12. STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS

Our insurance subsidiary is required to report its results of operations and financial position to state insurance regulatory authorities on the basis of statutory accounting practices prescribed or permitted by such authorities. Aflac's statutory financial statements are prepared on the basis of accounting practices prescribed or permitted by the Nebraska Department of Insurance (NEDOI). The NEDOI recognizes statutory accounting principles and practices prescribed or permitted by the state of Nebraska for determining and reporting the financial condition and results of operations of an insurance company, and for determining a company’s solvency under Nebraska insurance law. The National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures Manual, (SAP) has been adopted by the state of Nebraska as a component of those prescribe d or permitted practices. Additionally, the Director of the NEDOI has the right to permit other specific practices which deviate from prescribed practices. Aflac has been given explicit permission by the Director of the NEDOI for three such permitted practices. These permitted practices, which do not impact the calculation of net income on a statutory basis or prevent the triggering of a regulatory event in the Company’s risk-based capital calculation, are as follows:

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Aflac has reported as admitted assets the refundable lease deposits on the leases of commercial office space which house Aflac Japan's sales operations. These lease deposits are unique and part of the ordinary course of doing business in the country of Japan; these assets would be non-admitted under SAP.

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Aflac utilized book value accounting for certain guaranteed separate account funding agreements instead of fair value accounting as required by SAP. The underlying separate account assets had an unrealized gain of $45 million as of December 31, 2011, compared with an unrealized loss of $113 million as of December 31, 2010.

A reconciliation of Aflac’s capital and surplus between SAP and practices permitted by the state of Nebraska is shown below:


(In millions)	2011			2010
Capital and surplus, Nebraska state basis		$6,371			$6,740
State Permitted Practice:
Refundable lease deposits – Japan		(53	)		(51	)
Separate Account Funding Agreements		45			(113	)

Capital and surplus, NAIC basis		$6,363			$6,576

As determined on a U.S. statutory accounting basis, Aflac’s net income was $444 million in 2011, $1.5 billion in 2010 and $1.4 billion in 2009. Capital and surplus was $6.4 billion at December 31, 2011 and $6.7 billion at December 31, 2010. The decrease in net income for 2011 was due to an increase in net realized investment losses.

Net assets of the insurance subsidiaries aggregated $15.9 billion at December 31, 2011, on a GAAP basis, compared with $12.9 billion a year ago. Aflac Japan accounted for $11.0 billion, or 69.1% of net assets at December 31, 2011, compared with $8.9 billion, or 68.5%, at December 31, 2010.

Reconciliations of Aflac’s net assets on a GAAP basis to capital and surplus determined on a Nebraska statutory accounting basis as of December 31 were as follows:


(In millions)	2011			2010
Net assets on GAAP basis		$15,814		$	12,902
Adjustment of carrying values of investments		(1,707	)		148
Elimination of deferred policy acquisition cost asset		(10,417	)		(9,566	)
Adjustment to policy liabilities		2,286			2,309
Adjustment to deferred income taxes		728			670
Other, net		(333	)		277

Capital and surplus, Nebraska state basis		$6,371			$6,740

Aflac Japan must report its results of operations and financial position to the Japanese Financial Services Agency (FSA) on a Japanese regulatory accounting basis as prescribed by the FSA. Capital and surplus (unaudited) of Aflac Japan, based on Japanese regulatory accounting practices, aggregated $2.7 billion at December 31, 2011, and $2.3 billion at December 31, 2010. Japanese regulatory accounting practices differ in many respects from U.S. GAAP. Under Japanese regulatory accounting practices, policy acquisition costs are charged off immediately; deferred income tax liabilities are recognized on a different basis; policy benefit and claim reserving methods and assumptions are different; the carrying value of securities transferred to held to maturity is different; policyholder protection corporation obligations are not accrued; and premium income is recognized on a cash basis.

The Parent Company depends on its subsidiaries for cash flow, primarily in the form of dividends and management fees. Consolidated retained earnings in the accompanying financial statements largely represent the undistributed earnings of our insurance subsidiary. Amounts available for dividends, management fees and other payments to the Parent Company by its insurance subsidiary may fluctuate due to different accounting methods required by regulatory authorities. These payments are also subject to various regulatory restrictions and approvals related to safeguarding the interests of insurance policyholders. Our insurance subsidiary must maintain adequate risk-based capital for U.S. regulatory authorities and our Japan branch must maintain adequate solvency margins for Japanese regulatory authorities. Additionally, the maximum amount of dividends that can be paid to the Parent Company by Aflac without prior approval of Nebraska’s director of insurance is the greater of the net income from operations, which excludes net realized investment gains, for the previous year determined under statutory accounting principles, or 10% of statutory capital and surplus as of the previous year-end. Dividends declared by Aflac during 2012 in excess of $673 million would require such approval. Dividends declared by Aflac during 2011 were $282 million.

A portion of Aflac Japan earnings, as determined on a Japanese regulatory accounting basis, can be repatriated each year to Aflac U.S. after complying with solvency margin provisions and satisfying various conditions imposed by Japanese regulatory authorities for protecting policyholders. Profit repatriations to the United States can fluctuate due to changes in the amounts of Japanese regulatory earnings. Among other items, factors affecting regulatory earnings include Japanese regulatory accounting practices and fluctuations in currency translation of Aflac Japan’s dollar-denominated investments and related investment income into yen. Profits repatriated by Aflac Japan to Aflac U.S. were as follows for the years ended December 31:


	In Dollars						In Yen
(In millions of dollars and billions of yen)	2011		2010		2009		2011		2010		2009
Profit repatriation	$	143	$	317	$	230		11.0		28.7		20.0