POLICY LIABILITIES

12 Months Ended

Dec. 31, 2018

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 84%, 4%, 5% and 7% of total policy liabilities at December 31, 2018, 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	2018				2017				Year of Issue		In 20 Years
Health insurance:
Japan:	1992 - 2018	$	11,598			$	10,167			1.0 - 2.5	%	1.0 - 2.5	%
	1974 - 2013	1,161				1,133				2.7 - 2.75		2.25 - 2.75
	1998 - 2018	12,764				12,386				3.0		3.0
	1997 - 1999	2,452				2,454				3.5		3.5
	1994 - 1996	3,056				3,046				4.0 - 4.5		4.0 - 4.5
	1987 - 1994	14,722				14,829				5.5		5.5
	1985 - 1991	1,779				1,816				5.25 - 6.75		5.25 - 5.5
	1978 - 1984	1,964				2,037				6.5		5.5

U.S.:	2013 - 2018	96				82				3.0 - 3.5		3.0 - 3.5
	2012 - 2018	1,682				1,366				3.75		3.75
	2011	353				343				4.75		4.75
	2005 - 2010	2,946				2,944				5.5		5.5
	1988 - 2004	641				656				8.0		6.0
	1986 - 2004	1,245				1,296				6.0		6.0
	1981 - 1986	151				159				6.5 - 7.0		5.5 - 6.5
	1998 - 2004	1,311				1,310				7.0		7.0
	Other	17				18

Intercompany eliminations:	2015	(583		)	⁽¹⁾	(609		)	⁽¹⁾	2.0		2.0


Life insurance:
Japan:	2001 - 2018	10,296				8,850				1.0 - 1.85		1.0 - 1.85
	2011 - 2017	5,116				4,763				2.0		2.0
	2009 - 2011	3,867				3,393				2.25		2.25
	1992 - 2006	5				5				2.19		1.55
	2005 - 2011	1,769				1,642				2.5		2.5
	1985 - 2006	2,057				2,048				2.7		2.25
	2007 - 2011	1,380				1,319				2.75		2.75
	1999 - 2011	2,249				2,189				3.0		3.0
	1996 - 2009	678				675				3.5		3.5
	1994 - 1996	901				908				4.0 - 4.5		4.0 - 4.5

U.S.:	1956 - 2018	695				632				3.5 - 6.0		3.5 - 6.0
Total		$	86,368			$	81,857

⁽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 3.3% in 2018, compared with 3.4% in 2017 and 3.5% in 2016; and for U.S. policies, 5.3% in 2018, compared with 5.4% in 2017 and 5.5% in 2016.

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



(In millions)	2018				2017				2016
Unpaid supplemental health claims, beginning of period		$	3,884			$	3,707			$	3,548
Less reinsurance recoverables		30				27				26
Net balance, beginning of period		3,854				3,680				3,522
Add claims incurred during the period related to:
Current year		7,101				6,979				7,037
Prior years		(563		)		(518		)		(465		)
Total incurred		6,538				6,461				6,572
Less claims paid during the period on claims incurred during:
Current year		4,612				4,530				4,613
Prior years		1,898				1,822				1,865
Total paid		6,510				6,352				6,478
Effect of foreign exchange rate changes on unpaid claims		43				65				64
Net balance, end of period		3,925				3,854				3,680
Add reinsurance recoverables		27				30				27
Unpaid supplemental health claims, end of period		3,952				3,884				3,707
Unpaid life claims, end of period		632				508				338
Total liability for unpaid policy claims		$	4,584			$	4,392			$	4,045

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $563 million for 2018 comprises approximately $419 million from Japan, which represents approximately 74% of the total. Excluding the impact of foreign exchange of a gain of approximately $14 million from December 31, 2017 to December 31, 2018, the favorable claims development in Japan would have been approximately $404 million, representing approximately 72% of the total.

The Company has experienced continued favorable claim trends in 2018 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, 2018 and 2017, 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 69% of the December 31, 2018 and 73% of the December 31, 2017 unearned premiums balances.

As of December 31, 2018 and 2017, 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 97% of other policyholders' funds liability at December 31, 2018, compared with 98% at December 31, 2017 .