AM Best Information Services

JUNE 25, 2020 09:40 AM (EDT)

AM Best Affirms Credit Ratings of Aflac Incorporated and Its Subsidiaries

 Jeffrey Lane
Senior Financial Analyst
+1 908 439 2200, ext. 5567

Joseph Zazzera, MBA
+1 908 439 2200, ext. 5797

Jason Shum
Associate Director
+852 2827 3424
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - JUNE 25, 2020 09:40 AM (EDT)
AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of Aflac Life Insurance Japan, Ltd. (Aflac Japan), American Family Life Assurance Company of Columbus (Omaha, NE), American Family Life Assurance Company of New York (Albany, NY) and Continental American Insurance Company (Omaha, NE). These companies represent the life/health insurance subsidiaries of Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL] and are collectively referred to as Aflac Incorporated Group. Concurrently, AM 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 the Long-Term IRs.)

The ratings reflect Aflac Incorporated Group’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).

Aflac Incorporated Group continues to report risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and maintains favorable risk-based capital levels in the United States and excellent solvency ratios in Japan. Aflac’s liquidity is significant and supported by favorable positive operating cash flow, high-quality investments and a stable liability structure. The organization recognizes the potential for volatility as a result of the COVID-19 pandemic, and Aflac Incorporated Group remains committed to prudent liquidity and capital management and is taking a tactical approach to capital allocation. The group enjoys the financial flexibility provided by its publicly traded parent company. The organization’s investment team continues to manage the challenges of a prolonged low interest rate environment and foreign exchange risk effectively. AM Best will continue to monitor the impact of the current economic environment on its investment results and overall portfolio yields.

Aflac has reported strong operating earnings and profitability ratios across its various segments, in line with expectations. Aflac’s insurance business consists of two core reporting segments: Aflac Japan and Aflac’s U.S. operations. The majority of the organization’s revenue and earnings are generated from its insurance operations in Japan. The U.S. operations also have delivered consistent earnings and moderate premium growth in recent years. It is important to note, that Aflac Japan utilizes the Japan Post as a major nationwide distribution network in Japan primarily for its cancer products. The Japan Post has been conducting an internal investigation for inappropriate sales practices; the investigation is expected to be completed by the end of June 2020. However, the sale of Aflac Japan cancer insurance products was not within the scope of the Japan Post investigation. Beginning in August 2019, Aflac has experienced a material decrease of sales from the Japan Post channel. The company also continues to work on revising and diversifying its distribution strategy. The group has reported favorable operating earnings from its subsidiaries across its diversified business segments, strengthened by ongoing expense management and its controlled distribution strategy.

Aflac is a leading provider of cancer and supplemental medical insurance in Japan and supplemental accident and health sales through the worksite market in the United States. The organization has been a leader in product innovation and customer service, working toward claims payment efficiency.

Aflac’s ERM program is supported by its well-established governance structure, along with culture and risk-management controls. Additionally, the organization completes various stress and scenario tests across its risks, and is adding to its embedded value model by developing more robust economic capital modeling capabilities.

The organization has taken several tactical steps to address the impact of the global COVID-19 pandemic, to include sensitivity and stress testing of capital and liquidity position, operational impacts, investment portfolio, issuance of debt and other measures. AM Best will continue to monitor its practices, as the organization shifts to a global risk management program.

Aflac’s insurance subsidiaries offer a diverse portfolio of supplemental health products in the United States and Japan. These products generate strong earnings and steady cash flows to the holding company, supporting its cash position and interest coverage measures. Aflac’s adjusted financial leverage was approximately 24.4%, with strong interest coverage ratios as well. AM Best notes that Aflac’s capitalization and liquidity provide financial flexibility and support for the overall enterprise and its operating entities.

The following Long-Term IRs have been affirmed with a stable outlook:

Aflac Incorporated—

— “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 12.4 billion JPY, 0.3% 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 12.6 billion JPY, 0.5% senior unsecured notes, due 2029

— “a-” on 13.3 billion JPY, 0.55% senior unsecured notes, due 2030

— “a-” on $1.0 billion, 3.6% senior unsecured notes, due 2030

— “a-” on 29.3 billion JPY, 1.159% senior unsecured notes, due 2030

— “a-” on 9.3 billion JPY, 0.843% senior unsecured notes, due 2031

— “a-” on 20.7 billion JPY, 0.75% senior unsecured notes, due 2032

— “a-” on 15.2 billion JPY, 1.488% senior unsecured notes, due 2033

— “a-” on 9.8 billion JPY, 0.934% senior unsecured notes, due 2034

— “a-” on 10.6 billion JPY, 0.83% senior unsecured notes, due 2035

— “a-” on 8.9 billion JPY, 1.75% senior unsecured notes, due 2038

— “a-” on 6.3 billion JPY, 1.122% senior unsecured notes, due 2039

— “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 60 billion JPY, 2.108% subordinated debentures, due 2047

— “a-” on $550 million 4.75% senior unsecured notes, due 2049

The following indicative Long-Term IRs have been affirmed with a stable outlook 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 AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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