Aflac 2009 Annual Report Download - page 59

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 reected in operating results. Although
some variability is inherent in these estimates, we believe
the amounts provided are adequate.
The consolidated nancial statements include the accounts
of the Parent Company, its subsidiaries, and those entities
required to be consolidated under applicable accounting
standards. All material intercompany accounts and
transactions have been eliminated.
Signicant Accounting Policies
Translation of Foreign Currencies: The functional
currency of Aac Japan’s insurance operations is the
Japanese yen. We translate our yen-denominated nancial
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 ows 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 losses
resulting from transactions. Realized currency exchange
gains and losses were immaterial during the three-year
period ended December 31, 2009.
Aac Japan maintains an investment portfolio of dollar-
denominated securities on behalf of Aac U.S. The
functional currency for these investments is the U.S.
dollar. The related investment income and realized/
unrealized investment gains and losses are also
denominated in U.S. dollars.
We have designated the yen-denominated Uridashi and
Samurai notes and yen-denominated loans issued by the
Parent Company as a hedge of our investment in Aac
Japan (see the section in this note titled, “Derivatives and
Hedging”). Outstanding principal and related accrued
interest on these items are translated into U.S. dollars
at end-of-period exchange rates. Currency translation
adjustments are recorded through other comprehensive
income and are included in accumulated other
comprehensive income.
Insurance Revenue and Expense Recognition: The
supplemental health and life insurance policies we issue
are classied as long-duration contracts. The contract
provisions generally cannot be changed or canceled during
the contract period; however, we may adjust premiums for
supplemental health policies issued in the United States
within prescribed guidelines and with the approval of state
insurance regulatory authorities.
Insurance premiums for health and life policies are
recognized ratably as earned income over the premium
payment periods of the policies. When revenues are
reported, the related amounts of benets and expenses
are charged against such revenues, so that prots are
recognized in proportion to premium revenues during the
period the policies are expected to remain in force. This
association is accomplished by means of annual additions
to the liability for future policy benets and the deferral and
subsequent amortization of policy acquisition costs.
The calculation of deferred policy acquisition costs and
the liability for future policy benets requires the use of
estimates based on sound actuarial valuation techniques.
For new policy issues, we review our actuarial assumptions
and deferrable acquisition costs each year and revise them
when necessary to more closely reect recent experience
and studies of actual acquisition costs. For policies in force,
we evaluate deferred policy acquisition costs by major
product groupings to determine that they are recoverable
from future revenues. Any resulting adjustment is charged
against net earnings.
Advertising expense is reported as incurred in insurance
expenses in the consolidated statements of earnings.
Cash and Cash Equivalents: Cash and cash equivalents
include cash on hand, money market instruments and other
debt instruments with a maturity of 90 days or less when
purchased.
Investments: Our debt securities consist of xed-maturity
securities, which are classied as either held to maturity or
available for sale. Securities classied as held to maturity
are securities that we have the ability and intent to hold to
maturity or redemption and are carried at amortized cost.
All other xed-maturity debt securities, our perpetual
securities and our equity securities are classied as available
for sale and are carried at fair value. If the fair value is higher
than the amortized cost for debt and perpetual securities,
or the purchase cost for equity securities, the excess is an
unrealized gain, and if lower than cost, the difference is an
unrealized loss.
The net unrealized gains and losses on securities available
for sale, plus the unamortized unrealized gains and losses
on debt securities transferred to the held-to-maturity
portfolio, less related deferred income taxes, are recorded
through other comprehensive income and included in
accumulated other comprehensive income.
Amortized cost of debt and perpetual securities is based
on our purchase price adjusted for accrual of discount, or
Aflac Annual Report for 2009 55