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.