POLICY LIABILITIES

12 Months Ended

Dec. 31, 2021

Policy liabilities consist of future policy benefits, unpaid policy claims, unearned premiums, and other policyholders' funds, which accounted for 86%, 5%, 2% and 7% of total policy liabilities at December 31, 2021, 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)	2021		2020
Health insurance
Japan	$	49,421	$	54,659	0.6 - 6.75	%
U.S.	8,949		8,834		3.0 - 8.0
Intercompany eliminations (1)	(456)		(545)		2.0
Life insurance
Japan	31,756		33,993		0.6 - 4.5
U.S.	918		842		2.5 - 6.0
Total	$	90,588	$	97,783

(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 2021, compared with 3.1% in 2020 and 3.2% in 2019; and for U.S. policies, 5.1% in 2021, compared with 5.2% in 2020 and 5.3% in 2019.

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


(In millions)	2021			2020			2019
Unpaid supplemental health claims, beginning of period		$	4,389		$	3,968		$	3,952
Less reinsurance recoverables		39			30			27
Net balance, beginning of period		4,350			3,938			3,925
Add claims incurred during the period related to:
Current year		6,969			7,179			7,216
Prior years		(860)			(540)			(552)
Total incurred		6,109			6,639			6,664
Less claims paid during the period on claims incurred during:
Current year		4,356			4,488			4,715
Prior years		1,827			1,966			1,965
Total paid		6,183			6,454			6,680
Effect of foreign exchange rate changes on unpaid claims		(246)			128			29
Zurich acquisition		0			99			0
Net balance, end of period		4,030			4,350			3,938
Add reinsurance recoverables		37			39			30
Unpaid supplemental health claims, end of period		4,067			4,389			3,968
Unpaid life claims, end of period		769			798			691
Total liability for unpaid policy claims		$	4,836		$	5,187		$	4,659

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $860 million for 2021 comprises approximately $460 million from Japan and $400 million from the U.S., representing approximately 54% and 46% of the total, respectively. Excluding the impact of foreign exchange of a loss of approximately $35 million from December 31, 2020 to December 31, 2021, the favorable claims development in Japan would have been approximately $495 million, representing approximately 58% of the total.

The Company has experienced continued favorable claim trends in 2019, 2020, and 2021 for its core health products in Japan. During 2021 and 2020, 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 staying home more. This resulted in lower sickness, accident, and cancer incurred claims. In addition, dating back to before the pandemic, 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.

In 2021, as experienced in 2020 and 2019, 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. Continued general claim trends and refinements in estimates for COVID and non-COVID claims as experience emerged throughout the year also contributed to the favorable development in 2021.

As of December 31, 2021 and 2020, 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 earned premiums over the contractual premium payment period. These advanced premiums represented 54% of the December 31, 2021 and 60% of the December 31, 2020 unearned premiums balances.

As of December 31, 2021 and 2020, 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, 2021 and 2020.