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Press release from Business Wire

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

Wednesday, May 08, 2013

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

16:12 EDT Wednesday, May 08, 2013

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). 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 the debt ratings.)

The ratings recognize Aflac's growth in operating earnings, solid risk-adjusted capitalization, strong sales within Japan and the ongoing execution of its long-term investment allocation strategy. In addition, the ratings reflect the company's status as a leading provider of individual guaranteed-renewable health and accident insurance both in Japan and the United States.

The growth in Aflac's operating earnings in recent years has 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, the U.S. operations have delivered consistent earnings despite fluctuating sales. A.M. Best also notes that Aflac's financial leverage and interest coverage ratios remain well within the guidelines for its current ratings.

While operating earnings have been strong, Aflac has reported sizeable impairments within its investment portfolio. However, A.M. Best notes that the investment losses in 2012 were significantly lower than what was experienced in 2011 and that the organization expects investment losses to decrease significantly going forward. As Aflac continues its investment de-risking activities as part of its new investment strategy, A.M. Best would expect further realized losses over the near-term. Additionally, the organization maintains a considerable exposure to European perpetual preferred investments heavily concentrated in the financial sector, and more specifically, in troubled European financial institutions. However, A.M. Best notes that the allocation to European holdings is considerably less than it was just 18 months ago. Furthermore, given Aflac's strong operating earnings and substantial cash flow from its operating activities, as well as its improved 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 a negative rating action 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 in risk-adjusted capitalization 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 $650 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
-- “bbb+” on $450 million 5.50% senior debentures, due 2052

Yen-denominated Samurai notes:
-- “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 www.ambest.com/ratings/methodology.

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 © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Tom Zitelli, 908-439-2200, ext. 5412
Senior Financial Analyst
tom.zitelli@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
thomas.rosendale@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

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