(The following statement was released by the rating agency)
CHICAGO, April 10 (Fitch) Fitch Ratings has affirmed the 'A'
(IDR) rating and the 'AA-' Insurance Financial Strength (IFS)
ratings of Aflac
Inc. and its insurance subsidiaries. The Rating Outlook is
Stable. A complete
list of ratings appears at the end of this release.
Key Ratings Drivers
The affirmation of Aflac's ratings reflects the company's strong
earnings, leverage ratios that are consistent with expectations
for the rating
category, strong balance sheet, and high regulatory risk-based
ratios. The ratings also incorporate Fitch's view that Aflac's
shareholders' equity is comparatively highly exposed to interest
rate risk as
well as the impact of overall low economic growth in the
company's key Japanese
Fitch's Sovereign rating on Japan is 'A+', with a Negative
Outlook. The agency
believes that Aflac's ratings can be retained at their current
Japan's Sovereign rating remains 'A' or higher.
Fitch views Aflac's ability to generate comparably strong
during periods of weak economic conditions in Japan, as well as
flexibility bought by the company's branch operation structure,
factors to the notch between Aflac's ratings and Japan's
Currently, the Japanese market represents over two-thirds of
profitability. Further, Japanese government bonds (JGB) and
approximately 43% of total investments.
Fitch believes that Aflac has the ability to absorb reasonably
impairments in the company's fixed maturities and perpetual
portfolio despite the evolving situation in Europe. The agency's
general improvements in corporate credit quality as well as
steps Aflac has
taken over the last two years to reduce its investment risk and
portfolio. Gross unrealized investment losses on Aflac's
perpetual preferred and
financial sector investments were $0.9 billion at Dec. 31, 2012
compared to $2.2
billion at Dec. 31, 2011.
Fitch's expectation is that Aflac will continue to generate
earnings in the near term sufficient to offset potential
losses. Recent earnings have been solid; the company generated
$4.7 billion of
GAAP business segment pre-tax income (before net realized
losses) in 2012, which
was a 2.4% improvement over 2011. On a statutory basis 2012
were $2.2 billion, a 25% improvement over 2011. GAAP interest
consistent with Fitch's median guidelines for an 'AAA' level
coverage has fallen in 2011 and 2012 due to higher interest
Statutory basis total adjusted capital (TAC) totaled $8.9
billion at Dec. 31,
2012, a 40% increase compared to year-end 2011. Aflac's
consolidated NAIC RBC
ratio increased 137 basis points (bps) to a very strong 630%.
Fitch notes that due to the long duration of Aflac's investment
company's GAAP shareholders' equity is susceptible to
volatility from changes in interest rates, particularly in JGB
concerns in this area are tempered by Aflac's liability profile
liquidity risks and, in Fitch's view, enhances Aflac's ability
to hold long
duration investments to maturity. Additionally, the agency
investments and liabilities are reasonably well matched.
The key rating triggers that could result in an upgrade
--Continued effective management of investment risks;
--A decrease in operating leverage below the 10x-11x range;
--RBC of 500% or more over several periods, recognizing exchange
rates can cause
--Financial leverage in the 20% range or below;
--Statutory interest coverage above 6x;
The key rating triggers that could result in a downgrade
--A downgrade in Fitch's Sovereign rating (local currency) of
Japan to 'A-', or
lower (currently 'A+'; Negative Outlook), as Fitch would not
expect to rate
Aflac's IFS rating more than two notches higher than the Japan
--Negative developments related to the investment climate in
Europe or Japan
which cause significant investment impairments or losses in
--A decline in Fitch's estimate of Aflac's run-rate earnings or
(ROA less than 3.5%) over the next several years;
--A significant increase in either operating (greater than 16x)
leverage (greater than 30%);
--Prolonged RBC less than 400%.
Fitch has affirmed the following ratings, with a Stable Outlook:
--Issuer Default Rating (IDR) at 'A';
--2.26% Uridashi notes due September 2016 at 'A-';
--1.47% Samurai notes due July 2014 at 'A-';
--1.84% Samurai notes due July 2016 at 'A-';
--Variable Samurai notes due July 2014 at 'A-';
--8.5% senior notes due May 15, 2019 at 'A-';
--6.9% senior notes due Dec. 17, 2039 at 'A-'.
--3.45% USD 300 million senior notes due Aug. 15, 2015 at 'A-';
--6.45% USD 450 million senior notes due Aug. 15, 2040 at 'A-'
--2.65% USD 650 million senior notes due Feb. 15, 2017 at 'A-';
--4.0% USD 350 million senior notes due Feb. 15, 2022 at 'A-'.
--5.5% USD 500 million junior subordinated debentures due Sept.
15, 2052 at
American Family Life Assurance Co. of Columbus
American Family Life Assurance Co. of New York
--IFS at 'AA-'.
Bruce E. Cox
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
The ratings above
were unsolicited and have been provided by Fitch as a service to
Applicable Criteria and Related Research:
--Insurance Rating Methodology (Jan., 2013).
Applicable Criteria and Related Research
Insurance Rating Methodology â€” Amended
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