A.M. Best Affirms Ratings of Aflac Incorporated and Its Subsidiaries

OLDWICK, N.J.--()--A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of American Family Life Assurance Company of Columbus (Omaha, NE), American Family Life Assurance Company of Columbus (Japan Branch), American Family Life Assurance Company of New York (New York, NY) and Continental American Insurance Company (Continental American) (Columbia, SC). These companies represent the life/health insurance subsidiaries of Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL]. Concurrently, A.M. Best has affirmed the ICR of “a-” and all existing issue ratings of Aflac. The outlook for each rating is stable. (See below for a detailed listing of issue ratings.)

The rating affirmations reflect Aflac’s continued strong risk-adjusted capitalization and excellent financial flexibility, its consistently favorable operating earnings reported, the company’s well-managed investment portfolio, despite interest rate pressures in Japan and the United States, and the ongoing strategic sales growth initiatives within Aflac’s U.S. operations. The ratings also reflect the company’s leading position as a provider of innovative and value-added supplemental worksite benefits. Partially offsetting these positive rating factors are the company’s exposure to the competitive market for supplemental products in the United States and its need to further enhance distribution strategies, as well as macroeconomic pressures that exist within its core market in Japan. A.M. Best notes that recent operating profitability has been hindered by the weakened Japanese yen relative to the U.S. dollar.

Through the first quarter of 2016, Aflac produced strong financial results that were in line with publicly provided guidance, supporting growth rates of 4-6% in Japan and 3-5% in the United States. The company’s operations are supported by significant financial flexibility at its parent company, with a debt-to-capital ratio of roughly 22% reported at March 31, 2016, and interest coverage in excess of fourteen times. Aflac continues to proactively focus on risk mitigation strategies, as evidenced by the recent implementation of a contingent capital/committed reinsurance line for the support of its solvency metric ratio in Japan and several internal reinsurance treaties, which were effective during 2015. In the United States, risk-adjusted capital also remains strong, supported by favorable operating metrics.

While the company is focused on the aging population and negative interest rates impacting its sizable Japan operations; domestically, the company continues to execute its distribution strategy, focusing on the enhancement of its broker distribution channel, its group operations at Continental American and the Everwell proprietary private exchange. A.M. Best notes that sales in the U.S. operations have been relatively flat for several years driven by the entrance of various sizable group carriers looking to further enhance their existing suites of products, materially increasing competition in the market. In 2015, the company introduced its One Day Pay promotion, which has been well-utilized thus far, with over one million claims paid to date.

In Japan, the unfavorable interest rate environment has hindered sales of first sector (life insurance) products, and the company has de-emphasized these products in favor of its cancer and other medical/health-related coverages. The company intends to further grow its product portfolio with new, value-added coverages that complement its third-sector portfolio in Japan and reflect the needs of the aging population. Unfavorable interest rates in Japan have placed pressure on Aflac’s sizable allocation to Japanese government bonds, and the company continues to work to further diversify through controlled allocations to high-yield bonds, commercial mortgage loans and other assets. A.M. Best anticipates that cash flows for investment may be somewhat lower in the near to medium term due to materially lower sales of higher-premium, first sector products in Japan. Premium persistency within the Japan operations continues to be very favorable.

The following issue ratings have been affirmed:

Aflac Incorporated

-- “a-” on $650 million 2.65% senior unsecured notes, due 2017

-- “a-” on $550 million 2.40% senior unsecured notes, due 2020

-- “a-” on $350 million 4.00% senior unsecured notes, due 2022

-- “a-” on $700 million 3.625% senior unsecured notes, due 2023

-- “a-” on $750 million 3.625% senior unsecured notes, due 2024

-- “a-” on $450 million 3.25% senior unsecured notes, due 2025

-- “a-” on $400 million 6.90% senior unsecured notes, due 2039

-- “a-” on $450 million 6.45% senior unsecured notes, due 2040

-- “bbb+” on $450 million 5.50% subordinated debentures, due 2052

Yen-denominated Samurai notes:

-- “a-” on JPY 15.8 billion 1.84% senior unsecured notes, due 2016

Yen-denominated Uridashi notes:

-- “a-” on JPY 8 billion 2.26% senior unsecured notes, due 2016

The following indicative issue ratings have been affirmed for securities available under the existing shelf registration:

Aflac Incorporated

-- “a-” on senior unsecured debt

-- “bbb+” on subordinated debt

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Kate Steffanelli
Senior Financial Analyst
+1 908 439 2200, ext. 5063

kate.steffanelli@ambest.com
or
Joseph Zazzera, MBA
Assistant Vice President
+1 908 439 2200, ext. 5797

joseph.zazzera@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Contacts

A.M. Best
Kate Steffanelli
Senior Financial Analyst
+1 908 439 2200, ext. 5063

kate.steffanelli@ambest.com
or
Joseph Zazzera, MBA
Assistant Vice President
+1 908 439 2200, ext. 5797

joseph.zazzera@ambest.com
or
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
+1 908 439 2200, ext. 5644

james.peavy@ambest.com