Aflac 2009 Annual Report Download - page 58

1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Aac 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
(Aac), which operates in the United States (Aac U.S.)
and as a branch in Japan (Aac Japan). Additionally, Aac
U.S. markets and administers group products through
Continental American Insurance Company (CAIC). Most of
Aac’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. Aac Japan’s
revenues, including realized gains and losses on its
investment portfolio, accounted for 73% of the Company’s
total revenues in 2009, 72% in 2008 and 71% in 2007. The
percentage of the Company’s total assets attributable to
Aac Japan was 85% at December 31, 2009, and 87% at
December 31, 2008.
During the fourth quarter of 2009, the Parent Company
closed its $100 million purchase of Continental American
Insurance Group, Inc. (CAIG), which includes its wholly
owned subsidiary CAIC. Subsequent to the closing, CAIG
merged into Continental American Group, LLC, a limited
liability company wholly owned by CAIC. As a result of
the merger, CAIC became directly wholly owned by the
Parent Company. CAIC, headquartered in Columbia, South
Carolina, equips Aac U.S. with a platform for offering
attractive voluntary group insurance products that are
well-suited for distribution by insurance brokers at the
worksite. The purchase business combination resulted in
the recognition of $97 million of net assets at fair value. An
immaterial amount of intangible assets, including goodwill,
was recognized as part of the business combination.
Basis of Presentation
We prepare our nancial 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
nancial statements in conformity with GAAP requires us
to make estimates when recording transactions resulting
from business operations based on currently available
information. The most signicant 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, liabilities for future policy benets and unpaid policy
claims, and income taxes. These accounting estimates and
actuarial determinations are sensitive to market conditions,
investment yields, mortality, morbidity, commission
Notes to the Consolidated Financial Statements
Consolidated Statements of Comprehensive Income Aac Incorporated and Subsidiaries
(In millions) Years Ended December 31, 2009 2008 2007
Net earnings $ 1,497 $ 1,254 $ 1,634
Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) during period 65 164 (8)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) on investment securities during period (342) (4,078) (848)
Reclassification adjustment for realized (gains) losses on investment securities
included in net earnings 1,217 926 (28)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) on derivatives during period – (2) (1)
Pension liability adjustment during period 22 (81) 14
Total other comprehensive income (loss) before income taxes 962 (3,071) (871)
Income tax expense (benefit) related to items of other
comprehensive income (loss) 351 (1,555) (379)
Other comprehensive income (loss), net of income taxes 611 (1,516) (492)
Total comprehensive income (loss) $ 2,108 $ (262) $ 1,142
See the accompanying Notes to the Consolidated Financial Statements.
We’ve got you under our wing.
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