POLICY LIABILITIES

12 Months Ended

Dec. 31, 2020

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 85%, 5%, 3% and 7% of total policy liabilities at December 31, 2020, 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)	2020		2019
Health insurance
Japan	$	54,659	$	50,941	0.6 - 6.75	%
U.S.	8,834		8,646		3.0 - 8.0
Intercompany eliminations (1)	(545)		(532)		2.0
Life insurance
Japan	33,993		30,520		0.6 - 4.5
U.S.	842		760		2.5 - 6.0
Total	$	97,783	$	90,335

(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 3.1% in 2020, compared with 3.2% in 2019 and 3.3% in 2018; and for U.S. policies, 5.2% in 2020, compared with 5.3% in 2019 and 2018.

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


(In millions)	2020			2019			2018
Unpaid supplemental health claims, beginning of period		$	3,968		$	3,952		$	3,884
Less reinsurance recoverables		30			27			30
Net balance, beginning of period		3,938			3,925			3,854
Add claims incurred during the period related to:
Current year		7,179			7,216			7,101
Prior years		(540)			(552)			(563)
Total incurred		6,639			6,664			6,538
Less claims paid during the period on claims incurred during:
Current year		4,488			4,715			4,612
Prior years		1,966			1,965			1,898
Total paid		6,454			6,680			6,510
Effect of foreign exchange rate changes on unpaid claims		128			29			43
Zurich acquisition		99			0			0
Net balance, end of period		4,350			3,938			3,925
Add reinsurance recoverables		39			30			27
Unpaid supplemental health claims, end of period		4,389			3,968			3,952
Unpaid life claims, end of period		798			691			632
Total liability for unpaid policy claims		$	5,187		$	4,659		$	4,584

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $540 million for 2020 comprises approximately $334 million from Japan and $206 million from the U.S., representing approximately 62% and 38% of the total, respectively. Excluding the impact of foreign exchange of a gain of approximately $7 million from December 31, 2019 to December 31, 2020, the favorable claims development in Japan would have been approximately $327 million, representing approximately 61% of the total.

The Company has experienced continued favorable claim trends in 2020 for its core health products in Japan. During the year, there were impacts from lower utilization of healthcare services, due to the COVID-19 pandemic. This impacted both cancer and medical products, as the Japan population was avoiding doctor and hospital visits, and was staying home more. This resulted in lower sickness, accident, and cancer incurred claims. Also, 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.

For the majority of the Company's major U.S. accident and health lines of business, including accident, hospital indemnity, cancer, critical illness and short-term disability, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates.

The decrease in current year incurred claims in 2020 primarily reflects a decrease in Aflac U.S. claims as a result of reduced accidents, wellness medical visits and routine procedures due to shelter-in-place orders and heightened social distancing due to COVID-19, offset somewhat by COVID-19 claims.

As of December 31, 2020 and 2019, 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 60% of the December 31, 2020 and 64% of the December 31, 2019 unearned premiums balances.

As of December 31, 2020 and 2019, 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, 2020 and 2019.