A.M. Best has affirmed the Financial Strength Rating of
A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term
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 (Albany, NY) and Continental American
Insurance Company (Continental American) (headquartered in
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 Long-Term ICR
of “a-” and all existing Long-Term Issue Credit Ratings (Long-Term
IR) of Aflac. The outlook of these Credit Ratings (ratings) is
stable. (See below for a detailed listing of Long-Term IRs.)
The rating affirmations reflect Aflac’s continued strong
risk-adjusted capitalization and financial flexibility, the
company’s well-managed investment portfolio, which has performed
favorably despite interest rate pressures in Japan and the United
States, and its consistent operating earnings reported. The ratings
also reflect Aflac’s favorable reputation as market leader in the
increasingly competitive supplemental/voluntary worksite benefit
space. Partially offsetting these positive rating factors are the
company’s challenges to grow sales of its products, particularly in
the United States, and its need to further enhance distribution
strategies, as well as macroeconomic pressures that exist within
its Japan markets.
Through the first quarter of 2017, Aflac produced good financial
results; however, less favorable than the prior year, same quarter.
GAAP net income was impacted by several one-time charges related to
the Penn Treaty guaranty fund assessment and Japan branch
conversion expenses, as well as change in accounting for hedging
costs. In general, operating results remain in line with publicly
provided guidance, supporting long-term growth rates of 4%-6% in
Japan and 3%-5% in the United States, similar to prior year. The
company’s operations are supported by significant financial
flexibility at its parent company, with a debt-to-capital ratio of
roughly 22.9% reported at March 31, 2017, and interest coverage in
excess of 15 times. Aflac continues to maintain a favorable
solvency margin ratio in Japan, supported by several internal
reinsurance treaties, and retains contingent capital/committed
reinsurance for risk mitigation needs. In the United States,
risk-adjusted capital also remains strong, supported by favorable
operating metrics.
Aflac continues to navigate the lower interest rate environment
favorably, with a modest increase in net investment income reported
year over year as of first-quarter 2017. The company has a
well-managed, diversified investment portfolio, with new cash flows
being allocated to investment grade corporate bonds (USD and JPY),
middle-market loans and infrastructure. A.M. Best notes that the
company has implemented its “tactical hedging strategy” aimed
toward improved duration matching and proactive management of hedge
costs.
While both of Aflac’s operating segments historically have
produced favorable results, the company continues to be challenged
to grow sales materially, due to the increasingly competitive
supplemental health market in the United States and interest rate
pressures in Japan. While in recent years the company has
implemented a plan to enhance distribution in the United States,
new sales growth remains modest. The company continues to focus on
client retention strategies and administrative efficiencies. As a
result of continued unfavorable interest rates in Japan, Aflac
deemphasized marketing of its first-sector products in 2016. As a
result, overall sales metrics were less favorable compared with
prior year. However, sales of third-sector products benefited by
the roll-out of several new products more recently and its
strategic partnership with Japan Post. Additionally, Aflac
continues to move forward with its plan to convert its Japan Branch
operations into a Japan insurance subsidiary. A.M. Best will
closely monitor the execution of the Japan Branch conversion, as
the key milestones are achieved.
The following Long-Term IRs have been affirmed:
Aflac Incorporated—
-- “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 $300 million 2.875% senior unsecured notes, due
2026
-- “a-” on 60 billion JPY, 0.932% senior unsecured notes, due
2027
-- “a-” on $400 million 6.90% senior unsecured notes, due
2039
-- “a-” on $450 million 6.45% senior unsecured notes, due
2040
-- “a-” on $400 million 4.0% senior unsecured notes, due
2046
-- “bbb+” on $450 million 5.50% subordinated debentures, due
2052
The following indicative Long-Term IRs 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 Credit Ratings 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. For
additional information regarding the use and limitations of Credit
Rating opinions, please view Understanding Best’s Credit
Ratings. For information on the proper media use of Best’s
Credit Ratings and A.M. Best press releases, please view
Guide for Media - Proper Use of Best’s Credit Ratings and A.M.
Best Rating Action Press Releases.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating
Services, Inc. and/or its subsidiaries. ALL RIGHTS
RESERVED.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170613006473/en/
A.M. BestKate Steffanelli, +1 908-439-2200, ext.
5063Senior Financial
Analystkate.steffanelli@ambest.comorChristopher
Sharkey, +1 908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJoseph
Zazzera, MBA, +1 908-439-2200, ext.
5797Directorjoseph.zazzera@ambest.comorJim
Peavy, +1 908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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