POLICY LIABILITIES

12 Months Ended

Dec. 31, 2019

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 85%, 4%, 4% and 7% of total policy liabilities at December 31, 2019, 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 Rate Assumptions
(In millions)	2019				2018
Health insurance
Japan	$	50,941			$	49,496			0.6 - 6.75	%
U.S.	8,646				8,442				3.0 - 7.0
Intercompany eliminations	(532		)	⁽¹⁾	(583		)	⁽¹⁾	2.0
Life insurance
Japan	30,520				28,318				1.0 - 4.5
U.S.	760				695				2.5 - 6.0
Total	$	90,335			$	86,368

⁽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 3.2% in 2019, compared with 3.3% in 2018 and 3.4% in 2017; and for U.S. policies, 5.3% in 2019, compared with 5.3% in 2018 and 5.4% in 2017.

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



(In millions)	2019				2018				2017
Unpaid supplemental health claims, beginning of period		$	3,952			$	3,884			$	3,707
Less reinsurance recoverables		27				30				27
Net balance, beginning of period		3,925				3,854				3,680
Add claims incurred during the period related to:
Current year		7,216				7,101				6,979
Prior years		(552		)		(563		)		(518		)
Total incurred		6,664				6,538				6,461
Less claims paid during the period on claims incurred during:
Current year		4,715				4,612				4,530
Prior years		1,965				1,898				1,822
Total paid		6,680				6,510				6,352
Effect of foreign exchange rate changes on unpaid claims		29				43				65
Net balance, end of period		3,938				3,925				3,854
Add reinsurance recoverables		30				27				30
Unpaid supplemental health claims, end of period		3,968				3,952				3,884
Unpaid life claims, end of period		691				632				508
Total liability for unpaid policy claims		$	4,659			$	4,584			$	4,392

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $552 million for 2019 comprises approximately $395 million from Japan, which represents approximately 72% of the total. Excluding the impact of foreign exchange of a gain of approximately $5 million from December 31, 2018 to December 31, 2019, the favorable claims development in Japan would have been approximately $390 million, representing approximately 71% of the total.

The Company has experienced continued favorable claim trends in 2019 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, 2019 and 2018, 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 64% of the December 31, 2019 and 69% of the December 31, 2018 unearned premiums balances.

As of December 31, 2019 and 2018, 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, 2019 and 2018.