INVESTMENTS

12 Months Ended

Dec. 31, 2015

Net Investment Income

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



(In millions)	2015			2014			2013
Fixed-maturity securities		$	3,094		$	3,249		$	3,210
Perpetual securities		114			141			153
Equity securities and other		18			7			7
Short-term investments and cash equivalents		4			2			1
Gross investment income		3,230			3,399			3,371
Less investment expenses		95			80			78
Net investment income		$	3,135		$	3,319		$	3,293

Investment Holdings

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



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



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



	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:
Yen-denominated		10			7			0			17
Dollar-denominated		9			2			0			11
Total equity securities		19			9			0			28
Total securities available for sale		$	60,844		$	8,136		$	710		$	68,270



	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 third and fourth quarters of 2015, we increased our investment in yen-denominated publicly traded equity securities, including new investments in exchange traded funds (ETFs) holding Japan real estate investment trusts. These securities are classified as available for sale and carried on our balance sheet at fair value. As of December 31, 2015, the fair value of our investment in yen-denominated publicly traded equity securities was $485 million.

During 2015, we did not reclassify any investments from the held-to-maturity category to the available-for-sale category. During 2014, we reclassified three investments from the held-to-maturity category to the available-for-sale category as a result of the issuers being downgraded to below investment grade. At the time of the transfer, the securities had an aggregate amortized cost of $424 million and an aggregate unrealized loss of $54 million. During 2013, we reclassified two investments 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 the transfer, the securities had an aggregate amortized cost of $492 million and an aggregate unrealized loss of $153 million.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at December 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		$	130		$	142		$	23		$	24
Due after one year through five years		2,617			2,984			648			709
Due after five years through 10 years		11,543			11,642			2,105			2,177
Due after 10 years		33,608			37,112			9,049			9,569
Mortgage- and asset-backed securities		372			424			35			43
Total fixed maturities available for sale		$	48,270		$	52,304		$	11,860		$	12,522
Held to maturity:
Due in one year or less		316			320			0			0
Due after one year through five years		1,692			1,775			0			0
Due after five years through 10 years		1,613			1,732			0			0
Due after 10 years		29,802			33,655			0			0
Mortgage- and asset-backed securities		36			38			0			0
Total fixed maturities held to maturity		$	33,459		$	37,520		$	0		$	0

At December 31, 2015, the Parent Company and other business segments had portfolios of available-for-sale fixed-maturity securities totaling $512 million at amortized cost and $523 million at fair value, which are not included in the table above.

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

The majority of our perpetual securities are subordinated to other debt obligations of the issuer, but rank higher than the issuer's equity securities. Perpetual securities have characteristics of both debt and equity investments, along with unique features that create economic maturity dates for the securities. Although perpetual securities have no contractual maturity date, they have stated interest coupons that were fixed at their issuance and subsequently change to a floating short-term interest rate after some period of time. The instruments are generally callable by the issuer at the time of changing from a fixed coupon rate to a new variable rate of interest, which is determined by the combination of some market index plus a fixed amount of basis points. The net effect is to create an expected maturity date for the instrument. The economic maturities of our investments in perpetual securities, which were all reported as available for sale at December 31, 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		$	301		$	282		$	0		$	0
Due after one year through five years		292			315			0			0
Due after 10 years		1,209			1,293			39			57
Total perpetual securities available for sale		$	1,802		$	1,890		$	39		$	57

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 December 31 were as follows:



	2015			2014
(In millions)	Credit Rating	Amortized Cost	Fair Value	Credit Rating	Amortized Cost	Fair Value
Japan National Government⁽¹⁾	A	$36,859	$42,025	A	$37,021	$41,878

⁽¹⁾JGBs or JGB-backed securities

Banks and Financial Institutions

One of our largest investment sector concentrations as of December 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 as of December 31, including those classified as perpetual securities, were as follows:



	2015						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		$	9,617		10	%		$	10,627		11	%
Fair value		10,565			10			11,683			11
Perpetual securities:
Upper Tier II:
Amortized cost		$	1,217		1	%		$	1,554		2	%
Fair value		1,265			1			1,645			1
Tier I:
Amortized cost		441			0			703			1
Fair value		477			0			793			1
Total:
Amortized cost		$	11,275		11	%		$	12,884		14	%
Fair value		12,307			11			14,121			13

Realized Investment Gains and Losses

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



(In millions)	2015			2014			2013
Realized investment gains (losses) on securities:
Fixed maturities:
Available for sale:
Gross gains from sales	$	224		$	192		$	316
Gross losses from sales	(8		)	(12		)	(87		)
Net gains (losses) from redemptions	52			34			34
Other-than-temporary impairment losses	(152		)	(31		)	(128		)
Held to maturity:
Net gains (losses) from redemptions	0			1			0
Total fixed maturities	116			184			135
Perpetual securities:
Available for sale:
Gross losses from sales	0			0			(1		)
Net gains (losses) from redemptions	35			0			0
Other-than-temporary impairment losses	0			0			(70		)
Total perpetual securities	35			0			(71		)
Equity securities:
Other-than-temporary impairment losses	(1		)	0			(1		)
Total equity securities	(1		)	0			(1		)
Derivatives and other:
Derivative gains (losses)	(10		)	31			326
Other	0			0			10
Total derivatives and other	(10		)	31			336
Total realized investment gains (losses)	$	140		$	215		$	399

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 for the years ended December 31.



(In millions)	2015		2014		2013
Perpetual securities	$	0	$	0	$	70
Corporate bonds	17		31		102
Bank/financial institution bonds	135		0		0
Sovereign and supranational	0		0		26
Equity securities	1		0		1
Total other-than-temporary impairment losses realized ⁽¹⁾	$	153	$	31	$	199

⁽¹⁾Includes $131 and $45 for the years ended December 31, 2015 and 2013, respectively, for credit-related impairments; $26 for the year ended December 31, 2013 for impairments due to severity and duration of decline in fair value; and $22, $31 and $128 for the years ended December 31, 2015, 2014 and 2013, respectively, from change in intent to sell securities

Unrealized Investment Gains and Losses

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



(In millions)	2015				2014				2013
Changes in unrealized gains (losses):
Fixed maturities:
Available for sale		$	(2,481	)		$	5,629			$	(2,281	)
Transferred to held to maturity		0				(10		)		(9		)
Perpetual securities:
Available for sale		(123		)		269				(129		)
Equity securities		9				5				1
Total change in unrealized gains (losses)		$	(2,595	)		$	5,893			$	(2,418	)

Effect on Shareholders' Equity

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



(In millions)	2015				2014
Unrealized gains (losses) on securities available for sale		$	4,831			$	7,426
Deferred income taxes		(1,845		)		(2,754		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	2,986			$	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 at 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



	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 fixed income or perpetual securities investments have been primarily related to general market changes in interest rates, foreign exchange rates, and/or the levels of credit spreads rather than specific concerns with the issuer's ability to pay interest and repay principal. The unrealized losses on our investments in equity securities are primarily related to 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 and perpetual securities as of December 31.



	2015									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		16	%		16	%		93	%		13	%		7	%		100	%
Sovereign and supranational		3			1			100			3			2			100
Banks/financial institutions		12			9			59			14			33			31
Other corporate		66			69			86			65			47			88
Total fixed maturities		97	%		95	%					95	%		89	%
Perpetual securities		3			5			100			5			11			100
Total		100	%		100	%					100	%		100	%

Assuming no credit-related factors, unrealized gains and losses are expected to diminish as investments near maturity. 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 are 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, and 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 as of December 31 were as follows:

Perpetual Securities



		2015										2014
(In millions)	Credit Rating	Amortized Cost			Fair Value			Unrealized Gain (Loss)				Amortized Cost			Fair Value			Unrealized Gain (Loss)
Upper Tier II:
	A		$	31		$	41		$	10			$	61		$	87		$	26
	BBB		1,023			993			(30		)		1,330			1,333			3
	BB or lower		163			231			68				163			225			62
Total Upper Tier II			1,217			1,265			48				1,554			1,645			91
Tier I:
	BBB		395			408			13				519			556			37
	BB or lower		46			69			23				184			237			53
Total Tier I			441			477			36				703			793			90
Other subordinated - non-banks:
	BB or lower		183			205			22				183			231			48
Total			$	1,841		$	1,947		$	106			$	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. Perpetual securities that had an amortized cost of $599 million and fair value of $630 million at December 31, 2014 matured or were called during 2015.

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

Investments in Consolidated Variable Interest Entities



	2015						2014
(In millions)	Cost or Amortized Cost			Fair Value			Cost or Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	3,739		$	4,554		$	3,020		$	4,166
Perpetual securities, available for sale		255			228			405			429
Fixed maturities, held to maturity		0			0			83			84
Equity securities		363			363			0			0
Other assets		102			102			106			106
Total assets of consolidated VIEs		$	4,459		$	5,247		$	3,614		$	4,785
Liabilities:
Other liabilities		$	293		$	293		$	318		$	318
Total liabilities of consolidated VIEs		$	293		$	293		$	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, equity, and perpetual securities and foreign currency, and/or 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 (bank 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 December 31, 2015, the amortized cost and fair value of our bank loan investments was $1.4 billion. As of December 31, 2014, the amortized cost and fair value of our bank loan investments was $501 million and $579 million, respectively. During the fourth quarter of 2015, we invested 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. These equities are classified as available-for-sale in the financial statements. As of December 31, 2015, the amortized cost and fair value of these equities was $363 million.

We are exposed to credit losses within our 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 as of December 31.

Investments in Variable Interest Entities Not Consolidated



	2015						2014
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	5,536		$	6,027		$	6,104		$	6,937
Perpetual securities, available for sale		249			253			324			330
Fixed maturities, held to maturity		2,477			2,636			2,564			2,829
Total investments in VIEs not consolidated		$	8,262		$	8,916		$	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 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 169 separate issuers with an average credit rating of BBB.

Loans and Loan Receivables

Middle Market Loans

As of December 31, 2015, our investment in middle market loan receivables was $118 million, of which $53 million was unfunded, while the associated allowance for expected losses was immaterial. As of December 31, 2015, we had commitments of $182 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 fourth quarter of 2015, we initiated our commercial mortgage loan investment program. As of December 31, 2015, we had not yet funded any commercial mortgage loans. Once funded, we intend to classify our commercial mortgage loans as held-for-investment, and we will carry them on the balance sheet at amortized cost less an estimated allowance for loan losses. Our commercial mortgage loan allowance for losses will be established using both specific and general allowances. The specific allowance will be used on an individual loan basis for those impaired loans where we expect to incur a loss. The general allowance will be used for loans grouped by similar risk characteristics where a property-specific or market-specific risk has not been identified, but for which we expect to incur a loss. As of December 31, 2015, 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.

Securities Lending and Pledged Securities

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

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



Securities Lending Transactions Accounted for as Secured Borrowings
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.



Securities Lending Transactions Accounted for as Secured Borrowings
2014
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	$	1,720	$	1,720
Public utilities	80		0		80
Sovereign and supranational	1		0		1
Banks/financial institutions	64		0		64
Other corporate	328		0		328
Total borrowings	$	473	$	1,720	$	2,193
Gross amount of recognized liabilities for securities lending transactions					$	2,193
Amounts related to agreements not included in offsetting disclosure in Note 4					$	0

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

We did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of December 31, 2015 and 2014, respectively.

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.

At December 31, 2015, debt securities with a fair value of $15 million were on deposit with regulatory authorities in

the United States (including U.S. territories) and Japan. We retain ownership of all securities on deposit and receive the related investment income.

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