A.M. Best has affirmed the financial strength rating of
A+ (Superior) and 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 debt
ratings of Aflac. The outlook for all ratings is stable. (See below
for a detailed listing of debt ratings.)
The ratings recognize Aflac’s strong risk-adjusted
capitalization, diverse sources of earnings and cash flows and its
recognized position as a leading provider of individual
guaranteed-renewable health and accident insurance both in Japan
and the United States. In addition, the ratings reflect A.M. Best’s
favorable view of the company’s execution of its long-term
investment allocation strategy. Partially offsetting these
strengths are the challenges Aflac has experienced more recently in
growing sales in its Japan and U.S. markets and the impact of
currency volatility on consolidated results.
Aflac continues to maintain strong risk-adjusted capital at its
operating subsidiaries supported by consistent earnings and good
liquidity throughout the organization. Additionally, the company is
fairly active in the capital markets, with its most recent note
issuance ($1 billion in March 2015) used to refinance high-coupon
debt. Aflac’s debt-to-capital ratio is in line with peers at
approximately 25% and interest coverage is strong at over 15
times.
Aflac possesses a strong global franchise and is focused on
development of innovative, value-added products utilizing advanced
technology to serve its large customer base. The company holds a
market leading position in Japan as an insurer of third sector
(i.e. cancer and medical insurance) risks. In the United States,
Aflac’s individual operations are further enhanced by its Aflac
Group operations, marketed out of the Continental American entity.
Aflac’s overall profitability has been supported by good premium
persistency across its core products, at around 76% through first
quarter 2015. However, the company has recently been challenged to
report material sales growth in the United States and Japan. The
pronounced low interest rate environment has hindered sales of
first sector (life insurance) products in Japan, and domestic sales
have been relatively flat due to increased competition in the
worksite/voluntary market.
Despite top-line challenges, Aflac has reported favorable
operating results over the past several years. A.M. Best notes that
recent operating profitability has been hampered by the significant
weakening of the Japanese yen relative to the U.S. dollar. Results
also reflect additional expenses related to modifications in the
commission structure for Aflac’s domestic distribution system to
enhance profitability going forward. Aflac’s operating results have
consistently been supported by a steady stream of net investment
income derived from its long-term investment strategy, which
encompassed de-risking the portfolio and implementing interest rate
and foreign currency hedges. The company holds a high proportion of
Japanese government bonds and, going forward, will look to enhance
yield through select allocations to high-yield bonds and bank
loans. A.M. Best anticipates that cash flows for investment will be
somewhat lower in the near to medium term due to materially lower
sales of higher-premium, first sector products in Japan.
Factors that could lead to a positive rating action include
material, sustained growth in both sales and statutory operating
results from Aflac’s domestic and Japanese operations. Factors that
could lead to a negative rating action include a significant
decline in net premiums in Aflac’s core lines of business, sizable
investment impairments/losses or a material deterioration in
risk-adjusted capitalization.
The following debt ratings have been affirmed:
Aflac Incorporated—
-- “a-” on $300 million 3.45% senior unsecured notes, due
2015
-- “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 ratings have been assigned to
securities available under the recently renewed shelf
registration:
Aflac Incorporated—
-- “a-” on senior unsecured debt
-- “bbb+” on subordinated debt
The methodology used in determining these ratings is Best’s
Credit Rating Methodology, which provides a comprehensive
explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Best’s
Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Analyzing Insurance Holding Company
Liquidity
- Rating Members of Insurance Groups
- Risk Management and the Rating Process
for Insurance Companies
- Understanding BCAR for U.S. and
Canadian Life/Health Insurers
- A.M. Best's Liquidity Model for U.S.
Life Insurers
- A.M. Best's Perspective on Operating
Leverage
- Equity Credit for Hybrid
Securities
- Evaluating Country Risk
- Insurance Holding Company and Debt
Ratings
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 visit A.M.
Best’s Ratings & Criteria Center.
A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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version on businesswire.com: http://www.businesswire.com/news/home/20150602006762/en/
A.M. Best CompanyKate SteffanelliSenior
Financial Analyst(908) 439-2200, ext.
5063kate.steffanelli@ambest.comorAndrew
EdelsbergVice President(908) 439-2200, ext.
5182andrew.edelsberg@ambest.comorChristopher
SharkeyManager, Public Relations(908) 439-2200, ext.
5159christopher.sharkey@ambest.comorJim
PeavyAssistant Vice President, Public Relations(908)
439-2200, ext. 5644james.peavy@ambest.com
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