REINSURANCE

9 Months Ended

Sep. 30, 2020

The Company periodically enters into fixed quota-share coinsurance agreements with other companies in the normal course of business. For each of its reinsurance agreements, the Company determines whether the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits are reported net of insurance ceded.

The Company has recorded a deferred profit liability related to reinsurance transactions. The remaining deferred profit liability of $1.0 billion as of both September 30, 2020 and December 31, 2019, respectively, is included in future policy

benefits in the consolidated balance sheet and is being amortized into income over the expected lives of the policies. The Company has also recorded a reinsurance recoverable for reinsurance transactions, which is included in other assets in the consolidated balance sheet and had a remaining balance of $1.0 billion and $970 million as of September 30, 2020 and December 31, 2019, respectively. The increase in the reinsurance recoverable balance was driven by the growth in reserves related to the business that has been reinsured as the policies age. The spot yen/dollar exchange rate strengthened by approximately 3.6% and ceded reserves increased approximately 3.5% from December 31, 2019 to September 30, 2020.

The following table reconciles direct premium income and direct benefits and claims to net amounts after the effect of reinsurance which also includes the elimination of inter-segment amounts associated with affiliated reinsurance.


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2020			2019			2020			2019
Direct premium income		$	4,711		$	4,823		$	14,236		$	14,365
Ceded to other companies:
Ceded Aflac Japan closed blocks		(116)			(121)			(349)			(361)
Other		(22)			(17)			(69)			(50)
Assumed from other companies:
Retrocession activities		49			51			146			151
Other		1			0			5			4
Net premium income		$	4,623		$	4,736		$	13,969		$	14,109

Direct benefits and claims		$	3,051		$	3,106		$	9,054		$	9,185
Ceded benefits and change in reserves for future benefits:
Ceded Aflac Japan closed blocks		(103)			(111)			(314)			(331)
Eliminations		10			11			29			31
Other		(10)			(18)			(54)			(41)
Assumed from other companies:
Retrocession activities		47			49			133			144
Eliminations		(10)			(11)			(29)			(31)
Other		0			1			3			1
Benefits and claims, net		$	2,985		$	3,027		$	8,822		$	8,958

These reinsurance transactions are indemnity reinsurance that do not relieve the Company from its obligations to policyholders. In the event that the reinsurer is unable to meet their obligations, the Company remains liable for the reinsured claims.

As a part of its capital contingency plan, the Company entered into a committed reinsurance facility agreement on December 1, 2015 in the amount of approximately ¥120 billion of reserves. This reinsurance facility agreement was renewed in 2019 and is effective until December 31, 2020. There are also additional commitment periods of a one-year duration, each of which are automatically extended unless notification is received from the reinsurer within 60 days prior to the expiration. The reinsurer can withdraw from the committed facility if Aflac's Standard and Poor's (S&P) rating drops below BBB-. As of September 30, 2020, the Company has not executed a reinsurance treaty under this committed reinsurance facility.