities by segment.

Investment Securities by Segment ⁽¹⁾



		Aflac Japan						Aflac U.S.
(In millions)	March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015
Securities available for sale, at fair value:
Fixed maturities		$	58,552		$	52,304		$	13,029		$	12,522
Perpetual securities		1,855			1,890			54			57
Equity securities		793			493			76			5
Total available for sale		61,200			54,687			13,159			12,584
Securities held to maturity, at amortized cost:
Fixed maturities		35,515			33,459			0			0
Total held to maturity		35,515			33,459			0			0
Total investment securities		$	96,715		$	88,146		$	13,159		$	12,584

⁽¹⁾ Excludes available-for-sale fixed-maturity securities held by the Parent Company and other business segments of $547 in 2016 and

$523 in 2015 .

Because we invest primarily in fixed-maturity securities, our financial instruments are exposed primarily to three types of market risks: currency risk, interest rate risk, and credit risk. In 2015 and continuing into the first quarter of 2016, we increased our investment allocation to dividend focused yen-denominated and U.S. dollar-denominated public equity securities, thereby increasing our exposure to equity risk.

Currency Risk

The functional currency of Aflac Japan's insurance operations is the Japanese yen. All of Aflac Japan's premiums, claims and commissions are received or paid in yen, as are most of its other expenses. Most of Aflac Japan's cash and liabilities are yen-denominated. Aflac Japan's investments consisted of yen-denominated fixed income securities of $66.0 billion , at amortized cost, and yen-denominated equity securities of $602 million , at cost, at March 31, 2016 . However, Aflac Japan also owns U.S. dollar-denominated fixed income securities of $15.1 billion , at amortized cost, whose fair value is hedged against currency risk as well as $8.4 billion of fixed income securities, at cost, that are not hedged as of March 31, 2016 . Aflac Japan owns U.S. dollar denominated equity securities of $203 million , at cost, as of March 31, 2016 . Yen-denominated investment income accounted for 52% of Aflac Japan's investment income during the three -month period ended March 31, 2016 , with the remainder denominated in U.S. dollars. In addition, Aflac Incorporated has yen-denominated debt obligations.

We are exposed to currency risk as an economic event only when yen funds are actually converted into dollars. This occurs when we repatriate yen-denominated funds from Aflac Japan to Aflac U.S and with quarterly settlements of our reinsurance retrocession transactions. The exchange rates prevailing at the time of profit repatriation will differ from the exchange rates prevailing at the time the yen profits were earned. A portion of the yen repatriation may be used to service Aflac Incorporated's yen-denominated notes payable with the remainder converted into dollars. In order to economically hedge foreign exchange risk for a portion of the profit repatriation received in yen from Aflac Japan, we had foreign exchange forwards and options as part of a hedging strategy on 25.0 billion yen, received in February 2016. As of March 31, 2016 , we had foreign exchange forwards and options to economically hedge foreign exchange risk on 130.4 billion yen of future profit repatriation from Aflac Japan.

In addition to profit repatriation and the reinsurance retrocessions, certain investment activities for Aflac Japan expose us to economic currency risk when yen are converted into dollars. As noted above, we invest a portion of our yen cash flows in U.S. dollar-denominated assets. This requires that we convert the yen cash flows to U.S. dollars before investing. As previously discussed, for certain of our U.S. dollar-denominated securities, we enter into foreign currency forward and option contracts to hedge the currency risk on the fair value of the securities. The dollar coupon payments received on these investments are not hedged and are subject to foreign exchange fluctuations, which are realized in earnings. Also, Aflac Japan has invested in reverse-dual currency securities (RDCs, or yen-denominated debt securities with dollar coupon payments), which exposes Aflac to changes in foreign exchange rates. The foreign currency effect on the yen-denominated securities is accounted for as a component of unrealized gains or losses on available-for-sale securities in accumulated other comprehensive income, while the foreign currency effect on the dollar coupons is realized in earnings. The RDCs provided a higher yield at the time of purchase than those available on Japanese government or other public

corporate bonds, while still adhering to our investment standards at the time of the transaction. The yen/dollar exchange rate would have to strengthen to approximately 18 before the yield on these instruments would equal that of a comparable Japan Government Bond (JGB) instrument.

Aside from the activities discussed above, we generally do not convert yen into dollars; however, we do translate financial statement amounts from yen into dollars for financial reporting purposes. Therefore, reported amounts are affected by foreign currency fluctuations. We report unrealized foreign currency translation gains and losses in accumulated other comprehensive income. In periods when the yen weakens against the dollar, translating yen into dollars causes fewer dollars to be reported. When the yen strengthens, translating yen into dollars causes more dollars to be reported. The weakening of the yen relative to the dollar will generally adversely affect the value of our yen-denominated investments in dollar terms. We attempt to minimize the exposure of shareholders' equity to foreign currency. We accomplish this by investing a portion of Aflac Japan's investment portfolio in U.S. dollar-denominated securities and by the Parent Company's issuance of yen-denominated debt (for additional information, see the discussion under the Hedging Activities subsection of MD&A). As a result, the effect of currency fluctuations on our net assets is reduced.

The following table demonstrates the effect of foreign currency fluctuations by presenting the dollar values of our yen-denominated assets and liabilities, and our consolidated yen-denominated net asset exposure at selected exchange rates.

Dollar Value of Yen-Denominated Assets and Liabilities

at Selected Exchange Rates



(In millions)	March 31, 2016									December 31, 2015
Yen/dollar exchange rates	97.68			112.68 ⁽¹⁾			127.68			105.61			120.61 ⁽¹⁾			135.61
Yen-denominated financial instruments:
Assets:
Securities available for sale:
Fixed maturities ⁽²⁾	$	37,694		$	32,676		$	28,837		$	31,544		$	27,621		$	24,566
Fixed maturities - consolidated variable interest entities ⁽³⁾	1,118			969			855			1,016			890			792
Perpetual securities	1,911			1,656			1,462			1,883			1,649			1,466
Perpetual securities - consolidated variable interest entities ⁽³⁾	208			181			159			214			187			167
Equity securities	161			139			123			408			357			318
Equity securities - consolidated variable interest entities	509			441			389			149			130			116
Securities held to maturity:
Fixed maturities	40,969			35,515			31,343			38,212			33,459			29,758
Cash and cash equivalents	364			316			279			730			640			569
Derivatives	3,260			1,145			817			2,416			676			968
Other financial instruments	199			172			152			179			156			139
Subtotal	86,393			73,210			64,416			76,751			65,765			58,859
Liabilities:
Notes payable	253			219			194			234			205			183
Derivatives	749			332			1,384			545			371			1,901
Subtotal	1,002			551			1,578			779			576			2,084
Net yen-denominated financial instruments	85,391			72,659			62,838			75,972			65,189			56,775
Other yen-denominated assets	8,918			7,731			6,822			8,195			7,176			6,382
Other yen-denominated liabilities	103,720			89,913			79,350			94,775			82,988			73,808
Consolidated yen-denominated net assets (liabilities) subject to foreign currency fluctuation ⁽²⁾	$	(9,411	)	$	(9,523	)	$	(9,690	)	$	(10,608	)	$	(10,623	)	$	(10,651	)

⁽¹⁾ Actual period-end exchange rate

⁽²⁾ Does not include the U.S. dollar-denominated corporate bonds for which we have entered into foreign currency derivatives as discussed in the Aflac Japan Investment subsection of MD&A

⁽³⁾ Does not include U.S. dollar-denominated bonds that have corresponding cross-currency swaps in consolidated VIEs

We are required to consolidate certain VIEs. Some of the consolidated VIEs in Aflac Japan's portfolio use foreign currency swaps to convert foreign denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. Foreign currency swaps exchange an initial principal amount in two currencies, agreeing 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. Prior to consolidation, our beneficial interest in these VIEs was a yen-denominated available-for-sale fixed maturity security. Upon consolidation, the original yen-denominated investment was derecognized and the underlying fixed-maturity or perpetual securities and cross-currency swaps were recognized. The combination of a U.S. dollar-denominated investment and cross-currency swap economically creates a yen-denominated investment and has no impact on our net investment hedge position.

Similarly, the combination of the U.S. corporate bonds and the foreign currency forwards and options that we have entered into, as discussed in the Aflac Japan Investment subsection of MD&A, economically creates a yen-denominated investment that qualifies for inclusion as a component of our investment in Aflac Japan for net investment hedge purposes.

For additional information regarding our Aflac Japan net investment hedge, see the Hedging Activities subsection of MD&A.

Interest Rate Risk

Our primary interest rate exposure is to the impact of changes in interest rates on the fair value of our investments in debt and perpetual securities. We estimate that the reduction in the fair value of debt and perpetual securities we own resulting from a 100 basis point increase in Japan and U.S. interest rates, based on our portfolios at March 31, 2016 , and December 31, 2015 , would be as follows:



(In millions)	March 31, 2016				December 31, 2015
Effect on yen-denominated debt and perpetual securities		$	(10,483	)		$	(8,693	)
Effect on dollar-denominated debt and perpetual securities		(3,673		)		(4,482		)
Effect on total debt and perpetual securities		$	(14,156	)		$	(13,175	)

There are various factors that affect the fair value of our investment in debt and perpetual securities. Included in those factors are changes in the prevailing interest rate environment, which directly affect the balance of unrealized gains or losses for a given period in relation to a prior period. Decreases in market yields generally improve the fair value of debt and perpetual securities, while increases in market yields generally have a negative impact on the fair value of our debt and perpetual securities. However, we do not expect to realize a majority of any unrealized gains or losses because we generally have the intent and ability to hold such securities until a recovery of value, which may be maturity. For additional information on unrealized losses on debt and perpetual securities, see Note 3 of the Notes to the Consolidated Financial Statements.

We perform extensive analysis on the duration of our assets and liabilities. Currently, when debt and perpetual securities we own mature, the proceeds may be reinvested at a yield below that of the interest required for the accretion of policy benefit liabilities on policies issued in earlier years. However, adding riders to our older policies has helped offset negative investment spreads on these policies. Overall, adequate profit margins exist in Aflac Japan’s aggregate block of business because of changes in the mix of business and favorable experience from mortality, morbidity and expenses.

Periodically, depending on general economic conditions, we may enter into other derivative transactions to hedge interest rate risk.

For further information on our interest rate derivatives, see Note 4 of the Notes to the Consolidated Financial Statements and the Interest Rate Risk subsection of MD&A in our annual report to shareholders for the year ended December 31, 2015 .

Credit Risk

A significant portion of our investment portfolio consists of debt securities or perpetual securities that expose us to the credit risk of the underlying issuer. We carefully evaluate this risk on every new investment and closely monitor the credit risk of our existing investment portfolio. We incorporate the needs of our products and liabilities, the overall requirements of the business, and other factors in addition to our underwriting of the credit risk for each investment in the portfolio.

Evaluating the underlying risks in our credit portfolio involves a multitude of factors including but not limited to our assessment of the issuers business activities, assets, products, market position, financial condition, and future prospects. We also must incorporate the assessment of the Nationally Recognized Statistical Rating Organizations (NRSROs) in assigning credit ratings to our specific portfolio holdings. We perform extensive internal assessments of the credit risks for all our portfolio holdings and potential new investments.

The ratings of our securities referenced in the two tables below are based on the ratings designations provided by major NRSROs (Moody's, S&P and Fitch) or, if not rated, are determined based on our internal analysis of such securities. For investment-grade securities where the ratings assigned by the major credit agencies are not equivalent, we use the second lowest rating that is assigned. For a description of the ratings methodology that we use when a security is below investment grade or split-rated, see "Market Risks of Financial Instruments - Below-Investment-Grade and Split-Rated Securities" in the Analysis of Financial Condition section of this MD&A.

The distributions by credit rating of our purchases of debt securities, based on acquisition cost, were as follows:

Composition of Purchases by Credit Rating



	Three Months Ended March 31, 2016			Twelve Months Ended December 31, 2015			Three Months Ended March 31, 2015
AAA		1.9	%		1.4	%		2.7	%
AA		2.3			1.6			5.0
A		66.9			39.3			11.7
BBB		17.7			25.7			15.3
BB or lower		11.2			32.0			65.3
Total		100.0	%		100.0	%		100.0	%

Purchases of securities from period to period are determined based on multiple objectives including appropriate portfolio diversification, the relative value of a potential investment and availability of investment opportunities, liquidity, credit and other risk factors while adhering to our investment policy guidelines. We did not purchase any perpetual securities during the periods presented in the table above. Total purchases comprise new money investments as well as the reinvestment of proceeds from investment disposals. In the first quarter of 2016, the significant increase in purchases of A rated securities was due primarily to the purchase of JGBs. In the full year of 2015, purchases of A rated and BBB rated securities were driven primarily by the purchase of U.S. dollar-denominated corporate fixed-income publicly traded securities for the Aflac Japan portfolio. In the full year of 2015, the purchases of BB or lower rated securities were driven by an increased investment in senior secured bank loans, most of which have below-investment-grade ratings, and investment in high yield corporate bonds. The bank loan investment program is managed externally by third party firms specializing in this asset class. This mandate requires a minimum average credit quality of BB-/Ba3, prohibits loan purchases rated below B/B2, and restricts exposure to any individual credit to less than 2% of the program’s assets. The objectives of this program include enhancing the yield on invested assets, achieving further diversification of credit risk, and mitigating the risk of rising interest rates through the acquisition of floating rate assets. The objective of the high yield corporate bond investments is to enhance yield on invested assets and further diversify our credit risk. All high yield corporate bond investments must have a minimum rating of low BB using our above described rating methodology and are managed by our internal credit portfolio management team.

The distributions of debt and perpetual securities we own, by credit rating, were as follows:

Composition of Portfolio by Credit Rating



		March 31, 2016						December 31, 2015
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
AAA		1.3	%		1.2	%		1.3	%		1.3	%
AA		5.4			5.3			5.7			5.7
A		61.4			64.9			61.0			63.0
BBB		26.7			24.2			26.9			25.1
BB or lower		5.2			4.4			5.1			4.9
Total		100.0	%		100.0	%		100.0	%		100.0	%

As of March 31, 2016 , our direct and indirect exposure to securities in our investment portfolio that were guaranteed by third parties was immaterial both individually and in the aggregate.

Portfolio Composition

For information regarding the amortized cost for our investments in debt and perpetual securities, the cost for equity securities and the fair values of these investments, refer to Note 3 of the Notes to the Consolidated Financial Statements.

Investment Concentrations

Our 15 largest global investment exposures as of March 31, 2016 , were as follows:

Largest Global Investment Positions

Amortized

% of

Ratings

(In millions)

Cost

Total

Seniority

Moody’s

S&P

Fitch

Japan National Government ⁽¹⁾

40,655

39.82

Senior

A+

Republic of South Africa

532

.52

Senior

Baa2

BBB-

Bank of America NA

401

.39

Bank of America Corp.

222

.22

Senior

Baa1

BBB+

Bank of America Corp.

177

.17

Lower Tier II

Baa3

BBB

A-

Bank of America NA

.00

Senior

A+

Bank of Tokyo-Mitsubishi UFJ Ltd.

399

.39

BTMU Curacao Holdings NV

399

.39

Lower Tier II

—

A-

Investcorp SA

378

.37

Investcorp Capital Limited

328

.32

Senior

Ba2

—

Investcorp Capital Limited

.05

Senior

Ba2

—

JP Morgan Chase & Co.

347

.34

JPMorgan Chase & Co. (including Bear Stearns Companies Inc.)

313

.30

Senior

A-

A+

JPMorgan Chase & Co. (Bank One Corp.)

.02

Lower Tier II

Baa1

BBB+

JPMorgan Chase & Co. (NBD Bank)

.01

Lower Tier II

A-

JPMorgan Chase & Co. (FNBC)

.01

Senior

Aa1

A+

—

Banobras

328

.32

Senior

BBB+

Sultanate of Oman

311

.30

Senior

BBB-

—

Koninklijke Ahold NV

307

.30

Koninklijke Ahold NV

293

.29

Senior

Baa2

BBB

Ahold USA Lease

.01

Senior

Baa2

BBB

—

Petroleos Mexicanos (Pemex)

301

.29

Pemex Proj FDG Master TR

266

.26

Senior

Baa3

BBB+

Pemex Finance Ltd.

.03

Senior

Baa1

A+

Nordea Bank AB

299

.29

Nordea Bank AB

228

.22

Tier I

Baa3

BBB

—

Nordea Bank Finland

.07

Upper Tier II

Baa2

—

Nordea Bank AB

.00

Senior

Aa3

AA-

AXA

290

.28

AXA-UAP

240

.24

Upper Tier II

BBB

AXA

.04

CC FNB

BBB

BBB+

Deutsche Telekom AG

288

.28

Deutsche Telekom AG

266

.26

Senior

Baa1

BBB+

Deutsche Telekom International Finance

.02

Senior

Baa1

BBB+

CFE

284

.28

Senior

Baa1

BBB+

Barclays Bank PLC

279

.27

Barclays Bank PLC

123

.12

Lower Tier II

Baa3

BBB-

A-

Barclays Bank PLC

110

.11

Upper Tier II

Ba1

BBB

Barclays Bank PLC

.04

Tier 1

Ba2

BB+

Subtotal

45,399

44.44

Total debt and perpetual securities

102,102

100.00

⁽¹⁾ JGBs or JGB-backed securities

As previously disclosed, we own long-dated debt instruments in support of our long-dated policyholder obligations. Some of our largest global investment holdings are positions that were purchased many years ago and increased in size due to merger and consolidation activity among the issuing entities. In addition, many of our largest holdings are yen-denominated, therefore strengthening of the yen can increase our position in dollars, and weakening of the yen can

decrease our position in dollars. Our global investment guidelines establish concentration limits for our investment portfolios.

Geographical Exposure

The following table indicates the geographic exposure of our investment portfolio.



	March 31, 2016				December 31, 2015
(In millions)	Amortized Cost		% of Total		Amortized Cost		% of Total
Japan	$	43,619	42.7	%	$	39,593	41.3	%
United States and Canada ⁽¹⁾	32,686		32.0		31,622		33.0
United Kingdom	2,592		2.5		2,697		2.8
Germany	2,729		2.7		2,558		2.7
France	1,854		1.8		1,755		1.8
Peripheral Eurozone	2,770		2.7		2,762		2.9
Portugal	211		.2		200		.2
Italy	1,620		1.6		1,514		1.6
Ireland	210		.2		364		.4
Spain	729		.7		684		.7
Nordic Region	2,035		2.0		1,906		1.9
Sweden	728		.7		682		.7
Norway	546		.6		512		.5
Denmark	355		.3		332		.3
Finland	406		.4		380		.4
Other Europe	2,682		2.6		2,502		2.6
Netherlands	1,469		1.4		1,367		1.4
Switzerland	262		.3		246		.3
Czech Republic	444		.4		415		.4
Austria	124		.1		115		.1
Belgium	194		.2		182		.2
Poland	177		.2		166		.2
Luxembourg	12		.0		11		.0
Asia excluding Japan	3,529		3.5		3,325		3.5
Africa and Middle East	2,630		2.6		2,478		2.6
Latin America	2,276		2.2		2,172		2.3
Australia	2,236		2.2		2,135		2.2
All Others	464		.5		437		.4
Total debt and perpetual securities	$	102,102	100.0	%	$	95,942	100.0	%

⁽¹⁾ Includes total exposure to Puerto Rico of $1 million of required deposits, of which 86% has insurance of principal and interest.

European sovereign debt crisis

Since 2008, many countries in Europe, and specifically Greece, Ireland, Italy, Portugal, and Spain (collectively the "peripheral Eurozone" countries), have experienced a debt crisis. Collective action by multiple parties including the European Central Bank (ECB), International Monetary Fund (IMF), European Council, and individual member states' governments had largely improved market perception of the situation across Europe. In exchange for this support, affected countries generally agreed to implement a series of measures to improve their fiscal situation in exchange for loans and other aid. Most countries continue to implement the prescribed austerity measures and have seen improvement in their economies, which in turn has seen their creditworthiness improve or stabilize.

Although recent economic indicators show improvement from the depths of the crisis across most of the Eurozone, overall economic activity remains subdued throughout the region. To support the return to sustainable economic growth, the ECB has launched a quantitative easing (QE) stimulus program.

Since the crisis first began, we have taken steps to improve the risk profile of our portfolio by selling certain holdings throughout Europe, including the peripheral Eurozone countries.

The primary factor considered when determining the domicile of investment exposure is the legal country risk location of the issuer. However, other factors such as the location of the parent guarantor, the location of the company's headquarters or major business operations (including location of major assets), location of primary market (including location of revenue generation) and specific country risk publicly recognized by rating agencies can influence the assignment of the country (or geographic) risk location. When the issuer is a special financing vehicle or a branch or subsidiary of a global company, then we consider any guarantees and/or legal, regulatory and corporate relationships of the issuer relative to its ultimate parent in determining the proper assignment of country risk.

Investments in Certain European Countries - monitoring and mitigating exposure

Our internal team of experienced credit professionals has continued to monitor the impact of the European sovereign crisis on our individual investment holdings' overall credit quality. Our analysis includes factors beyond a baseline assessment of a company's assets, operations, financial statements, and credit metrics that may provide support for the instruments we own. Specifically, for our investments in European banks and financial institutions, we monitor the importance of the issuer to its local financial system, the likelihood of government support, and our investment's position in the capital structure of the issuer. For our investments in European utilities, we monitor the role of the issuer in its local economy as a provider of necessary infrastructure, and we monitor the value of the underlying assets owned by the issuer. For our investment in European corporates, industrials, and other commercial entities, we monitor the general credit quality of the issuer, the geographical mix of the issuer's customers (i.e. domestic vs. foreign), the geographical breakdown of the issuer's assets (i.e. domestic versus foreign), the value of the underlying assets owned by the issuer, capitalization of the issuer, and overall profitability and cash generation ability of the issuer. We monitor NRSRO actions and the likely actions for our investment exposures, as well as overall market conditions. By performing these analyses, we make a determination on the probability of timely payment of principal and interest of the issuers of our investments.

Some of our peripheral Eurozone fixed-maturity investments contain covenants that we believe mitigate our risk to the issuer. These covenants could include put options that allow us to return our holdings to the issuer at a predetermined price, usually par, should the issuer be downgraded to below investment grade by a rating agency. Additionally, these covenants may include restrictions on the ability of the issuer to incur additional debt, sell assets, or provide collateral for indebtedness. As of March 31, 2016 , all of the issuers of our holdings from peripheral Eurozone countries were current on their obligations to us, and we believe they have the ability to meet their obligations to us.

Although the situation had largely stabilized across Europe, we continue to monitor the situation closely including the heightened interrelationship between political, monetary, fiscal, and economic forces; the pace of underlying structural reforms; the possibility of continued contagion to additional sovereigns and other entities; further stress on the banking systems throughout the region; and the impact on the underlying economic fundamentals throughout the Eurozone.

Oil and Gas Exposure

As a result of the large decline in oil prices, there has been heightened attention to certain investments in the various energy sub-sectors related to oil and gas following a large increase in market volatility. Our portfolio includes holdings diversified across multiple sub-sectors of the oil and gas industry, spread among multiple geographies. The following tables show the breakout of our exposure to the oil and gas industry.



	March 31, 2016
	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

(In millions)
Securities available for sale, carried at fair value:
Fixed maturities:
Independent exploration and production		$	1,295		$	55		$	136		$	1,214
Integrated energy		620			52			30			642
Midstream		1,261			69			100			1,230
Oil field services		1,174			24			259			939
Refiners		465			5			26			444
Government owned - energy related		922			182			21			1,083
Natural gas utilities		357			57			1			413
Total fixed maturities		6,094			444			573			5,965
Equity securities:
Integrated energy		7			0			0			7
Midstream		5			1			0			6
Oil field services		2			0			0			2
Refiners		3			0			0			3
Total equity securities		17			1			0			18
Total securities available for sale		6,111			445			573			5,983
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Integrated energy		231			14			0			245
Government owned - energy related		266			0			8			258
Natural gas utilities		222			31			0			253
Total fixed maturities		719			45			8			756
Total securities held to maturity		719			45			8			756
Total securities available for sale and held to maturity		$	6,830		$	490		$	581		$	6,739



	December 31, 2015
	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value

(In millions)
Securities available for sale, carried at fair value:
Fixed maturities:
Independent exploration and production		$	1,270		$	73		$	139		$	1,204
Integrated energy		575			55			27			603
Midstream		1,246			76			144			1,178
Oil field services		1,155			27			228			954
Refiners		460			6			30			436
Government owned - energy related		887			182			25			1,044
Natural gas utilities		344			53			1			396
Total fixed maturities		5,937			472			594			5,815
Equity securities		3			0			0			3
Total securities available for sale		5,940			472			594			5,818
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Integrated energy		242			9			0			251
Government owned - energy related		249			5			0			254
Natural gas utilities		207			18			0			225
Total fixed maturities		698			32			0			730
Total securities held to maturity		698			32			0			730
Total securities available for sale and held to maturity		$	6,638		$	504		$	594		$	6,548

As of March 31, 2016, the weighted-average rating of our total fixed maturity oil and gas exposure is BBB, and 88% of this exposure is investment grade, compared to 93% at December 31, 2015. The recent decline in oil and natural gas prices and the corresponding negative impact on the financial condition of related companies prompted Moody's and S&P to take negative ratings action against many issuers operating in the energy sector. This contributed to an increase in volatility for the market prices of bonds of energy-related issuers. Although a recent recovery in oil prices has aided in improved valuations in many securities, we could see a continuation of this heightened volatility in oil, gas, and related investment instruments. We do not currently expect our investments in these sub-sectors related to oil and gas to have a material impact on our results of operations.

Securities by Type of Issuance

We have investments in both publicly and privately issued securities. Our ability to sell either type of security is a function of overall market liquidity which is impacted by, among other things, the amount of outstanding securities of a particular issuer or issuance, trading history of the issue or issuer, overall market conditions, and idiosyncratic events affecting the specific issue or issuer.

The following table details investment securities by type of issuance.

Investment Securities by Type of Issuance



		March 31, 2016						December 31, 2015
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Publicly issued securities:
Fixed maturities		$	73,565		$	85,712		$	68,528		$	74,933
Perpetual securities		51			72			77			111
Equity securities		868			860			473			489
Total publicly issued		74,484			86,644			69,078			75,533
Privately issued securities: ⁽¹⁾
Fixed maturities		26,598			29,223			25,573			27,936
Perpetual securities		1,888			1,837			1,764			1,836
Equity securities		7			9			7			9
Total privately issued		28,493			31,069			27,344			29,781
Total investment securities		$	102,977		$	117,713		$	96,422		$	105,314

⁽¹⁾ Includes Rule 144A securities

The following table details our privately issued investment securities.

Privately Issued Securities



(Amortized cost, in millions)	March 31, 2016				December 31, 2015
Privately issued securities as a percentage of total investment securities		27.7		%		28.4		%
Privately issued securities held by Aflac Japan		$	25,765			$	24,602
Privately issued securities held by Aflac Japan as a percentage of total investment securities		25.0		%		25.5		%

Reverse-Dual Currency Securities ⁽¹⁾



(Amortized cost, in millions)	March 31, 2016				December 31, 2015
Privately issued reverse-dual currency securities		$	5,884			$	5,372
Publicly issued collateral structured as reverse-dual currency securities		1,395				1,303
Total reverse-dual currency securities		$	7,279			$	6,675
Reverse-dual currency securities as a percentage of total investment securities		7.1		%		6.9		%

⁽¹⁾ Principal payments in yen and interest payments in dollars

Aflac Japan has invested in privately issued securities to better match liability characteristics and secure higher yields than those available on Japanese government or other public corporate bonds. All of the yen-denominated privately issued securities we have purchased were rated investment grade at the time of purchase . Aflac Japan’s investments in yen-denominated privately issued securities consist primarily of non-Japanese issuers and have longer maturities, thereby allowing us to improve our asset/liability matching and our overall investment returns. These securities were generally either privately negotiated arrangements or were issued under medium-term note programs and have standard documentation commensurate with credit ratings of the issuer, except when internal credit analysis indicates that additional protective and/or event-risk covenants were required. Many of these investments have protective covenants appropriate to the specific investment. These may include a prohibition of certain activities by the borrower, maintenance of certain financial measures, and specific conditions impacting the payment of our notes.

Below-Investment-Grade and Split-Rated Securities

We use specific criteria to judge the credit quality of both existing and prospective investments. The ratings referenced in the tables below are based on the ratings designations provided by the major credit rating agencies(Moody's, S&P, and Fitch) or, if not rated, are determined based on our internal credit analysis of such securities. When the ratings issued by the rating agencies differ, we utilize the second lowest rating, regardless of how many of the three rating agencies actually rated the instrument. Split-rated securities are those where the ratings are not equivalent and one or more of the ratings is investment grade and one or more is below investment grade. For these split-rated securities, if there are only two ratings assigned by the credit rating agencies, we take the lower below-investment-grade rating. If there are three ratings assigned, and two of the three are below investment grade, we consider it a below-investment grade security. If there are three ratings and two are investment grade, we consider it an investment grade security unless our evaluation and assessment shows a below-investment-grade rating is warranted despite two of the three rating agencies rating it investment grade.

Our portfolio of below-investment-grade securities includes debt securities purchased while the issuer was rated investment grade plus other loans and bonds purchased as part of an allocation to that segment of the market. The following is our below-investment-grade exposure in accordance with the above described rating methodology.

Below-Investment-Grade Securities



	March 31, 2016									December 31, 2015
(In millions)	Par Value		Amortized Cost		Fair Value		Unrealized Gain (Loss)			Par Value		Amortized Cost		Fair Value		Unrealized Gain(Loss)
Investcorp Capital Limited	$	378	$	378	$	327	$	(51	)	$	357	$	357	$	324	$	(33	)
Republic of Tunisia	328		198		239		41			307		185		243		58
Navient Corp	296		157		157		0			279		148		155		7
UPM-Kymmene	275		275		254		(21		)	257		257		252		(5		)
KLM Royal Dutch Airlines ⁽¹⁾	266		196		217		21			249		183		205		22
Barclays Bank PLC ⁽¹⁾	242		156		217		61			230		148		228		80
Deutsche Postbank AG	213		213		161		(52		)	199		199		175		(24		)
Telecom Italia SpA	177		177		228		51			166		166		214		48
Generalitat de Catalunya	160		59		127		68			149		55		126		71
Diamond Offshore Drilling Inc.	129		147		89		(58		)	*		*		*		*
IKB Deutsche Industriebank AG	115		49		87		38			108		46		79		33
Noble Holdings International Ltd.	104		107		54		(53		)	*		*		*		*
Alcoa, Inc.	100		83		85		2			100		77		81		4
Weatherford Bermuda	94		94		72		(22		)	94		92		70		(22		)
Petrobras International Finance Company	91		91		71		(20		)	91		88		64		(24		)
Societe Generale ⁽¹⁾	89		65		80		15			83		61		73		12
Cenovus Energy Inc	75		78		64		(14		)	*		*		*		*
Teck Resources Ltd.	70		72		46		(26		)	70		69		32		(37		)
Transocean Inc.	68		72		36		(36		)	68		71		38		(33		)
Eskom Holdings Limited	50		50		46		(4		)	50		50		43		(7		)
Votorantim Overseas Trading IV Ltd	50		49		50		1			*		*		*		*
Commerzbank AG (includes Dresdner Bank)	*		*		*		*			332		213		321		108
DEPFA Bank PLC	0		0		0		0			166		166		166		0
Other Issuers (below $50 million in par value) ⁽²⁾	333		314		271		(43		)	333		306		277		(29		)
Subtotal ⁽³⁾	3,703		3,080		2,978		(102		)	3,688		2,937		3,166		229
Senior secured bank loans ⁽⁴⁾	1,515		1,527		1,487		(40		)	1,400		1,327		1,362		35
High yield corporate bonds ⁽⁵⁾	646		659		622		(37		)	609		621		581		(40		)
Grand Total	$	5,864	$	5,266	$	5,087	$	(179	)	$	5,697	$	4,885	$	5,109	$	224

* Investment grade at respective reporting date

⁽¹⁾ Includes perpetual security

⁽²⁾ Includes 17 issuers in 2016 and 15 in 2015

⁽³⁾ Securities initially purchased as investment grade, but have subsequently been downgraded to below investment grade

⁽⁴⁾ Includes 199 issuers in 2016 and 201 in 2015; all issuers below $25 million in par value

⁽⁵⁾ Includes 63 issuers in 2016 and 57 in 2015; all issuers below $25 million in par value

We invest in senior secured bank loans primarily to U.S. corporate borrowers, most of which have below-investment-grade ratings. The program is managed externally by third party firms specializing in this asset class. This mandate requires a minimum average credit quality of BB-/Ba3. The objectives of this program include enhancing the yield on invested assets, achieving further diversification of credit risk, and mitigating the risk of rising interest rates through the acquisition of floating rate assets. Our investments in this program totaled $1.6 billion at March 31, 2016 , compared with $1.4 billion at December 31, 2015 , on an amortized cost basis.

In 2015, we increased our allocation to higher yielding corporate bonds within the Aflac Japan and Aflac U.S. portfolios. Most of these securities were rated below-investment-grade at the time of purchase, but we also purchased several that were rated investment grade which, because of market pricing, offer yields commensurate with below-investment-grade risk profiles. The objective of this allocation was to enhance our yield on invested assets and further diversify our credit risk. All investments must have a minimum rating of low BB using our above described rating methodology and are managed by our internal credit portfolio management team.

Excluding the senior secured bank loans and certain high yield corporate bonds discussed above that were rated below investment grade when initially purchased, below-investment-grade debt and perpetual securities represented 3.0% of total debt and perpetual securities at March 31, 2016 , compared with 3.1% at December 31, 2015 , on an amortized cost basis. Debt and perpetual securities classified as below investment grade at March 31, 2016 and December 31, 2015 were generally reported as available for sale and carried at fair value.

The following table shows the 10 largest holdings with a split rating, and includes the determination between investment grade and below investment grade based on the above methodology as of March 31, 2016 .



Split-Rated Securities
(In millions)	Amortized Cost			Investment-Grade Status
Commerzbank AG (includes Dresdner Bank)		$	228	Investment Grade
Telecom Italia SpA		177		Below Investment Grade
Alberta Energy Company LTD.		165		Investment Grade
Vale SA		158		Investment Grade
Diamond Offshore Drilling Inc.		147		Below Investment Grade
Devon Energy Corp.		139		Investment Grade
Marathon Oil Corp.		132		Investment Grade
Energias de Portugal SA (EDP)		123		Investment Grade
Barclays Bank PLC ⁽¹⁾		110		Below Investment Grade
Goldman Sachs Capital I		109		Investment Grade

⁽¹⁾ Includes perpetual security

Split-rated securities, excluding the senior secured bank loan investments and high yield corporate bonds discussed above, totaled $2.2 billion and represented 2.1% of total debt and perpetual securities, at amortized cost, at March 31, 2016 , compared with $1.3 billion and 1.3% , respectively, at December 31, 2015 . The increase in split-rated securities is primarily related to negative ratings actions against many issuers operating in the energy sector (see the preceding Oil and Gas subsection of this MD&A for further discussion).

Derivative Counterparties

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 and/or credit 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 on certain of our senior notes and subordinated debentures; foreign currency forwards; foreign currency options; and interest rate swaptions, 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 and senior note and subordinated debenture swaps, foreign currency forwards and options, and swaptions is mitigated by collateral posting requirements the counterparty must meet. If collateral posting agreements are not in place, the counterparty risk associated with foreign currency forwards and foreign currency options is the risk that at expiry of the contract, the counterparty is unable to deliver the agreed upon amount of yen at the agreed upon price or delivery date, thus exposing the company to additional unhedged exposure to U.S. dollars in the Aflac Japan investment portfolio. See Note 4 of the Notes to the Consolidated Financial Statements for more information.

Equity Risk

Market prices for equity securities are subject to fluctuation and consequently the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from the relative price of alternative investments and general market conditions. These fluctuations could impact the Company’s consolidated results of operations or financial condition.

Other-than-temporary Impairment

See Note 3 of the Notes to the Consolidated Financial Statements for a discussion of our impairment policy.

Unrealized Investment Gains and Losses

The following table provides details on amortized cost, fair value and unrealized gains and losses for our investments in fixed maturities, perpetual securities, and equity securities by investment-grade status as of March 31, 2016 .



(In millions)	Total Amortized Cost			Total Fair Value			Percentage of Total Fair Value			Gross Unrealized Gains			Gross Unrealized Losses
Available-for-sale fixed maturities and perpetual securities:
Investment-grade securities		$	61,321		$	68,950		58.6	%		$	8,624		$	995
Below-investment-grade securities		5,266			5,087			4.3			335			514
Held-to-maturity fixed maturities:
Investment-grade securities		35,515			42,807			36.4			7,464			172
Equity securities		875			869			.7			42			48
Total		$	102,977		$	117,713		100.0	%		$	16,465		$	1,729

The following table presents an aging of fixed maturities, perpetual securities, and equity securities in an unrealized loss position as of March 31, 2016 .

Aging of Unrealized Losses



(In millions)	Total Amortized Cost		Total Unrealized Loss		Less than Six Months				Six Months to Less than 12 Months				12 Months or Longer
					Less than Six Months				Six Months to Less than 12 Months				12 Months or Longer
					Amortized Cost		Unrealized Loss		Amortized Cost		Unrealized Loss		Amortized Cost		Unrealized Loss
Available-for-sale fixed maturities and perpetual securities:
Investment-grade securities	$	12,677	$	995	$	1,868	$	91	$	2,889	$	202	$	7,920	$	702
Below- investment-grade securities	3,328		514		1,476		69		402		64		1,450		381
Held-to-maturity fixed maturities:
Investment-grade securities	4,045		172		577		12		1,356		36		2,112		124
Equity securities	403		48		403		48		0		0		0		0
Total	$	20,453	$	1,729	$	4,324	$	220	$	4,647	$	302	$	11,482	$	1,207

The following table presents a distribution of unrealized losses on fixed maturities, perpetual securities, and equity securities by magnitude as of March 31, 2016 .

Percentage Decline From Amortized Cost



(In millions)	Total Amortized Cost		Total Unrealized Loss		Less than 20%				20% to 50%				Greater than 50%
(In millions)	Total Amortized Cost		Total Unrealized Loss		Amortized Cost		Unrealized Loss		Amortized Cost		Unrealized Loss		Amortized Cost		Unrealized Loss
Available-for-sale fixed maturities and perpetual securities:
Investment-grade securities	$	12,677	$	995	$	11,552	$	711	$	1,125	$	284	$	0	$	0
Below- investment-grade securities	3,328		514		2,377		182		799		251		152		81
Held-to-maturity fixed maturities:
Investment-grade securities	4,045		172		4,045		172		0		0		0		0
Equity securities	403		48		333		31		70		17		0		0
Total	$	20,453	$	1,729	$	18,307	$	1,096	$	1,994	$	552	$	152	$	81

The following table presents the 10 largest unrealized loss positions in our portfolio as of March 31, 2016 .



(In millions)	Credit Rating		Amortized Cost			Fair Value			Unrealized Loss
Diamond Offshore Drilling Inc.		BB		$	147		$	89		$	(58	)
Noble Holdings International Ltd.		B		107			54			(53		)
Deutsche Postbank AG		BB		213			161			(52		)
Investcorp Capital Limited		BB		378			327			(51		)
AXA ⁽¹⁾		BBB		290			240			(50		)
Bank of Ireland		BBB		177			137			(40		)
Bank of America Corp.		BBB		401			363			(38		)
Transocean Inc.		BB		72			36			(36		)
Kommunal Lanspensjonskasse (KLP) ⁽¹⁾		BBB		217			183			(34		)
Devon Energy Corp.		BBB		139			105			(34		)

⁽¹⁾ Includes perpetual security

Generally, declines in fair values can be a result of changes in interest rates, yen/dollar exchange rate, and changes in net spreads driven by a broad market move or a change in the issuer's underlying credit quality. During the first quarter of 2016, we saw market volatility remain at elevated levels, especially in the energy and commodity-related sectors and securities rated below investment grade. As we believe these issuers have the ability to continue making timely payments of principal and interest, we view these changes in fair value to be temporary and do not believe it is necessary to impair the carrying value of these securities. See the Unrealized Investment Gains and Losses section in Note 3 of the Notes to the Consolidated Financial Statements for further discussions of unrealized losses related to financial institutions, including perpetual securities, and other corporate investments.

Investment Valuation and Cash

We estimate the fair values of our securities on a monthly basis. We monitor the estimated fair values obtained from our custodian, pricing vendors and brokers for consistency from month to month, while considering current market conditions. We also periodically discuss with our custodian and pricing brokers and vendors the pricing techniques they use to monitor the consistency of their approach and periodically assess the appropriateness of the valuation level assigned to the values obtained from them. 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 Valuations and Classifications Subcommittee (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.

For those investments accounted for as loan receivables, we record those investments at amortized cost on the acquisition date and carry at adjusted amortized cost. 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. See the Loans and Loan Receivables section in Note 3 of the Notes to the Consolidated Financial Statements for further discussion of these investments.

Cash and cash equivalents totaled $3.4 billion , or 3.0% of total investments and cash, as of March 31, 2016 , compared with $4.4 billion , or 4.1% , at December 31, 2015 . For a discussion of the factors affecting our cash balance, see the Operating Activities, Investing Activities and Financing Activities subsections of this MD&A.

For additional information concerning our investments, see Notes 3, 4, and 5 of the Notes to the Consolidated Financial Statements.

Deferred Policy Acquisition Costs

The following table presents deferred policy acquisition costs by segment.



(In millions)	March 31, 2016			December 31, 2015			% Change
Aflac Japan		$	5,794		$	5,370		7.9	%	⁽¹⁾
Aflac U.S.		3,135			3,141			(.2	)
Total		$	8,929		$	8,511		4.9	%

⁽¹⁾ Aflac Japan’s deferred policy acquisition costs increased .8% in yen during the three months ended March 31, 2016 .

See Note 6 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 for additional information on our deferred policy acquisition costs.

Policy Liabilities

The following table presents policy liabilities by segment.



(In millions)	March 31, 2016				December 31, 2015				% Change
Aflac Japan		$	84,883			$	78,460			8.2	%	⁽¹⁾
Aflac U.S.		9,924				9,815				1.1
Other		58				43				34.9
Intercompany eliminations ⁽²⁾		(737		)		(687		)		7.3
Total		$	94,128			$	87,631			7.4	%

⁽¹⁾ Aflac Japan’s policy liabilities increased 1.1% in yen during the three months ended March 31, 2016 .

⁽²⁾ 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 6 of the Notes to the Consolidated Financial Statements.

Notes Payable

As of January 1, 2016, we adopted updated accounting guidance related to the presentation of debt issuance costs and have reclassified debt issuance costs related to a debt liability as a direct deduction from the carrying amount of that debt liability. Prior year amounts have been adjusted to reflect the current year adoption. See Note 1 of the accompanying Notes to the Consolidated Financial Statements for additional information.

Notes payable totaled $5.0 billion at March 31, 2016 and December 31, 2015 .

See Note 7 of the accompanying Notes to the Consolidated Financial Statements for additional information on our notes payable.

Benefit Plans

Aflac Japan and Aflac U.S. have various benefit plans. For additional information on our Japanese and U.S. plans, see Note 10 of the accompanying Notes to the Consolidated Financial Statements and Note 14 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 .

Policyholder Protection Corporation

The Japanese insurance industry has a policyholder protection system that provides funds for the policyholders of insolvent insurers. Legislation enacted regarding the framework of the Life Insurance Policyholder Protection Corporation (LIPPC) included government fiscal measures supporting the LIPPC. On December 27, 2011, Japan's FSA announced the plans to enhance the stability of the LIPPC by extending the government's fiscal support of the LIPPC through March 2017. Accordingly, the FSA submitted legislation to the Diet on January 27, 2012 to extend the government's fiscal support framework, and the legislation was approved on March 30, 2012. Effective April 2014, the annual LIPPC contribution amount for the total life industry was lowered from 40 billion yen to 33 billion yen.

Hedging Activities

Net Investment Hedge

Our primary exposure to be hedged is our investment in Aflac Japan, which is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, we have taken the following courses of action. First, Aflac Japan maintains certain unhedged U.S. dollar-denominated securities, which serve as an economic currency hedge of a portion of our investment in Aflac Japan. Second, we have designated the majority of the Parent Company’s yen-denominated liabilities (Samurai and Uridashi notes) as non-derivative hedging instruments and certain foreign currency forwards and options as derivative hedges of our net investment in Aflac Japan. We make our net investment hedge designation at the beginning of each quarter. 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. We estimate that if the designated net investment hedge positions exceeded our net investment in Aflac Japan by 10 billion yen, we would report a foreign exchange gain/loss of approximately $1 million for every 1% yen weakening/strengthening in the end-of-period yen/dollar exchange rate. Our net investment hedge was effective during the three -month periods ended March 31, 2016 and 2015 .

The yen net asset figure calculated for hedging purposes differs from the yen-denominated net asset position as discussed in the Currency Risk subsection of MD&A. As disclosed in that subsection, the consolidation of the underlying assets in certain VIEs requires that we derecognize our yen-denominated investment in the VIE and recognize the underlying fixed-maturity or perpetual securities and cross-currency swaps. While these U.S. dollar investments will create foreign currency fluctuations, the combination of the U.S. dollar-denominated investment and the cross-currency swap economically creates a yen-denominated investment that qualifies for inclusion as a component of our investment in Aflac Japan. Similarly, the combination of the U.S. corporate bonds and the foreign currency forwards and options that we have entered into, as discussed in the Aflac Japan Investment subsection of MD&A, economically creates a yen-denominated investment that qualifies for inclusion as a component of our investment in Aflac Japan.

The dollar values of our yen-denominated net assets, including economic yen-denominated investments for net investment hedging purposes as discussed above, are summarized as follows (translated at end-of-period exchange rates):



(In millions)	March 31, 2016				December 31, 2015
Aflac Japan net assets		$	16,089			$	13,558
Aflac Japan unhedged dollar-denominated net assets		(8,302		)		(8,111		)
Consolidated yen-denominated net assets (liabilities)		$	7,787			$	5,447

For the hedge of our net investment in Aflac Japan, we have designated certain of the Parent Company's yen-denominated liabilities, certain unhedged U.S. dollar investments and foreign currency forwards and options as a hedge of our net investment in Aflac Japan. Our consolidated yen-denominated net asset position was partially hedged at $1.4 billion as of March 31, 2016 , compared with $1.2 billion as of December 31, 2015 .

Cash Flow Hedges

We had freestanding derivative instruments related to our consolidated VIE investments that are reported in the consolidated balance sheet at fair value within other assets and other liabilities. As of March 31, 2016 , two of the freestanding swaps that are used within VIEs to hedge the risk arising from changes in foreign currency exchange rates qualified for hedge accounting.

Fair Value Hedges

We have entered into foreign currency forwards and options to mitigate the foreign exchange risk associated with new investments in U.S. dollar-denominated fixed-maturities that support yen-denominated liabilities within our Aflac Japan segment.

At times we have entered into interest rate swaptions to mitigate the interest rate risk associated with our U.S. dollar-denominated fixed-maturities that support yen-denominated liabilities within our Aflac Japan segment.

See Note 4 of the Notes to the Consolidated Financial Statements for additional information on our hedging activities.

Off-Balance Sheet Arrangements

As of March 31, 2016 , we had no material letters of credit, standby letters of credit, guarantees or standby repurchase obligations. See Note 15 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 , for information on material unconditional purchase obligations that are not recorded on our balance sheet.

CAPITAL RESOURCES AND LIQUIDITY

Aflac provides the primary sources of liquidity to the Parent Company through dividends and management fees. The following table presents the amounts provided for the three -month periods ending March 31 .

Liquidity Provided by Aflac to Parent Company



(In millions)	2016		2015
Dividends declared or paid by Aflac	$	0	$	369
Management fees paid by Aflac	60		93

The primary uses of cash by the Parent Company are shareholder dividends, the repurchase of its common stock and interest on its outstanding indebtedness and operating expenses. The Parent Company's sources and uses of cash are reasonably predictable and are not expected to change materially in the future. For additional information, see the Financing Activities subsection of this MD&A.

The Parent Company also accesses debt security markets to provide additional sources of capital. We filed a shelf registration statement with the SEC in May 2015 that allows us to issue an indefinite amount of senior and subordinated debt, in one or more series, from time to time until May 2018. We believe outside sources for additional debt and equity capital, if needed, will continue to be available. For additional information, see Note 7 of the Notes to the Consolidated Financial Statements.

The principal sources of cash for our insurance operations are premiums and investment income. The primary uses of cash by our insurance operations are investments, policy claims, commissions, operating expenses, income taxes and payments to the Parent Company for management fees and dividends. Both the sources and uses of cash are reasonably predictable.

When making an investment decision, our first consideration is based on product needs. Our investment objectives provide for liquidity through the purchase of investment-grade debt securities. These objectives also take into account duration matching, and because of the long-term nature of our business, we have adequate time to react to changing cash flow needs.

As a result of policyholder aging, claims payments are expected to gradually increase over the life of a policy. Therefore, future policy benefit reserves are accumulated in the early years of a policy and are designed to help fund

future claims payments. We expect our future cash flows from premiums and our investment portfolio to be sufficient to meet our cash needs for benefits and expenses.

In March 2016, the Parent Company entered into a three -year senior unsecured revolving credit facility agreement with a group of financial institutions that provides for borrowings of up to 100 billion yen on a revolving basis. Borrowings bear interest at a rate per annum equal to the Tokyo interbank market rate (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 March 31, 2016 , we did not have any borrowings outstanding under our 100 billion yen revolving credit agreement.

Our financial statements convey our financing arrangements during the periods presented. We have not engaged in material intra-period short-term financings during the periods presented that are not otherwise reported in our balance sheet. We were in compliance with all of the covenants of our notes payable and lines of credit at March 31, 2016 . We have not entered into transactions involving the transfer of financial assets with an obligation to repurchase financial assets that have been accounted for as a sale under applicable accounting standards, including securities lending transactions. See Notes 3 and 4 of the Notes to the Consolidated Financial Statements and Note 1 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 , for more information on our securities lending and derivative activities. With the exception of disclosed activities in those referenced footnotes, we do not have a known trend, demand, commitment, event or uncertainty that would reasonably result in our liquidity increasing or decreasing by a material amount. Our cash and cash equivalents include unrestricted cash on hand,

money market instruments, and other debt instruments with a maturity of 90 days or less when purchased, all of which has minimal market, settlement or other risk exposure.

Consolidated Cash Flows

We translate cash flows for Aflac Japan’s yen-denominated items into U.S. dollars using weighted-average exchange rates. In periods when the yen weakens, translating yen into dollars causes fewer dollars to be reported. When the yen strengthens, translating yen into dollars causes more dollars to be reported.

The following table summarizes consolidated cash flows by activity for the three -month periods ended March 31 .



(In millions)	2016			2015
Operating activities	$	1,331		$	1,460
Investing activities	(1,487		)	(2,078		)
Financing activities	(766		)	322
Exchange effect on cash and cash equivalents	21			1
Net change in cash and cash equivalents	$	(901	)	$	(295	)

Operating Activities

The following table summarizes operating cash flows by source for the three -month periods ended March 31 .



(In millions)	2016		2015
Aflac Japan	$	1,042	$	982
Aflac U.S. and other operations	289		478
Total	$	1,331	$	1,460

Investing Activities

Operating cash flow is primarily used to purchase debt securities to meet future policy obligations. The following table summarizes investing cash flows by source for the three -month periods ended March 31 .



(In millions)	2016			2015
Aflac Japan	$	(1,129	)	$	(1,925	)
Aflac U.S. and other operations	(358		)	(153		)
Total	$	(1,487	)	$	(2,078	)

Prudent portfolio management dictates that we attempt to match the duration of our assets with the duration of our liabilities. Currently, when our fixed-maturity securities and perpetual securities mature, the proceeds may be reinvested at a yield below that required for the accretion of policy benefit liabilities on policies issued in earlier years. However, the long-term nature of our business and our strong cash flows provide us with the ability to minimize the effect of mismatched durations and/or yields identified by various asset adequacy analyses. When needed or when market opportunities arise, we dispose of selected fixed-maturity and perpetual securities that are available for sale to improve the duration matching of our assets and liabilities, improve future investment yields, and/or re-balance our portfolio. As a result, dispositions before maturity can vary significantly from year to year. Dispositions before maturity were approximately .4% and .7% of the year-to-date average investment portfolio of fixed maturities and perpetual securities available for sale during the three -month periods ended March 31, 2016 and 2015 , respectively.

Financing Activities

Consolidated cash used by financing activities was $766 million in the first three months of 2016 , compared with consolidated cash provided by financing activities of $322 million for the same period of 2015 .

Cash returned to shareholders through dividends and treasury stock purchases was $779 million during the three -month period ended March 31, 2016 , compared with $775 million during the three -month period ended March 31, 2015 .

We were in compliance with all of the covenants of our notes payable and lines of credit at March 31, 2016 .

The following tables present a summary of treasury stock activity during the three -month periods ended March 31 .

Treasury Stock Purchased



(In millions of dollars and thousands of shares)	2016		2015
Treasury stock purchases	$	612	$	610
Number of shares purchased:
Open market	10,152		9,827
Other	189		162
Total shares purchased	10,341		9,989

Treasury Stock Issued



(In millions of dollars and thousands of shares)	2016		2015
Stock issued from treasury:
Cash financing	$	7	$	13
Noncash financing	18		18
Total stock issued from treasury	$	25	$	31
Number of shares issued	486		593

During the first three months of 2016 , we repurchased 10.2 million shares of our common stock for $600 million as part of our share repurchase program. As of March 31, 2016 , a remaining balance of 38.2 million shares of our common stock was available for purchase under share repurchase authorizations by our board of directors. We currently plan to repurchase $1.4 billion of our common stock in 2016, with the majority concentrated in the first half of the year.

Cash dividends paid to shareholders were $.41 per share in the first quarter of 2016 , compared with $.39 per share in the first quarter of 2015 . The following table presents the dividend activity for the three -month periods ended March 31 .



(In millions)	2016		2015
Dividends paid in cash	$	167	$	165
Dividends through issuance of treasury shares	6		6
Total dividends to shareholders	$	173	$	171

In April 2016, the board of directors declared the second quarter cash dividend of $ .41 per share, an increase of 5.1% compared with the same period in 2015. The dividend is payable on June 1, 2016, to shareholders of record at the close of business on May 18, 2016.

Regulatory Restrictions

Aflac is domiciled in Nebraska and is subject to its regulations. A life insurance company’s statutory capital and surplus is determined according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance department in the insurance company’s state of domicile. Statutory accounting rules are different from U.S. GAAP and are intended to emphasize policyholder protection and company solvency. Similar laws apply in New York and South Carolina, the domiciliary jurisdictions of the Parent Company's other insurance subsidiaries, Aflac New York and CAIC. The continued long-term growth of our business may require increases in the statutory capital and surplus of our insurance operations. Aflac’s insurance operations may secure additional statutory capital through various sources, such as internally generated statutory earnings, equity contributions by the Parent Company from funds generated through debt or equity offerings, or reinsurance transactions. The NAIC’s risk-based capital (RBC) formula is used by insurance regulators to help identify inadequately capitalized insurance companies. The RBC formula quantifies insurance risk, business risk, asset risk and interest rate risk by weighing the types and mixtures of risks inherent in the insurer’s operations. As of March 31, 2016 , Aflac’s RBC ratio remains high and reflects a strong capital and surplus position. 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 2016 in excess of $2.3 billion would require such approval.

In addition to limitations and restrictions imposed by U.S. insurance regulators, Japan’s FSA may not allow profit repatriations from Aflac Japan if the transfers would cause Aflac Japan to lack sufficient financial strength for the protection of policyholders. The FSA maintains its own solvency standard which is quantified through the solvency margin ratio (SMR). Aflac Japan's SMR is sensitive to interest rate and foreign exchange rate changes, therefore we continue to evaluate alternatives for reducing this sensitivity. In the event of a rapid change in interest rates, we have two senior unsecured revolving credit facilities in the amounts of 100 billion yen and 55 billion yen, respectively, and a committed reinsurance facility in the amount of approximately 110 billion yen as a capital contingency plan. (See Notes 8 and 9 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 for additional information on our capital contingency plan.) We have already undertaken various measures to mitigate the sensitivity of Aflac Japan's SMR. For example, we employ policy reserve matching (PRM) investment strategies, which is a Japan-specific accounting treatment that reduces SMR interest rate sensitivity since PRM-designated investments are carried at amortized cost consistent with corresponding liabilities. For U.S. GAAP, PRM investments are categorized as available-for-sale. In the first quarter of 2015, Aflac Japan entered into a quota share arrangement to cede a portion of hospital benefits of one of our closed products. Under this coinsurance indemnity type of reinsurance, Aflac Japan released approximately 130 billion yen of FSA reserves. (See Notes 3, 4 and 8 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2015 for additional information on our investment strategies, hedging activities, and reinsurance, respectively.) As of March 31, 2016 , Aflac Japan's SMR remains high and reflects a strong capital position.

Payments are made from Aflac Japan to the Parent Company for management fees and to Aflac U.S. for allocated expenses and remittances of earnings. The following table details Aflac Japan remittances for the three -month periods ended March 31 .

Aflac Japan Remittances



(In millions of dollars and billions of yen)	2016		2015
Aflac Japan management fees paid to Parent Company	$	13	$	12
Expenses allocated to Aflac Japan (in dollars)	33		28
Aflac Japan profit remittances to Aflac U.S. (in dollars)	219		250
Aflac Japan profit remittances to Aflac U.S. (in yen)	25.0		30.0

We entered into foreign exchange forwards and options as part of an economic hedge on foreign exchange risk on 25.0 billion yen of profit repatriation received from Aflac Japan in February 2016, which reduced the amount of funds received by $14 million when the yen were exchanged into dollars. Provided that capital conditions remain stable, we believe our financial strength in Japan positions us to repatriate in the range of 120.0 billion yen to 150.0 billion yen to the U.S. for the full year 2016.

For additional information on regulatory restrictions on dividends, profit repatriations and other transfers, see Note 13 of the Notes to the Consolidated Financial Statements and the Regulatory Restrictions subsection of MD&A, both in our annual report to shareholders for the year ended December 31, 2015 .

Other

For information regarding commitments and contingent liabilities, see Note 11 of the Notes to the Consolidated Financial Statements.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

The information required by Item 3 is incorporated by reference from the Market Risks of Financial Instruments subsection of MD&A in Part I, Item 2 of this report.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first fiscal quarter of 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

During the first three months of 2016 , we repurchased shares of Aflac common stock as follows:



Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31	3,492,400		$	57.29	3,492,400	44,879,158
February 1 - February 29	3,584,566		58.20		3,435,930	41,443,228
March 1 - March 31	3,229,684		62.07		3,224,000	38,219,228
Total	10,306,650	⁽²⁾	$	59.10	10,152,330	38,219,228	⁽¹⁾

⁽¹⁾ The total remaining shares available for purchase at March 31, 2016 , consisted of 38,219,228 shares related to a 40,000,000 share repurchase authorization by the board of directors announced in 2015.

⁽²⁾ During the first three months of 2016 , 154,320 shares were purchased in connection with income tax withholding obligations related to the vesting of restricted-share-based awards during the period.

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Item 6.	Exhibits



(a)	EXHIBIT INDEX
	3.0	-	Articles of Incorporation, as amended – incorporated by reference from Form 10-Q for June 30, 2008, Exhibit 3.0 (File No. 001-07434).
	3.1	-	Bylaws of the Corporation, as amended and restated – incorporated by reference from Form 8-K dated November 10, 2015, Exhibit 3.1 (File No. 001-07434).
	4.0	-	There are no instruments with respect to long-term debt not being registered in which the total amount of securities authorized exceeds 10% of the total assets of Aflac Incorporated and its subsidiaries on a consolidated basis. We agree to furnish a copy of any long-term debt instrument to the Securities and Exchange Commission upon request.
	4.1	-	Indenture, dated as of May 21, 2009, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee – incorporated by reference from Form 8-K dated May 21, 2009, Exhibit 4.1 (File No. 001-07434).
	4.2	-	First Supplemental Indenture, dated as of May 21, 2009, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 8.500% Senior Note due 2019) – incorporated by reference from Form 8-K dated May 21, 2009, Exhibit 4.2 (File No. 001-07434).
	4.3	-	Second Supplemental Indenture, dated as of December 17, 2009, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 6.900% Senior Note due 2039) – incorporated by reference from Form 8-K dated December 14, 2009, Exhibit 4.1 (File No. 001-07434).
	4.4	-	Third Supplemental Indenture, dated as of August 9, 2010, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 6.45% Senior Note due 2040) - incorporated by reference from Form 8-K dated August 4, 2010, Exhibit 4.1 (File No. 001-07434).
	4.5	-	Fourth Supplemental Indenture, dated as of August 9, 2010, between Aflac Incorporated and The Bank of New York and Mellon Trust Company, N.A., as trustee (including the form of 3.45% Senior Note due 2015) – incorporated by reference from Form 8-K dated August 4, 2010, Exhibit 4.2 (File No. 001-07434).
	4.6	-	Fifth Supplemental Indenture, dated as of February 10, 2012, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 2.65% Senior Note due 2017) - incorporated by reference from Form 8-K dated February 8, 2012, Exhibit 4.1 (File No. 001-07434).
	4.7	-	Sixth Supplemental Indenture, dated as of February 10, 2012, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 4.00% Senior Note due 2022) - incorporated by reference from Form 8-K dated February 8, 2012, Exhibit 4.2 (File No. 001-07434).
	4.8	-	Seventh Supplemental Indenture, dated as of July 31, 2012, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 2.65% Senior Note due 2017) - incorporated by reference from Form 8-K dated July 27, 2012, Exhibit 4.1 (File No. 001-07434).
	4.9	-	Eighth Supplemental Indenture, dated as of June 10, 2013, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 3.625% Senior Note due 2023) - incorporated by reference from Form 8-K dated June 10, 2013, Exhibit 4.1 (File No. 001-07434).
	4.10	-	Ninth Supplemental Indenture, dated as of November 7, 2014, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 3.625% Senior Note due 2024) - incorporated by reference from Form 8-K dated November 4, 2014, Exhibit 4.1 (File No. 001-07434).
	4.11	-	Tenth Supplemental Indenture, dated as of March 12, 2015, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 2.40% Senior Note due 2020) - incorporated by reference from Form 8-K dated March 9, 2015, Exhibit 4.1 (File No. 001-07434).
	4.12	-	Eleventh Supplemental Indenture, dated as of March 12, 2015, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 3.25% Senior Note due 2025) - incorporated by reference from Form 8-K dated March 9, 2015, Exhibit 4.2 (File No. 001-07434).
	4.13	-	Subordinated Indenture, dated as of September 26, 2012, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee - incorporated by reference from Form 8-K dated September 26, 2012, Exhibit 4.1 (File No. 001-07434).

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4.14	-	First Supplemental Indenture, dated as of September 26, 2012, between Aflac Incorporated and The Bank of New York Mellon Trust Company, N.A., as trustee (including the form of 5.50% Subordinated Debenture due 2052) - incorporated by reference from Form 8-K dated September 26, 2012, Exhibit 4.2 (File No. 001-07434).
10.0*	-	American Family Corporation Retirement Plan for Senior Officers, as amended and restated October 1, 1989 – incorporated by reference from 1993 Form 10-K, Exhibit 10.2 (File No. 001-07434).
10.1*	-	Amendment to American Family Corporation Retirement Plan for Senior Officers, dated December 8, 2008 – incorporated by reference from 2008 Form 10-K, Exhibit 10.1 (File No. 001-07434).
10.2*	-	Aflac Incorporated Supplemental Executive Retirement Plan, as amended and restated January 1, 2009 – incorporated by reference from 2008 Form 10-K, Exhibit 10.5 (File No. 001-07434).
10.3*	-	First Amendment to the Aflac Incorporated Supplemental Executive Retirement Plan, as amended and restated January 1, 2009 – incorporated by reference from 2012 Form 10-K, Exhibit 10.3 (File No. 001-07434).
10.4*	-	Second Amendment to the Aflac Incorporated Supplemental Executive Retirement Plan, as amended and restated January 1, 2009 - incorporated by reference from 2014 Form 10-K, Exhibit 10.4 (File No. 001-07434).
10.5*	-	Aflac Incorporated Executive Deferred Compensation Plan, as amended and restated, effective September 1, 2015 – incorporated by reference from Form 10-Q for September 30, 2015, Exhibit 10.5 (File No. 001-07434).
10.6*	-	Aflac Incorporated 2013 Management Incentive Plan - incorporated by reference from the 2012 Proxy Statement, Appendix B (File No. 001-07434).
10.7*	-	1999 Aflac Associate Stock Bonus Plan, amended and restated as of January 1, 2013 - incorporated by reference from Form 10-Q for March 31, 2013, Exhibit 10.10 (File No. 001-07434).
10.8*	-	Aflac Incorporated 1997 Stock Option Plan – incorporated by reference from the 1997 Shareholders’ Proxy Statement, Appendix B (File No. 001-07434).
10.9*	-	Form of Officer Stock Option Agreement (Non-Qualifying Stock Option) under the Aflac Incorporated 1997 Stock Option Plan – incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.5 (File No. 001-07434).
10.10*	-	Form of Officer Stock Option Agreement (Incentive Stock Option) under the Aflac Incorporated 1997 Stock Option Plan – incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.6 (File No. 001-07434).
10.11*	-	Notice of grant of stock options and stock option agreement to officers under the Aflac Incorporated 1997 Stock Option Plan – incorporated by reference from Form 8-K dated January 28, 2005, Exhibit 10.7 (File No. 001-07434).
10.12*	-	2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012 – incorporated by reference from the 2012 Proxy Statement, Appendix A (File No. 001-07434).
10.13*	-	Form of Non-Employee Director Stock Option Agreement (NQSO) under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.14*	-	Notice of grant of stock options to non-employee director under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.15*	-	Form of Non-Employee Director Restricted Stock Award Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.16*	-	Notice of restricted stock award to non-employee director under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.17*	-	U.S. Form of Employee Restricted Stock Award Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.18*	-	Japan Form of Employee Restricted Stock Award Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.19*	-	Notice of time based restricted stock award under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012 – incorporated by reference from Form 10-Q for June 30, 2013, Exhibit 10.22 (File No. 001-07434).
10.20*	-	Notice of performance based restricted stock award under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.21*	-	U.S. Form of Employee Stock Option Agreement (Non-Qualifying Stock Option) under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.22*	-	Japan Form of Employee Stock Option Agreement (Non-Qualifying Stock Option) under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.

103



10.23*	-	U.S. Form of Employee Stock Option Agreement (Incentive Stock Option) under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.24*	-	U.S. Notice of grant of stock options under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012 – incorporated by reference from Form 10-Q for June 30, 2013, Exhibit 10.28 (File No. 001-07434).
10.25*	-	Japan Notice of grant of stock options under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012 – incorporated by reference from Form 10-Q for June 30, 2013, Exhibit 10.29 (File No. 001-07434).
10.26*	-	Japan Form of Restricted Stock Unit Agreement under the 2004 Aflac Incorporated Long-Term Incentive Plan, as amended and restated March 14, 2012.
10.27*	-	Aflac Incorporated Retirement Plan for Directors Emeritus, as amended and restated, dated February 9, 2010 – incorporated by reference from 2009 Form 10-K, Exhibit 10.26 (File No. 001-07434).
10.28*	-	Amendment to Aflac Incorporated Retirement Plan for Directors Emeritus, as amended and restated, dated August 10, 2010 – incorporated by reference from Form 10-Q for September 30, 2010, Exhibit 10.27 (File No. 001-07434).
10.29*	-	Aflac Incorporated Employment Agreement with Daniel P. Amos, as amended and restated, dated August 20, 2015 - incorporated by reference from Form 10-Q for September 30, 2015, Exhibit 10.29 (File No. 001-07434).
10.30*	-	Aflac Incorporated Employment Agreement with Kriss Cloninger III, as amended and restated, dated August 20, 2015 - incorporated by reference from Form 10-Q for September 30, 2015, Exhibit 10.30 (File No. 001-07434).
10.31*	-	Aflac Employment Agreement with Paul S. Amos II, as amended and restated, dated August 19, 2015 - incorporated by reference from Form 10-Q for September 30, 2015, Exhibit 10.31 (File No. 001-07434).
10.32*	-	Aflac Employment Agreement with Eric M. Kirsch, as amended and restated, dated December 1, 2015 - incorporated by reference from Form 8-K dated December 1, 2015, Exhibit 10.1 (File No. 001-07434).
10.33*	-	Aflac Incorporated Employment Agreement with Frederick J. Crawford, effective June 30, 2015 – incorporated by reference from Form 8-K dated June 24, 2015, Exhibit 10.1 (File No. 001-07434).
11	-	Statement regarding the computation of per-share earnings for the Registrant.
12	-	Statement regarding the computation of ratio of earnings to fixed charges for the Registrant.
15	-	Letter from KPMG LLP regarding unaudited interim financial information.
31.1	-	Certification of CEO dated May 4, 2016, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2	-	Certification of CFO dated May 4, 2016, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32	-	Certification of CEO and CFO dated May 4, 2016, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	-	XBRL Instance Document. ⁽¹⁾
101.SCH	-	XBRL Taxonomy Extension Schema.
101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	-	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	-	XBRL Taxonomy Extension Label Linkbase.
101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase.



₍₁₎	Includes the following materials contained in this Quarterly Report on Form 10-Q for the period ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to the Consolidated Financial Statements

*	Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 6 of this report

104

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Aflac Incorporated

May 4, 2016		/s/ Frederick J. Crawford
		(Frederick J. Crawford)
		Executive Vice President, Chief Financial Officer

May 4, 2016		/s/ June Howard
		(June Howard) Senior Vice President, Financial Services; Chief Accounting Officer

105

TABLE OF CONTENTS

Part I. Financial Informationprint Item 1. Financial Statementsprint Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II. Other Informationprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 6. Exhibitsprint

Supplier name	Ticker
Johnson & Johnson	JNJ
Abbott Laboratories	ABT
Merck & Co., Inc.	MRK
Eli Lilly and Company	LLY
Pfizer Inc.	PFE
Amgen Inc.	AMGN
Bristol-Myers Squibb Company	BMY
AbbVie Inc.	ABBV

AFL 10-Q Quarter ended March 31, 2016