POLICY LIABILITIES

12 Months Ended

Dec. 31, 2022

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, 2022, 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)	2022		2021
Health insurance
Japan	$	42,936	$	49,421	0.6 - 6.75	%
U.S.	8,972		8,949		3.0 - 8.0
Intercompany eliminations (1)	(367)		(456)		2.0
Life insurance
Japan	28,218		31,756		0.6 - 4.0
U.S.	990		918		2.5 - 6.0
Total	$	80,749	$	90,588

(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 3.0% in 2022, compared with 3.1% in both 2021 and 2020; and for U.S. policies, 5.0% in 2022, compared with 5.1% in 2021 and 5.2% in 2020.

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


(In millions)	2022			2021			2020
Unpaid supplemental health claims, beginning of period		$	4,067		$	4,389		$	3,968
Less reinsurance recoverables		37			39			30
Net balance, beginning of period		4,030			4,350			3,938
Add claims incurred during the period related to:
Current year		6,412			6,969			7,179
Prior years		(633)			(860)			(540)
Total incurred		5,779			6,109			6,639
Less claims paid during the period on claims incurred during:
Current year		3,973			4,356			4,488
Prior years		1,736			1,827			1,966
Total paid		5,709			6,183			6,454
Effect of foreign exchange rate changes on unpaid claims		(289)			(246)			128
Zurich acquisition		0			0			99
Net balance, end of period		3,811			4,030			4,350
Add reinsurance recoverables		43			37			39
Unpaid supplemental health claims, end of period		3,854			4,067			4,389
Unpaid life claims, end of period		707			769			798
Total liability for unpaid policy claims		$	4,561		$	4,836		$	5,187

The incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims development of $633 million for 2022 comprises approximately $373 million from Japan and $260 million from the U.S., representing approximately 59% and 41% of the total, respectively. Excluding the impact of foreign exchange of a loss of approximately $57 million from December 31, 2021 to December 31, 2022, the favorable claims development in Japan would have been approximately $430 million, representing approximately 68% of the total.

The Company has experienced continued favorable claim trends in 2020, 2021 and 2022 for its core health products in Japan. During 2022, 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. Although overall experience is favorable, during 2022, there was an increase in medical hospitalization claims related to COVID-19, mainly due to a wider scope of "deemed hospitalization" being utilized in Japan through most of the first nine months of the year. 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 2022, as experienced in 2021 and 2020, the incurred claims development related to prior years reflects favorable claims experience compared to previous estimates. The favorable claims trend continued 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. Additionally, refinements for COVID-19 incurred estimates also contributed to the favorable development. The U.S. portion of the favorable claims development in 2022 includes $91 million related to refinements in the estimates for COVID-19 and non-COVID-19 claims as experience emerges.

As of December 31, 2022 and 2021, 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 49% of the December 31, 2022 and 54% of the December 31, 2021 unearned premiums balances.

As of December 31, 2022 and 2021, 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 96% and 97% of other policyholders' funds liability at December 31, 2022 and 2021, respectively.