Aflac 2008 Annual Report Download - page 60

56 Aflac Incorporated Annual Report for 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business: Aflac Incorporated (the Parent
Company) and its subsidiaries (the Company) primarily sell
supplemental health and life insurance in the United States
and Japan. The Company’s insurance business is marketed
and administered through American Family Life Assurance
Company of Columbus (Aflac), which operates in the United
States (Aflac U.S.) and as a branch in Japan (Aflac Japan).
Most of Aflac’s policies are individually underwritten and
marketed through independent agents. Our insurance
operations in the United States and our branch in Japan
service the two markets for our insurance business. Aflac
Japan accounted for 72% of the Company’s total revenues in
2008, 71% in 2007 and 72% in 2006, and 87% and 82% of
total assets at December 31, 2008 and 2007, respectively.
Basis of Presentation: We prepare our financial statements in
accordance with U.S. generally accepted accounting principles
(GAAP). These principles are established primarily by the
Financial Accounting Standards Board (FASB). The preparation
of financial statements in conformity with GAAP requires us
to make estimates when recording transactions resulting from
business operations based on currently available information.
The most significant items on our balance sheet that involve
a greater degree of accounting estimates and actuarial
determinations subject to changes in the future are the
valuation of investments, deferred policy acquisition costs, and
liabilities for future policy benefits and unpaid policy claims.
These accounting estimates and actuarial determinations are
sensitive to market conditions, investment yields, mortality,
morbidity, commission and other acquisition expenses, and
terminations by policyholders. As additional information
becomes available, or actual amounts are determinable, the
recorded estimates will be revised and reflected in operating
results. Although some variability is inherent in these
estimates, we believe the amounts provided are adequate.
The consolidated financial statements include the accounts
of the Parent Company, its majority-owned subsidiaries and
those entities required to be consolidated under applicable
accounting standards. All material intercompany accounts and
transactions have been eliminated.
Translation of Foreign Currencies: The functional currency
of Aflac Japan’s insurance operations is the Japanese yen. We
translate our yen-denominated financial statement accounts
into U.S. dollars as follows. Assets and liabilities are translated
at end-of-period exchange rates. Realized gains and losses on
security transactions are translated at the exchange rate on
the trade date of each transaction. Other revenues, expenses
and cash flows are translated using average exchange rates for
the year. The resulting currency translation adjustments are
reported in accumulated other comprehensive income. We
include in earnings the realized currency exchange gains and
Notes to the Consolidated Financial Statements
Consolidated Statements of Comprehensive Income Aflac Incorporated and Subsidiaries
(In millions) Years Ended December 31, 2008 2007 2006
Net earnings $ 1,254 $ 1,634 $ 1,483
Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) during year 164 (8) (12)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during year (4,078) (848) (642)
Reclassification adjustment for realized (gains) losses included in net earnings 926 (28) (79)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) during year (2) (1) –
Pension liability adjustment during year (81) 14 5
Total other comprehensive income (loss) before income taxes (3,071) (871) (728)
Income tax expense (benefit) related to items of other
comprehensive income (loss) (1,555) (379) (241)
Other comprehensive income (loss), net of income taxes (1,516) (492) (487)
Total comprehensive income (loss) $ (262) $ 1,142 $ 996
See the accompanying Notes to the Consolidated Financial Statements.