POLICY LIABILITIES

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 83%, 4%, 6% and 7% of total policy liabilities at December 31, 2017, respectively. The Company regularly reviews the adequacy of its policy liabilities in total and by component.

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



		Liability Amounts								Interest Rates
(In millions)	Policy Issue Year	2017				2016				Year of Issue		In 20 Years
Health insurance:
Japan:	1992 - 2017	$	10,167			$	8,912			1.0 - 2.5	%	1.0 - 2.5	%
	1974 - 2013	1,133				1,118				2.7 - 2.75		2.25 - 2.75
	1998 - 2017	12,386				11,687				3.0		3.0
	1997 - 1999	2,454				2,485				3.5		3.5
	1994 - 1996	3,046				3,069				4.0 - 4.5		4.0 - 4.5
	1987 - 1994	14,829				14,372				5.5		5.5
	1985 - 1991	1,816				1,871				5.25 - 6.75		5.25 - 5.5
	1978 - 1984	2,037				2,134				6.5		5.5

U.S.:	2013 - 2017	82				75				3.0		3.0
	2012 - 2017	1,366				1,062				3.75		3.75
	2011	343				319				4.75		4.75
	2005 - 2010	2,944				3,004				5.5		5.5
	1988 - 2004	656				669				8.0		6.0
	1986 - 2004	1,296				1,265				6.0		6.0
	1981 - 1986	159				166				6.5 - 7.0		5.5 - 6.5
	1998 - 2004	1,310				1,295				7.0		7.0
	Other	18				19

Intercompany eliminations:	2015	(609		)	⁽¹⁾	(630		)	⁽¹⁾	2.0		2.0


Life insurance:
Japan:	2001 - 2017	8,850				7,255				1.0 - 1.85		1.0 - 1.85
	2011 - 2017	4,763				4,151				2.0		2.0
	2009 - 2011	3,393				2,861				2.25		2.25
	1992 - 2006	5				5				2.19		1.55
	2005 - 2011	1,642				1,488				2.5		2.5
	1985 - 2006	2,048				2,007				2.7		2.25
	2007 - 2011	1,319				1,220				2.75		2.75
	1999 - 2011	2,189				2,102				3.0		3.0
	1996 - 2009	675				657				3.5		3.5
	1994 - 1996	908				897				4.0 - 4.5		4.0 - 4.5

U.S.:	1956 - 2017	632				571				3.5 - 6.0		3.5 - 6.0
Total		$	81,857			$	76,106

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

The weighted-average interest rates reflected in the consolidated statements of earnings for future policy benefits for Japanese policies were 3.4% in 2017, compared with 3.5% in 2016 and 3.6% in 2015; and for U.S. policies, 5.4% in 2017, compared with 5.5% in 2016 and 5.6% in 2015.

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



(In millions)	2017				2016				2015
Unpaid supplemental health claims, beginning of period		$	3,707			$	3,548			$	3,412
Less reinsurance recoverables		27				26				7
Net balance, beginning of period		3,680				3,522				3,405
Add claims incurred during the period related to:
Current year		6,979				7,037				6,416
Prior years		(518		)		(465		)		(353		)
Total incurred		6,461				6,572				6,063
Less claims paid during the period on claims incurred during:
Current year		4,530				4,613				4,227
Prior years		1,822				1,865				1,718
Total paid		6,352				6,478				5,945
Effect of foreign exchange rate changes on unpaid claims		65				64				(1		)
Net balance, end of period		3,854				3,680				3,522
Add reinsurance recoverables		30				27				26
Unpaid supplemental health claims, end of period		3,884				3,707				3,548
Unpaid life claims, end of period		508				338				254
Total liability for unpaid policy claims		$	4,392			$	4,045			$	3,802

Total incurred claims decreased from 2016 to 2017 largely due to the weakening of the yen. Excluding the impact of foreign exchange rates, total incurred claims increased due to normal increases in inforce and policyholder aging. The favorable claims development of $518 million for 2017 comprises approximately $383 million from Japan, which represents approximately 74% of the total. Excluding the impact of foreign exchange of a loss of approximately $18 million from December 31, 2016 to December 31, 2017, the favorable claims development in Japan would have been approximately $400 million, representing approximately 77% of the total.

The Company has experienced continued favorable claim trends in 2017 for its core health products in Japan. The Company's experience in Japan related to the average length of stay in the hospital for cancer treatment has shown continued decline in the current period. In addition, cancer treatment patterns in Japan are continuing to be influenced by significant advances in early-detection techniques and by the increased use of pathological diagnosis rather than clinical exams. Additionally, follow-up radiation and chemotherapy treatments are occurring more often on an outpatient basis. Such changes in treatment not only increase the quality of life and initial outcomes for the patients, but also decrease the average length of each hospital stay, resulting in favorable claims development.

As of December 31, 2017 and 2016, unearned premiums consisted primarily of discounted advance premiums on deposit. Discounted advance premiums are premiums on deposit from policyholders in conjunction with their purchase of certain Aflac Japan limited-pay insurance products. These advanced premiums are deferred upon collection and recognized as premium revenue over the contractual premium payment period. These advanced premiums represented 73% of the December 31, 2017 and 76% of the December 31, 2016 unearned premiums balances.

As of December 31, 2017 and 2016, the largest component of the other policyholders' funds liability was the Company's annuity line of business in Aflac Japan. The Company's annuities have fixed benefits and premiums. These annuities represented 98% at both December 31, 2017 and December 31, 2016 of other policyholders' funds liability.