CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - FEBRUARY 02, 2009 12:00 AM (EST)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and downgraded the issuer credit ratings (ICR) to "aa-" from "aa" of American Family Life Assurance Company of Columbus (Aflac) (Omaha, NE), American Family Life Assurance Company of Columbus (Japan Branch) and its wholly owned subsidiary, American Family Life Assurance Company of New York (Aflac NY) (New York, NY).
Concurrently, A.M. Best has downgraded the ICR and debt ratings to "a-" from "a" on all the outstanding debt of the ultimate parent, Aflac, Inc. (Columbus, GA) [NYSE: AFL]. All rating outlooks for the group are stable. (See below for a detailed list of the companies and ratings.)
The downgrades reflect the group's large exposure to European perpetual preferred investments. These holdings are heavily concentrated in the financial sector and more specifically in troubled European financial institutions, which have declined considerably in value recently. Approximately three-tenths of the group's perpetual preferred exposure were designated Tier 1, representing the highest risk securities. Additionally, A.M. Best is concerned by the high concentration of investment exposure within a number of single counterparties. A.M. Best believes that Aflac's issuer concentration—some of which exceeds 5% of statutory capital—demonstrates a weakness in enterprise risk management and therefore is no longer reflective of an ICR of "aa."
Aflac, Inc. reported operating earnings of $1.9 billion for 2008 versus $1.6 billion in 2007. Year-end 2008 GAAP shareholders' equity totaled $6.6 billion, down from $8.8 billion the previous year. A.M. Best expects statutory capital (including AVR) to be about $4.5 billion, consistent with year-end 2007. GAAP realized investment losses were approximately $655 million for 2008, while net unrealized investment losses totaled $4.1 billion. It is important to note that due to the large concentration of its business being in Japan, the strong Yen favorably impacted Aflac's earnings but negatively impacted its risk-based capital ratio.
While the organization's shareholders' equity diminished due mainly to widening corporate spreads, realized losses and common share repurchase, Aflac continues to maintain a healthy risk-based capital position at its operating subsidiaries, exceeding guidelines for a Superior FSR. Moreover, with its favorable operating earnings and strong cash flows, A.M. Best believes the organization can withstand additional potential write-downs in its investment portfolio. With this said, A.M. Best will continue to monitor Aflac's investment portfolio and capitalization levels. If material realized capital losses or impairments develop beyond A.M. Best's expectations that result in Aflac's Best's Capital Adequacy Ratio (BCAR) falling below 160%, or if its debt-to-capitalization ratio rises to over 30%, there would be immediate downward pressure on all of its ratings.
The FSR of A+ (Superior) has been affirmed and the ICRs downgraded to "aa-" from "aa" for American Family Life Assurance Company of Columbus and its following subsidiaries:
- American Family Life Assurance Company of Columbus (Japan Branch)
- American Family Life Assurance Company of New York
The following debt ratings have been downgraded:
Aflac, Inc.—
- "a-" on $450 million 6.5% senior unsecured notes, due 2009 (JPY-Denominated Samurai Notes)
- "a-" on JPY 40 billion 0.71% senior unsecured notes, due 2010
- "a-" on JPY 30 billion 1.87% senior unsecured notes, due 2012 (JPY-Denominated Uridashi Notes)
- "a-" on JPY 15 billion 1.52% senior unsecured notes, due 2011
- "a-" on JPY 10 billion 2.26% senior unsecured notes, due 2016
- "a-" on JPY 20 billion variable interest rate senior unsecured notes, due 2011
The following indicative rating has been downgraded for securities available under the existing shelf registration:
Aflac, Inc.—
- "a-" on senior unsecured
For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit Best's Rating Center.
The principal methodologies used in determining these ratings, including any additional methodologies and factors which may have been considered, can be found at Best's Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.