INVESTMENTS

Investment Holdings

The amortized cost for the Company's investments in debt securities, the cost for equity securities and the fair values of these investments are shown in the following tables.



	June 30, 2018
(In millions)	Cost or Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities available for sale, carried at fair value through other comprehensive income:
Fixed maturity securities: ⁽¹⁾
Yen-denominated:
Japan government and agencies		$	31,384			$	3,742		$	150		$	34,976
Municipalities		375				32			9			398
Mortgage- and asset-backed securities		156				22			0			178
Public utilities		1,663				313			3			1,973
Sovereign and supranational		1,263				188			30			1,421
Banks/financial institutions		5,399				651			126			5,924
Other corporate		4,298				688			6			4,980
Total yen-denominated		44,538				5,636			324			49,850
U.S. dollar-denominated:
U.S. government and agencies		133				8			1			140
Municipalities		1,396				135			1			1,530
Mortgage- and asset-backed securities		162				8			1			169
Public utilities		4,939				555			103			5,391
Sovereign and supranational		264				58			0			322
Banks/financial institutions		2,871				417			30			3,258
Other corporate		24,632				1,569			980			25,221
Total U.S. dollar-denominated		34,397				2,750			1,116			36,031
Total securities available for sale		$	78,935	⁽¹⁾		$	8,386		$	1,440		$	85,881	⁽¹⁾

⁽¹⁾Includes perpetual securities ($1,446 at amortized cost and $1,612 at fair value)



	June 30, 2018
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies		$	21,808		$	5,409		$	0		$	27,217
Municipalities		363			111			0			474
Mortgage- and asset-backed securities		16			1			0			17
Public utilities		3,236			317			1			3,552
Sovereign and supranational		1,557			286			0			1,843
Banks/financial institutions		1,532			178			10			1,700
Other corporate		2,747			406			0			3,153
Total yen-denominated		31,259			6,708			11			37,956
Total securities held to maturity		$	31,259		$	6,708		$	11		$	37,956

June 30, 2018

(In millions)

Fair
Value

Equity securities, carried at fair value through

net earnings:

Equity securities: ⁽¹⁾

Yen-denominated

712

U.S. dollar-denominated

391

Total equity securities

1,103

⁽¹⁾

⁽¹⁾Includes perpetual securities ($69 at fair value)



	December 31, 2017
(In millions)	Cost or Amortized Cost				Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities available for sale, carried at fair value:
Fixed maturity securities: ⁽¹⁾
Yen-denominated:
Japan government and agencies		$	27,980			$	3,363		$	271		$	31,072
Municipalities		314				28			12			330
Mortgage- and asset-backed securities		242				29			0			271
Public utilities		1,635				352			6			1,981
Sovereign and supranational		1,380				190			1			1,569
Banks/financial institutions		4,742				811			53			5,500
Other corporate		4,085				809			7			4,887
Total yen-denominated		40,378				5,582			350			45,610
U.S dollar-denominated:
U.S. government and agencies		146				13			1			158
Municipalities		872				168			0			1,040
Mortgage- and asset-backed securities		161				12			0			173
Public utilities		5,116				884			27			5,973
Sovereign and supranational		267				73			0			340
Banks/financial institutions		2,808				633			8			3,433
Other corporate		25,384				2,620			418			27,586
Total U.S. dollar-denominated		34,754				4,403			454			38,703
Total securities available for sale		$	75,132	⁽¹⁾		$	9,985		$	804		$	84,313	⁽¹⁾

⁽¹⁾Includes perpetual securities ($1,462 at amortized cost and $1,789 at fair value)



	December 31, 2017
(In millions)	Cost or Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturity securities:
Yen-denominated:
Japan government and agencies		$	21,331		$	5,160		$	0		$	26,491
Municipalities		357			105			0			462
Mortgage- and asset-backed securities		26			1			0			27
Public utilities		3,300			398			0			3,698
Sovereign and supranational		1,523			312			0			1,835
Banks/financial institutions		2,206			190			9			2,387
Other corporate		2,687			485			0			3,172
Total yen-denominated		31,430			6,651			9			38,072
Total securities held to maturity		$	31,430		$	6,651		$	9		$	38,072

December 31, 2017

(In millions)

Fair
Value

Equity securities, carried at fair value:

Equity securities:

Yen-denominated

695

U.S. dollar-denominated

328

Total equity securities

1,023

The methods of determining the fair values of the Company's investments in fixed maturity securities and equity securities are described in Note 5.

During the first and second quarters of 2018, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

During the second quarter of 2017, the Company reclassified three investments from the held-to-maturity category to the available-for-sale category as a result of the issuers' credit rating being downgraded to below investment grade. At the time of the transfer, the securities had an amortized cost of $773 million and an unrealized gain of $47 million. During the first quarter of 2017, the Company did not reclassify any investments from the held-to-maturity category to the available-for-sale category.

Contractual and Economic Maturities

The contractual and economic maturities of the Company's investments in fixed maturity securities at June 30, 2018, were as follows:



(In millions)	Amortized Cost			Fair Value
Available for sale: ⁽¹⁾
Due in one year or less		$	348		$	359
Due after one year through five years		3,910			4,070
Due after five years through 10 years		11,813			11,912
Due after 10 years		62,547			69,193
Mortgage- and asset-backed securities		317			347
Total fixed maturity securities available for sale		$	78,935		$	85,881
Held to maturity:
Due in one year or less		$	498		$	505
Due after one year through five years		353			366
Due after five years through 10 years		1,585			1,715
Due after 10 years		28,807			35,353
Mortgage- and asset-backed securities		16			17
Total fixed maturity securities held to maturity		$	31,259		$	37,956

⁽¹⁾Includes perpetual securities, categorized in accordance with their respective economic maturities (the expected maturity date created by the combination of features in the financial instrument)

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.

Investment Concentrations

The Company's process for investing in credit-related investments begins with an independent approach to underwriting each issuer's fundamental credit quality. The Company evaluates independently those factors that it believes could influence an issuer's ability to make payments under the contractual terms of the Company's 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). The Company further evaluates 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 were as follows:



	June 30, 2018			December 31, 2017
(In millions)	Credit Rating	Amortized Cost	Fair Value	Credit Rating	Amortized Cost	Fair Value
Japan National Government⁽¹⁾	A+	$51,881	$60,734	A	$48,399	$56,532

⁽¹⁾Japan Government Bonds (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 June 30,							Six Months Ended June 30,
(In millions)	2018			2017				2018			2017
Realized investment gains (losses):
Fixed maturity securities: ⁽¹⁾
Available for sale:
Gross gains from sales	$	12		$	10			$	22		$	22
Gross losses from sales	(71		)	(8		)		(73		)	(19		)
Foreign exchange gains (losses)	29			(18		)		24			(50		)
Other-than-temporary impairment losses	(2		)	(1		)		(2		)	(4		)
Total fixed maturity securities	(32		)	(17		)		(29		)	(51		)
Equity securities^(1),(2)	18			15			⁽³⁾	(28		)	34			⁽³⁾
Loan loss reserves	(3		)	(2		)		(10		)	(3		)
Derivatives and other:
Derivative gains (losses)	(172		)	(51		)		(28		)	(103		)
Foreign currency gains (losses)	192			(1		)		(36		)	(73		)
Total derivatives and other	20			(52		)		(64		)	(176		)
Total realized investment gains (losses)	$	3		$	(56	)		$	(131	)	$	(196	)

⁽¹⁾Includes perpetual securities

⁽²⁾See Note 1 of the Notes to the Consolidated Financial Statements for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

⁽³⁾Includes impairments of $6 for the three-month period and $12 for the six-month period ended June 30, 2017

The unrealized holding gains, net of losses, recorded as a component of realized investment gains and losses for the three-month period ended June 30, 2018, that relates to equity securities still held at the June 30, 2018, reporting date was $19 million. The unrealized holding losses, net of gains, recorded as a component of realized investment gains and losses for the six-month period ended June 30, 2018, that relates to equity securities still held at the June 30, 2018, reporting date was $24 million.

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)	June 30, 2018				December 31, 2017
Unrealized gains (losses) on securities available for sale		$	6,946			$	9,358
Deferred income taxes		(2,110		)		(3,394		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	4,836			$	5,964

See Note 1 for discussion of the accounting treatment of tax on amounts recorded in accumulated other comprehensive income pursuant to the Tax Act and for the adoption of accounting guidance on January 1, 2018 related to financial instruments.

Gross Unrealized Loss Aging

The following tables show the fair values and gross unrealized losses of the Company's 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.



	June 30, 2018
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities: ⁽¹⁾
U.S. government and agencies:
U.S. dollar-denominated		$	78		$	1		$	74		$	1		$	4		$	0
Japan government and agencies:
Yen-denominated		3,647			150			0			0			3,647			150
Municipalities:
U.S. dollar-denominated		261			1			261			1			0			0
Yen-denominated		137			9			13			0			124			9
Mortgage- and asset- backed securities:
U.S. dollar-denominated		86			1			71			1			15			0
Public utilities:
U.S. dollar-denominated		1,664			103			1,200			52			464			51
Yen-denominated		268			4			180			1			88			3
Sovereign and supranational:
U.S. dollar-denominated		13			0			13			0			0			0
Yen-denominated		286			30			286			30			0			0
Banks/financial institutions:
U.S. dollar-denominated		696			30			561			20			135			10
Yen-denominated		2,344			136			1,478			50			866			86
Other corporate:
U.S. dollar-denominated		13,044			980			8,391			362			4,653			618
Yen-denominated		409			6			294			4			115			2
Total		$	22,933		$	1,451		$	12,822		$	522		$	10,111		$	929

⁽¹⁾Includes perpetual securities



	December 31, 2017
	Total						Less than 12 months						12 months or longer
(In millions)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Fixed maturity securities: ⁽¹⁾
U.S. government and agencies:
U.S. dollar-denominated		$	74		$	1		$	74		$	1		$	0		$	0
Japan government and agencies:
Yen-denominated		5,255			271			1,264			9			3,991			262
Municipalities:
Yen-denominated		129			12			10			0			119			12
Public utilities:
U.S. dollar-denominated		785			27			221			3			564			24
Yen-denominated		83			6			0			0			83			6
Sovereign and supranational:
Yen-denominated		309			1			309			1			0			0
Banks/financial institutions:
U.S. dollar-denominated		362			8			316			5			46			3
Yen-denominated		1,507			62			394			4			1,113			58
Other corporate:
U.S. dollar-denominated		7,741			418			2,839			50			4,902			368
Yen-denominated		440			7			349			4			91			3
Total		$	16,685		$	813		$	5,776		$	77		$	10,909		$	736

⁽¹⁾Includes perpetual securities

Analysis of Securities in Unrealized Loss Positions

The unrealized losses on the Company's fixed maturity 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.

For any significant declines in fair value of its fixed maturity securities, the Company performs a more focused review of the related issuers' credit profile. For corporate issuers, the Company evaluates their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, the Company analyzes all sources of credit support, including issuer-specific factors. The Company utilizes information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. The Company also considers ratings from Nationally Recognized Statistical Rating Organizations (NRSROs), as well as the specific characteristics of the security it owns including seniority in the issuer's capital structure, covenant protections, or other relevant features. From these reviews, the Company evaluates the issuers' continued ability to service the Company's investment through payment of interest and principal.

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

Other Investments

The table below reflects the composition of the carrying value for other investments as of the periods presented.



(In millions)	June 30, 2018			December 31, 2017
Other investments:
Transitional real estate loans		$	3,247		$	1,235
Commercial mortgage loans		966			908
Middle market loans		1,097			859
Policy loans		222			210
Short-term investments		1			57
Other		298			133
Total other investments		$	5,831		$	3,402

Loans and Loan Receivables

The Company classifies its transitional real estate loans (TREs), commercial mortgage loans (CMLs) and middle market loans (MMLs) as held-for-investment and includes them in the other investments line on the consolidated balance sheets. The Company carries them on the balance sheet at amortized cost less an estimated allowance for loan losses. The Company's allowance for loan losses is established using both general and specific allowances. 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 the Company estimates probable incurred losses. The specific allowance is used on an individual loan basis when it is probable that a loss has been incurred. As of June 30, 2018, and December 31, 2017, the Company's allowance for loan losses was $21 million and $11 million, respectively. As of June 30, 2018, and December 31, 2017, the Company had no loans that were past due in regards to principal and/or interest payments. Additionally, the Company held no loans that were on nonaccrual status or considered impaired as of June 30, 2018, and December 31, 2017. The Company had no troubled debt restructurings during the six months ended June 30, 2018 and 2017.

Transitional Real Estate Loans

Transitional real estate loans are commercial mortgage loans that are typically relatively short-term floating rate instruments secured by a first lien on the property. These loans provide funding for properties undergoing a change in their physical characteristics and/or economic profile. As of June 30, 2018, the Company had $1.2 billion in outstanding commitments to fund transitional real estate loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Commercial Mortgage Loans

As of June 30, 2018, the Company had $79 million in outstanding commitments to fund commercial mortgage loans. These commitments are contingent on the final underwriting and due diligence to be performed.

Middle Market Loans

Middle market loans are generally considered to be below investment grade. The carrying value for middle market loans included an unfunded amount of $90 million and $109 million, as of June 30, 2018, and December 31, 2017, respectively, that is reflected in other liabilities on the consolidated balance sheets.

As of June 30, 2018, the Company had commitments of approximately $774 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 the Company's underwriting criteria.

Other

Other investments primarily includes investments in limited partnerships. As of June 30, 2018, the Company had $1.1 billion in outstanding commitments to fund alternative investments in limited partnerships.

Variable Interest Entities (VIEs)

As a condition of its involvement or investment in a VIE, the Company enters into certain protective rights and covenants that preclude changes in the structure of the VIE that would alter the creditworthiness of the Company's investment or its beneficial interest in the VIE.

For those VIEs other than certain unit trust structures, the Company's involvement is passive in nature. The Company has not, nor has it been, required to purchase any securities issued in the future by these VIEs.

The Company's ownership interest in VIEs is limited to holding the obligations issued by them. The Company has no direct or contingent obligations to fund the limited activities of these VIEs, nor does it have any direct or indirect financial guarantees related to the limited activities of these VIEs. The Company has not provided any assistance or any other type of financing support to any of the VIEs it invests in, nor does it have any intention to do so in the future. For those VIEs in which the Company holds debt obligations, the weighted-average lives of the Company's notes are very similar to the underlying collateral held by these VIEs where applicable.

The Company's risk of loss related to its interests in any of its VIEs is limited to the carrying value of the related investments held in the VIE.

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



	June 30, 2018						December 31, 2017
(In millions)	Cost or Amortized Cost			Fair Value			Cost or Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale ⁽¹⁾		$	4,492		$	5,202		$	4,538		$	5,509
Equity securities		755			755			606			753
Other investments ⁽²⁾		4,586			4,577			2,341			2,328
Other assets ⁽³⁾		202			202			151			151
Total assets of consolidated VIEs		$	10,035		$	10,736		$	7,636		$	8,741
Liabilities:
Other liabilities ⁽³⁾		$	92		$	92		$	128		$	128
Total liabilities of consolidated VIEs		$	92		$	92		$	128		$	128

⁽¹⁾ Includes perpetual securities

⁽²⁾ Consists of TREs, CMLs, MMLs, and alternative investments in limited partnerships

⁽³⁾ Consists entirely of derivatives

The Company is substantively the only investor in the consolidated VIEs listed in the table above. As the sole investor in these VIEs, the Company has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and is therefore considered to be the primary beneficiary of the VIEs that it consolidates. The Company also participates in substantially all of the variability created by these VIEs. The activities of these VIEs are limited to holding invested assets and foreign currency, and/or credit default swaps (CDS), as appropriate, and utilizing the cash flows from these securities to service its investment. Neither the Company nor any of its 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, the Company is not a direct counterparty to the swap contracts and has no control over them. The Company's loss exposure to these VIEs is limited to its original investment. The Company's 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 its investment in unit trust structures, the underlying collateral assets and funding of the Company's 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.

Investments in Unit Trust Structures

The Company also utilizes unit trust structures in its Aflac Japan segment to invest in various asset classes. As the sole investor of these VIEs, the Company is required to consolidate these trusts under U.S. GAAP.

VIEs-Not Consolidated

The table below reflects the amortized cost, fair value and balance sheet caption in which the Company's investment in VIEs not consolidated are reported.

Investments in Variable Interest Entities Not Consolidated



	June 30, 2018						December 31, 2017
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturity securities, available for sale ⁽¹⁾		$	4,870		$	5,358		$	5,004		$	5,724
Fixed maturity securities, held to maturity		2,469			2,795			2,549			2,929
Other investments		106			106			55			55
Total investments in VIEs not consolidated		$	7,445		$	8,259		$	7,608		$	8,708

⁽¹⁾ Includes perpetual securities

The Company holds alternative investments in limited partnerships that have been determined to be VIEs. These partnerships invest in private equity and structured investments. The Company’s maximum exposure to loss on these investments is limited to the amount of its investment. The Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them. The Company classifies these investments as Other investments in the consolidated balance sheets.

Certain investments in VIEs that the Company is 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. The Company does not have the power to direct the activities that most significantly impact the entity's economic performance, nor does it have the obligation to absorb losses of the entity or the right to receive benefits from the entity. As such, the Company is not the primary beneficiary of these VIEs and is therefore not required to consolidate them.

Securities Lending and Pledged Securities

The Company lends fixed maturity and public equity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. The Company's 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 the Company's balance sheet during the terms of the loans and are not reported as sales. The Company receives 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 the Company's securities lending activities were as follows:



Securities Lending Transactions Accounted for as Secured Borrowings
June 30, 2018
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		30-90 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	2,942	353		$	3,295
Public utilities	13		0		0		13
Banks/financial institutions	60		0		0		60
Other corporate	335		0		0		335
Equity securities	9		0		0		9
Total borrowings	$	417	$	2,942	$	353	$	3,712
Gross amount of recognized liabilities for securities lending transactions							$	3,712
Amounts related to agreements not included in offsetting disclosure in Note 4							$	0

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



Securities Lending Transactions Accounted for as Secured Borrowings
December 31, 2017
Remaining Contractual Maturity of the Agreements
(In millions)	Overnight and Continuous⁽¹⁾		Up to 30 days		Total
Securities lending transactions:
Fixed maturity securities:
Japan government and agencies	$	0	$	49	$	49
Public utilities	73		0		73
Banks/financial institutions	54		0		54
Other corporate	415		0		415
Equity securities	15		0		15
Total borrowings	$	557	$	49	$	606
Gross amount of recognized liabilities for securities lending transactions					$	606
Amounts related to agreements not included in offsetting disclosure in Note 4					$	0

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

The Company did not have any repurchase agreements or repurchase-to-maturity transactions outstanding as of June 30, 2018, and December 31, 2017, respectively.

Certain fixed maturity securities can be 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.