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, 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		$	17,230		$	1,509		$	0		$	18,739
Municipalities		88			7			0			95
Mortgage- and asset-backed securities		344			33			0			377
Public utilities		1,707			261			0			1,968
Sovereign and supranational		794			218			0			1,012
Banks/financial institutions		2,693			321			190			2,824
Other corporate		3,515			589			37			4,067
Total yen-denominated		26,371			2,938			227			29,082
Dollar-denominated:
U.S. government and agencies		101			16			0			117
Municipalities		962			206			3			1,165
Mortgage- and asset-backed securities		213			31			0			244
Public utilities		5,211			1,062			23			6,250
Sovereign and supranational		340			116			0			456
Banks/financial institutions		3,001			835			5			3,831
Other corporate		23,410			3,002			238			26,174
Total dollar-denominated		33,238			5,268			269			38,237
Total fixed maturities		59,609			8,206			496			67,319
Perpetual securities:
Yen-denominated:
Banks/financial institutions		2,014			249			84			2,179
Other corporate		183			36			0			219
Dollar-denominated:
Banks/financial institutions		112			51			1			162
Total perpetual securities		2,309			336			85			2,560
Equity securities		19			9			0			28
Total securities available for sale		$	61,937		$	8,551		$	581		$	69,907



	March 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		$	20,084		$	2,891		$	0		$	22,975
Municipalities		346			66			0			412
Mortgage- and asset-backed securities		42			2			0			44
Public utilities		3,269			263			29			3,503
Sovereign and supranational		2,564			235			8			2,791
Banks/financial institutions		4,947			193			86			5,054
Other corporate		3,010			328			15			3,323
Total yen-denominated		34,262			3,978			138			38,102
Total securities held to maturity		$	34,262		$	3,978		$	138		$	38,102



	December 31, 2014
(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		$	17,341		$	1,740		$	0		$	19,081
Municipalities		88			9			0			97
Mortgage- and asset-backed securities		351			35			0			386
Public utilities		1,691			226			5			1,912
Sovereign and supranational		799			163			0			962
Banks/financial institutions		2,752			325			189			2,888
Other corporate		3,479			531			48			3,962
Total yen-denominated		26,501			3,029			242			29,288
Dollar-denominated:
U.S. government and agencies		100			17			0			117
Municipalities		961			201			2			1,160
Mortgage- and asset-backed securities		185			31			0			216
Public utilities		5,061			960			36			5,985
Sovereign and supranational		343			111			0			454
Banks/financial institutions		2,943			775			8			3,710
Other corporate		22,291			2,682			330			24,643
Total dollar-denominated		31,884			4,777			376			36,285
Total fixed maturities		58,385			7,806			618			65,573
Perpetual securities:
Yen-denominated:
Banks/financial institutions		2,132			223			92			2,263
Other corporate		183			48			0			231
Dollar-denominated:
Banks/financial institutions		125			50			0			175
Total perpetual securities		2,440			321			92			2,669
Equity securities		19			9			0			28
Total securities available for sale		$	60,844		$	8,136		$	710		$	68,270



	December 31, 2014
(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		$	20,023		$	3,195		$	0		$	23,218
Municipalities		346			71			0			417
Mortgage- and asset-backed securities		43			3			0			46
Public utilities		3,342			281			20			3,603
Sovereign and supranational		2,556			272			14			2,814
Banks/financial institutions		4,932			231			78			5,085
Other corporate		3,000			326			12			3,314
Total yen-denominated		34,242			4,379			124			38,497
Total securities held to maturity		$	34,242		$	4,379		$	124		$	38,497

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

During the first quarter of 2015, we did not reclassify any investments from the held-to-maturity category to the available-for-sale category. During the first quarter of 2014, we reclassified one investment from the held-to-maturity category to the available-for-sale category as a result of the issuer being downgraded to below investment grade. At the time of transfer, the security had an amortized cost of $63 million and an unrealized loss of $8 million.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at March 31, 2015, 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		$	311		$	339		$	65		$	68
Due after one year through five years		2,173			2,539			626			725
Due after five years through 10 years		10,658			11,346			1,666			1,803
Due after 10 years		34,092			38,783			9,108			10,721
Mortgage- and asset-backed securities		397			451			37			46
Total fixed maturities available for sale		$	47,631		$	53,458		$	11,502		$	13,363
Held to maturity:
Due in one year or less		$	109		$	114		$	0		$	0
Due after one year through five years		1,374			1,472			0			0
Due after five years through 10 years		2,151			2,341			0			0
Due after 10 years		30,587			34,131			0			0
Mortgage- and asset-backed securities		41			44			0			0
Total fixed maturities held to maturity		$	34,262		$	38,102		$	0		$	0

At March 31, 2015, the Parent Company had a portfolio of available-for-sale fixed-maturity securities totaling $476 million at amortized cost and $498 million at fair value, which is 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 premiums 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, 2015, were as follows:



	Aflac Japan						Aflac U.S.
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Due in one year or less		$	182		$	172		$	5		$	5
Due after one year through five years		626			679			0			0
Due after 10 years		1,458			1,648			38			56
Total perpetual securities available for sale		$	2,266		$	2,499		$	43		$	61

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.

Banks and Financial Institutions

One of our largest investment sector concentrations as of March 31, 2015, was banks and financial institutions. Within the countries we approve for investment opportunities, we primarily invest in financial institutions that are strategically crucial to each approved country's economy. The bank and financial institution sector is a highly regulated industry and plays a strategic role in the global economy.

Our total investments in the bank and financial institution sector, including those classified as perpetual securities, were as follows:



	March 31, 2015						December 31, 2014
	Total Investments in Banks and Financial Institutions Sector (in millions)			Percentage of Total Investment Portfolio			Total Investments in Banks and Financial Institutions Sector (in millions)			Percentage of Total Investment Portfolio
Fixed maturities:
Amortized cost		$	10,641		11	%		$	10,627		11	%
Fair value		11,709			11			11,683			11
Perpetual securities:
Upper Tier II:
Amortized cost		$	1,434		1	%		$	1,554		2	%
Fair value		1,555			1			1,645			1
Tier I:
Amortized cost		692			1			703			1
Fair value		786			1			793			1
Total:
Amortized cost		$	12,767		13	%		$	12,884		14	%
Fair value		14,050			13			14,121			13

Realized Investment Gains and Losses

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



	Three Months Ended March 31,
(In millions)	2015			2014
Realized investment gains (losses) on securities:
Fixed maturities:
Available for sale:
Gross gains from sales	$	49		$	35
Gross losses from sales	0			(1		)
Net gains (losses) from redemptions	19			7
Other-than-temporary impairment losses	(6		)	(3		)
Total fixed maturities	62			38
Derivatives and other:
Derivative gains (losses)	(49		)	(83		)
Other	0			(1		)
Total derivatives and other	(49		)	(84		)
Total realized investment gains (losses)	$	13		$	(46	)

Other-than-temporary Impairment

The fair values of our debt 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 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 a year or more.

However, in the course of our credit review process, we may determine that it is unlikely that we will recover our investment in an issuer due to factors specific to an individual issuer, as opposed to general changes in global credit spreads or interest rates. In this event, 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.

In addition to the usual investment risk associated with a debt instrument, our perpetual security holdings are 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.

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)	2015		2014
Corporate bonds	$	2	$	3
Bank/financial institution bonds	4		0
Total other-than-temporary impairment losses realized ⁽¹⁾	$	6	$	3

⁽¹⁾Includes $6 and $3 for the three-month periods ended March 31, 2015 and 2014, 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, 2015				December 31, 2014
Unrealized gains (losses) on securities available for sale		$	7,970			$	7,426
Deferred income taxes		(2,944		)		(2,754		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	5,026			$	4,672

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, 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		$	73		$	3		$	51		$	3		$	22		$	0
Public utilities:
Dollar-denominated		795			23			404			9			391			14
Yen-denominated		761			29			421			11			340			18
Sovereign and supranational:
Yen-denominated		366			8			166			0			200			8
Banks/financial institutions:
Dollar-denominated		115			5			115			5			0			0
Yen-denominated		2,324			276			1,107			16			1,217			260
Other corporate:
Dollar-denominated		4,701			238			2,278			88			2,423			150
Yen-denominated		998			52			124			3			874			49
Total fixed maturities		10,133			634			4,666			135			5,467			499
Perpetual securities:
Dollar-denominated		6			1			0			0			6			1
Yen-denominated		719			84			122			3			597			81
Total perpetual securities		725			85			122			3			603			82
Total		$	10,858		$	719		$	4,788		$	138		$	6,070		$	581



	December 31, 2014
	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		$	75		$	2		$	53		$	1		$	22		$	1
Public utilities:
Dollar-denominated		1,001			36			164			7			837			29
Yen-denominated		805			25			98			1			707			24
Sovereign and supranational:
Yen-denominated		359			14			0			0			359			14
Banks/financial institutions:
Dollar-denominated		205			8			53			5			152			3
Yen-denominated		1,828			267			166			0			1,662			267
Other corporate:
Dollar-denominated		8,072			330			1,901			62			6,171			268
Yen-denominated		1,151			60			122			2			1,029			58
Total fixed maturities		13,496			742			2,557			78			10,939			664
Perpetual securities:
Yen-denominated		783			92			194			5			589			87
Total perpetual securities		783			92			194			5			589			87
Total		$	14,279		$	834		$	2,751		$	83		$	11,528		$	751

Analysis of Securities in Unrealized Loss Positions

The unrealized losses on our 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.

For any significant declines in fair value, 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 the 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 protections, or other relevant features. From these reviews, we evaluate the issuers' continued ability to service our investment through payment of interest and principal.

The following table provides more information on our unrealized loss positions.



		March 31, 2015									December 31, 2014
(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		14	%		7	%		96	%		13	%		7	%		100	%
Sovereign and supranational		3			1			100			3			2			100
Banks/financial institutions		23			39			33			14			33			31
Other corporate		53			41			83			65			47			88
Total fixed maturities		93	%		88	%					95	%		89	%
Perpetual securities		7			12			100			5			11			100
Total		100	%		100	%					100	%		100	%

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

Perpetual Securities

The majority of our investments in Upper Tier II and Tier I perpetual securities were in highly-rated global financial institutions. Upper Tier II securities have more debt-like characteristics than Tier I securities and are senior to Tier I securities, preferred stock, and common equity of the issuer. Conversely, Tier I securities have more equity-like characteristics, but are senior to the common equity of the issuer. They may also be senior to certain preferred shares, depending on the individual security, the issuer's capital structure and the regulatory jurisdiction of the issuer.

Details of our holdings of perpetual securities were as follows:

Perpetual Securities



		March 31, 2015									December 31, 2014
(In millions)	Credit Rating	Amortized Cost			Fair Value			Unrealized Gain (Loss)			Amortized Cost			Fair Value			Unrealized Gain (Loss)
Upper Tier II:
	A		$	61		$	88		$	27		$	61		$	87		$	26
	BBB		1,209			1,235			26			1,330			1,333			3
	BB or lower		164			232			68			163			225			62
Total Upper Tier II			1,434			1,555			121			1,554			1,645			91
Tier I:
	BBB		521			561			40			519			556			37
	BB or lower		171			225			54			184			237			53
Total Tier I			692			786			94			703			793			90
Other subordinated - non-banks:
	BB or lower		183			219			36			183			231			48
Total			$	2,309		$	2,560		$	251		$	2,440		$	2,669		$	229

Assuming no credit-related factors develop, as investments near maturity, the unrealized gains or losses are expected to diminish. Based on our credit analysis, we believe that the issuers of our investments in these sectors have the ability to service their obligations to us.

Variable Interest Entities (VIEs)

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

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 have not been involved in establishing these entities, except as it relates to our review and evaluation of the structure of these VIEs in the normal course of our investment decision-making process. Further, 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. All of the VIEs in which we invest are static with respect to funding and have no ongoing forms of funding after the initial funding date. 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 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, 2015						December 31, 2014
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	3,511		$	4,667		$	3,020		$	4,166
Perpetual securities, available for sale		406			432			405			429
Fixed maturities, held to maturity		83			83			83			84
Other assets		110			110			106			106
Total assets of consolidated VIEs		$	4,110		$	5,292		$	3,614		$	4,785
Liabilities:
Other liabilities		$	392		$	392		$	318		$	318
Total liabilities of consolidated VIEs		$	392		$	392		$	318		$	318

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 and perpetual securities and foreign currency and/or credit default swaps (CDSs), 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 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 are exposed to credit losses within any consolidated collateralized debt obligations (CDOs) that could result in principal losses to our investments. We have mitigated our risk of credit loss through the structure of the VIE, which contractually requires the subordinated tranches within these VIEs 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 CDOs, each of these VIEs can sustain a reasonable number of defaults in the underlying reference entities in the CDSs 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, 2015						December 31, 2014
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	6,159		$	7,089		$	6,104		$	6,937
Perpetual securities, available for sale		312			324			324			330
Fixed maturities, held to maturity		2,488			2,736			2,564			2,829
Total investments in VIEs not consolidated		$	8,959		$	10,149		$	8,992		$	10,096

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 international 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 180 separate issuers with an average credit rating of BBB.

Securities Lending

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.

The following table presents our security loans outstanding and the corresponding collateral held:



(In millions)	March 31, 2015			December 31, 2014
Security loans outstanding, fair value		$	2,558		$	2,149
Cash collateral on loaned securities		2,615			2,193

Certain fixed-maturity securities have been pledged as collateral as part of derivative transactions. For additional information regarding pledged securities related to derivative transactions, see Note 4.