Aflac 2009 Annual Report Download - page 76

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Investments in Qualied Special
Purpose Entities and Variable
Interest Entities
2009 2008
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
QSPEs:
Total QSPEs $ 4,405* $ 4,089 $ 4,458* $ 4,372
VIEs:
Consolidated:
Total VIEs consolidated $ 1,809 $ 1,522 $ 1,842 $ 1,392
Not consolidated:
CDOs 498 464 908 433
Other 727 689 517 499
Total VIEs not consolidated 1,225 1,153 1,425 932
Total VIEs $ 3,034** $ 2,675 $ 3,267** $ 2,324
* Total QSPEs represent 6.1% of total debt and perpetual securities in 2009 and 6.4% in 2008.
** Total VIEs represent 4.2% of total debt and perpetual securities in 2009 and 4.7% in 2008.
QSPEs
We have no equity interests in any of the QSPEs in which
we invest, nor do we have control over these entities.
Therefore, our loss exposure is limited to the cost of our
investment. See Note 1 for a discussion of changes in
accounting for our QSPEs under the provisions of amended
FASB guidance, effective for us on January 1, 2010.
VIEs
Under accounting guidance in effect on December 31,
2009, we evaluate our involvement with VIEs at inception
to determine our benecial interests in the VIE and,
accordingly, our beneciary status. As a condition to our
involvement or investment in a VIE, we enter into certain
protective rights and covenants that preclude changes in the
structure of the VIE that would alter the creditworthiness of
our investment or our benecial interest in the VIE. We would
re-evaluate our beneciary status should a reconsideration
event occur. According to GAAP, reconsideration events
include changes to a VIE’s design or structure, contractual
arrangements, and/or its equity at risk. Due to the static
nature of these VIEs and our protective rights entered into
as a condition of investing in the VIEs, there are few, if any,
scenarios that would constitute a reconsideration event in
our VIEs. To date, we have not had any reconsideration
events in any of our VIEs. If we determine that we own less
than 50% of the variable interest created by a VIE, we are
not considered to be a primary beneciary of the VIE and
therefore are not required to consolidate the VIE.
Our involvement with all of the VIEs in which we have an
interest is passive in nature, and we are not the arranger of
these entities. Except as relates to our review and evaluation
of the structure of these VIEs in the normal course of our
investment decision-making process, we have not been
involved in establishing these entities. We have not been
nor are we required to purchase the securities issued in the
future by any of these VIEs.
Our ownership interest in the VIEs is limited to holding the
obligations issued by them. All of the VIEs in which we invest
are static with respect to funding and have no ongoing
forms of funding after the initial funding date. We have no
direct or contingent obligations to fund the limited activities
of these VIEs, nor do we have any direct or indirect nancial
guarantees related to the limited activities of these VIEs.
We have not provided any assistance or any other type of
nancing support to any of the VIEs we invest in, nor do
we have any intention to do so in the future. The weighted-
average lives of our notes are very similar to the underlying
collateral held by these VIEs where applicable.
Our risk of loss related to our interests in any of our VIEs
is limited to our investment in the debt securities issued
by them.
VIEs – Consolidated
We are substantively the only investor in the consolidated
VIEs listed in the table above. As the sole investor in these
VIEs, we absorb or participate in greater than 50%, if not
all, of the variability created by these VIEs and are therefore
considered to be the primary beneciary of the VIEs that
we consolidate. The activities of these VIEs are limited to
holding debt securities and utilizing the cash ows from the
debt securities to service our investments therein. The terms
of the debt securities held by these VIEs mirror the terms of
the notes held by Aac. Our loss exposure to these VIEs is
limited to the cost of our investment.
VIEs – Not Consolidated
We also have interests in VIEs that we are not required to
consolidate as reected in the above table. Included in the
VIEs that we do not consolidate are CDOs issued through
VIEs originated by third parties. These VIEs combine highly
rated underlying assets as collateral for the CDOs with
CDSs to produce an investment security that consists of
multiple asset tranches with varying levels of subordination
within the VIE.
The underlying collateral assets and funding of these VIEs
are generally static in nature. These VIEs are limited to
holding the underlying collateral and CDS contracts on
specic corporate entities and utilizing the cash ows from
the collateral and CDS contracts to service our investment
therein. The underlying collateral and the reference
corporate entities covered by the CDS contracts are all
investment grade at the time of issuance. These VIEs do not
rely on outside or ongoing sources of funding to support
We’ve got you under our wing.
72