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Press release from Business Wire

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

Thursday, May 24, 2012

A.M. Best Affirms Ratings of Aflac Incorporated and Its Subsidiaries16:00 EDT Thursday, May 24, 2012 OLDWICK, N.J. (Business Wire) -- A.M. Best Co. 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). Concurrently, A.M. Best has affirmed the ICR of “a-” and all existing debt ratings of the ultimate parent, Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL]. The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.) The ratings recognize Aflac's status as a leading provider of life insurance and individual guaranteed-renewable health and accident insurance in both Japan and the United States. In addition to the company's strong sales growth, Aflac reported improved operating earnings while maintaining adequate risk-adjusted capital ratios in 2011 and into 2012. The growth in Aflac's operating earnings in recent years, including the first quarter of 2012, have been driven primarily by favorable operating results across its subsidiaries through its diversified business segments, ongoing expense management and its controlled distribution strategy. The majority of the organization's growth has come from its insurance operations in Japan, where Aflac maintains a dominant market position. In addition, sales in the United States have grown significantly, reflecting a considerable increase in group sales from Continental American's worksite distribution, also referred to as the Aflac Group business segment. In the United States, Aflac offers a diverse product line, which includes accident, specified health event, cancer, short-term disability, hospital confinement indemnity and most recently, fixed-benefit dental and vision. Additionally, in Japan the company offers a broad product portfolio, including cancer, medical and ordinary life insurance. Particularly in Japan, the continuing product diversification efforts have reduced Aflac's reliance on its cancer products, which now accounts for less than one-half of its premiums earned. A.M. Best notes that while Aflac's efforts to diversify its sources of earnings and premiums have enabled the organization to generate less volatile operating results, roughly three-quarters of its sales and premiums are generated by its Japanese branch. In addition to improved profitability, Aflac's net flows improved considerably in 2011, driven by a combination of sales growth and higher retention rates. Despite strong operating earnings, Aflac continued in 2011 to report sizeable impairments within its investment portfolio. The increase in realized losses has resulted mainly from Aflac's investment de-risking activities. Although the organization continues to de-risk its investment portfolio as part of its new investment strategy, Aflac still maintains considerable exposure to European perpetual preferred investments heavily concentrated in the financial sector, and more specifically, in troubled European financial institutions. A.M. Best remains concerned with the negative impact that repositioning its investment portfolio and the potential for sizeable realized losses will have on its capital and earnings. However, given Aflac's strong operating earnings profile and substantial cash flow from its operating activities, as well as its favorable risk-adjusted capitalization, A.M. Best believes the organization has the capacity to withstand a reasonably high level of additional realized losses within its investment portfolio. A.M. Best believes Aflac to be well positioned at its current rating level over the near to medium term. Factors that could lead to negative rating actions include sizeable realized losses as Aflac implements its new investment strategy, a significant decline in net premiums within its core lines of business or a material deterioration of capital within its subsidiaries. The following debt ratings have been affirmed: Aflac Incorporated— -- “a-” on $300 million 3.45% senior unsecured notes, due 2015 -- “a-” on $400 million 2.65% senior unsecured notes, due 2017 -- “a-” on $850 million 8.50% senior unsecured notes, due 2019 -- “a-” on $350 million 4.00% senior unsecured notes, due 2022 -- “a-” on $400 million 6.90% senior unsecured notes, due 2039 -- “a-” on $450 million 6.45% senior unsecured notes, due 2040 Yen-denominated Samurai notes: -- “a-” on JPY 26.6 billion 1.87% senior unsecured notes, due 2012 -- “a-” on JPY 28.7 billion 1.47% senior unsecured notes, due 2014 -- “a-” on JPY 5.5 billion variable interest rate senior unsecured notes, due 2014 -- “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 affirmed for securities available under the existing 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 Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.A.M. Best Co.Tom Zitelli, 908-439-2200, ext. 5412Senior Financial Analysttom.zitelli@ambest.comorRachelle Morrow, 908-439-2200, ext. 5378Senior Manager, Public Relationsrachelle.morrow@ambest.comorThomas Rosendale, 908-439-2200, ext. 5201Assistant Vice Presidentthomas.rosendale@ambest.comorJim Peavy, 908-439-2200, ext. 5644Assistant Vice President, Public