REINSURANCE

The Company periodically enters into fixed quota-share coinsurance agreements with other companies in the normal course of business. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

Effective March 31, 2015, the Company entered into a coinsurance transaction whereby it ceded 30.0% of the sickness hospital benefit of one of Aflac Japan’s closed in-force blocks of business. The Company has an agreement for a $90 million letter of credit as collateral for this reinsurance transaction (see Note 13 for additional information). Effective April 1, 2015, the Company entered into a retrocession coinsurance transaction whereby it assumed 27.0% of the sickness hospital benefit of one of Aflac Japan’s closed in-force blocks of business through its subsidiary CAIC.

Effective October 1, 2014 and September 30, 2013, the Company entered into coinsurance reinsurance transactions whereby it ceded 16.7% and 33.3%, respectively, of the hospital benefit of one of Aflac Japan’s closed medical in-force blocks of business. Effective December 31, 2014, the Company entered into a retrocession coinsurance reinsurance transaction whereby it assumed 8.35% of the reinsured hospital benefit of one of Aflac Japan’s closed medical in-force blocks of business through its subsidiary CAIC.

For its reinsurance transactions to date, the Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $954 million, as of December 31, 2017, is included in future policy benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $908 million and $860 million as of December 31, 2017 and 2016, respectively. The increase in the reinsurance recoverable balance was driven by two aggregating factors: yen strengthening and the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate strengthened by approximately 3% and ceded reserves increased approximately 2% from December 31, 2016, to December 31, 2017.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance for the years ended December 31.



(In millions)	2017				2016
Direct premium income		$	18,875			$	19,592
Ceded to other companies:
Ceded Aflac Japan closed blocks		(515		)		(560		)
Other		(51		)		(48		)
Assumed from other companies:
Retrocession activities		216				234
Other		6				7
Net premium income		$	18,531			$	19,225

Direct benefits and claims		$	12,486			$	13,240
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(473		)		(509		)
Eliminations		51				58
Other		(44		)		(38		)
Assumed from other companies:
Retrocession activities		209				222
Eliminations		(51		)		(58		)
Other		3				4
Benefits and claims, net		$	12,181			$	12,919

These reinsurance transactions are indemnity reinsurance that do not relieve the Company from its obligations to policyholders. In the event that the reinsurer is unable to meet their obligations, the Company remains liable for the reinsured claims.

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015 in the amount of approximately 110 billion yen. This reinsurance facility agreement was renewed in 2017 and is effective until December 31, 2018. There are also additional commitment periods of a one-year duration each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac‘s Standard and Poor's (S&P) rating drops below BBB-. As of December 31, 2017, the Company had not executed a reinsurance treaty under this committed reinsurance facility.