AM Best Affirms Credit Ratings of Aflac Incorporated and Its Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa” (Superior) of Aflac Life Insurance Japan, Ltd. (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” (Excellent) 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 and shelf registration.)

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

The rating affirmations reflect Aflac Incorporated Group’s risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR) in the United States and excellent solvency ratios in Japan. Risk-adjusted capitalization has been enhanced by its very strong operating performance, which has more than offset realized investment losses in recent years. Aflac’s GAAP equity declined through first-quarter 2023, following the implementation of changes in discount rate assumptions on long-term insurance contracts. However, the drop was significantly below prior expectations due to changes in the interest rate environment. The organization’s investment team continues to manage the challenges effectively of foreign exchange risk. The organization's invested assets are diverse across asset classes and types, and managed both internally and through highly respected external asset managers. The managers continue to de-risk the investment portfolio, which has resulted in a higher allocation to quality fixed-income assets that have favorably impacted the organization’s risk-adjusted capitalization. AM Best notes that the group’s exposure to real estate from commercial mortgages has performed well with virtually no delinquencies, foreclosures or restructured loans over the last several years. The group enjoys the financial flexibility provided by its publicly traded parent company. The flexibility has been further enhanced through a newly established reinsurance subsidiary, Aflac Re, and ceding a modest portion of Japan older cancer policies liabilities to the new entity. That allowed lower capital requirements in Japan and provided additional dividends to the parent company. AM Best notes that Aflac Incorporated Group’s current adjusted financial leverage and operating leverage remain relatively modest for its rating level.

The ratings also reflect Aflac Incorporated Group’s continued strong operating margins in Japan and U.S. markets and return on equity remains very favorable. The earnings continue to be favorably impacted by lower benefits utilization in the U. S segment partially offset by higher administrative expenses. While both of Aflac’s operating segments historically have produced favorable results, the group continues to be challenged to reverse the trend of premium decline and grow new sales materially, due to the increasingly competitive market. The company continues to focus actively on client retention strategies, product enhancements and operational capabilities to meet evolving market demands and facilitate growth.

AM Best considers Aflac’s ERM management capabilities to be very strong, which is deeply embedded in the organization’s strategy and decision making and has positively impacted its balance sheet strength, operational performance and business profile. The ERM program has continued to demonstrate robust processes within its framework that are effective in identifying potential risks, managing those risks and mitigating them. AM Best’s assessment also includes an evaluation of the program’s risk defense capabilities of multiple exposures and has determined that most are managed with very high capabilities.

Aflac has also leveraged its risk management capabilities to maintain its favorable business profile in the Japan market and management has made numerous investments in its U.S. market businesses to well position the company to grow product premium over the next few years. The company is the leader in providing both medical and cancer insurance in Japan, and its strong partnership with Japan Post solidifies its standing as a formidable competitor in that market. In the U.S. market, Aflac continues to be a leader in supplemental medical insurance space.

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

Aflac Incorporated—

-- “a” (Excellent) on USD 750 million, 3.625% senior unsecured notes, due 2024

-- “a” (Excellent) on USD 450 million, 3.25% senior unsecured notes, due 2025

-- “a” (Excellent) on JPY 12.4 billion, 0.3% senior unsecured notes, due 2025

-- “a” (Excellent) on USD 300 million, 2.875% senior unsecured notes, due 2026

-- “a” (Excellent) on USD 400 million, 1.125% senior unsecured notes, due 2026

-- “a” (Excellent) on JPY 60 billion, 0.932% senior unsecured notes, due 2027

-- “a” (Excellent) on JPY 12.6 billion, 0.5% senior unsecured notes, due 2029

-- “a” (Excellent) on JPY 33.4 billion, 1.075% senior unsecured notes, due 2029

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

-- “a” (Excellent) on USD 1.0 billion, 3.6% senior unsecured notes, due 2030

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

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

-- “a” (Excellent) on JPY 30 billion, 0.633% senior unsecured notes, due 2031

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

-- “a” (Excellent) on JPY 21.1 billion, 1.32% senior unsecured notes, due 2032

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

-- “a” (Excellent) on JPY 12.0 billion, 0.844% senior unsecured notes, due 2033

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

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

-- “a” (Excellent) on JPY 10.0 billion, 1.039% senior unsecured notes, due 2036

-- “a” (Excellent) on JPY 6.5 billion, 1.594% senior unsecured notes, due 2037

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

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

-- “a” (Excellent) on USD 400 million, 6.90% senior unsecured notes, due 2039

-- “a” (Excellent) on USD 450 million, 6.45% senior unsecured notes, due 2040

-- “a” (Excellent) on JPY 10.0 billion, 1.264% senior unsecured notes, due 2041

-- “a” (Excellent) on USD 400 million, 4.0% senior unsecured notes, due 2046

-- “a-” (Excellent) on JPY 60 billion, 2.108% subordinated debentures, due 2047

-- “a” (Excellent) on USD 550 million, 4.75% senior unsecured notes, due 2049

-- “a” (Excellent) on JPY 20.0 billion, 1.56% senior unsecured notes, due 2051

-- “a” (Excellent) on JPY 12.0 billion, 2.144% senior unsecured notes, due 2052

The following indicative Long-Term IRs have been affirmed with stable outlooks on securities available under the existing shelf registration:

Aflac Incorporated—

-- “a” (Excellent) on senior unsecured debt

-- “a-” (Excellent) 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 use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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