Fitch Affirms Aflac's Ratings; Revises IFS Outlook to Negative

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Aflac Inc.'s (Aflac) Issuer Default Rating (IDR) at 'A' and senior debt ratings at 'A-'. At the same time, Fitch has affirmed the 'A+' Insurance Financial Strength (IFS) ratings of Aflac's insurance subsidiaries. The Rating Outlook remains Stable for Aflac's holding company ratings and has been revised to Negative for its insurance subsidiaries. A full ratings list follows at the end of this release.

KEY RATING DRIVERS

Today's actions follow Fitch's affirmation of Japan's Long-Term IDR at 'A' and the revision of its Outlook to Negative (see 'Fitch Affirms Japan at 'A'; Outlook Revised to Negative', dated June 13, 2016, at www.fitchratings.com).

Aflac's IFS rating is capped at one notch above Japan's sovereign rating of 'A', due to Aflac Japan's exposure to the Japanese economy. Aflac Japan comprises more than two-thirds of Aflac's assets, capital and profitability, making Japan's economy a significant ratings factor.

Factors contributing to the notch between Aflac's ratings and Japan's sovereign rating include Aflac's sizeable global diversification and its ability to generate strong financial results from its U.S. operations, which generates approximately 40% of net premiums.

The application of the sovereign constraint to Aflac's ratings has resulted in compressed notching of the holding company ratings relative to the operating company IFS ratings.

The affirmation of Aflac's ratings reflect the company's extremely strong competitive position in the supplemental accident and health insurance markets in Japan and the U.S., extremely strong earnings profile and very strong capitalization. The ratings also incorporate the impact of slow economic growth in Aflac's key Japanese market and its sizeable exposure to Japanese sovereign risk including significant investment concentration in Japanese government bonds (JGB).

Aflac maintains a dominant market position in both Japan and the U.S. selling cancer and other supplemental accident and health insurance products. The company's key competitive advantages include its low-cost operations, continued product innovation and brand name recognition. However, Aflac faces growing competition in both Japan and the U.S.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include:

--A downgrade of Fitch's sovereign rating (local currency) of Japan to 'A-' or lower (currently 'A'/Outlook Negative);

--Significant investment impairments or losses in Aflac's capital position;

--A decline in Aflac's run-rate pre-tax operating margin below 17% in Japan or 15% in U.S.;

--A significant increase in either operating (greater than 16x) or financial leverage (greater than 30%);

--NAIC RBC less than 400%.

An upgrade of Aflac is unlikely in the near term, given Japan's Long-Term Local Currency IDR and Outlook of 'A'/Outlook Negative.

Fitch has affirmed the following ratings with a Stable Outlook:

Aflac Inc.

--Long-term IDR at 'A';

--1.84% Samurai notes due July 2016 at 'A-';

--2.26% Uridashi notes due September 2016 at 'A-';

--2.65% USD650 million senior notes due Feb. 15, 2017 at 'A-';

--2.4% USD 550 million senior notes due March 16, 2020 at 'A-'

--4% USD350 million senior notes due Feb. 15, 2022 at 'A-';

--3.625% USD700 million senior notes due June 2023 at 'A-';

--3.625% USD750 million senior notes due Nov. 15, 2024 at 'A-';

--3.25% USD 450 million senior notes due March 17, 2025 at 'A-';

--6.9% USD400 million senior notes due Dec. 17, 2039 at 'A-';

--6.45% USD450 million senior notes due Aug. 15, 2040 at 'A-';

--5.5% USD500 million junior subordinated debentures due Sept. 15, 2052 at 'BBB'.

Fitch has affirmed the following ratings with a Negative Outlook:

American Family Life Assurance Co. of Columbus

American Family Life Assurance Co. of New York

Aflac Japan

--IFS at 'A+'.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1006156

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006156

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160616005980/en/

Fitch Ratings, Inc.
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Dafina M. Dunmore, CFA
Director
+1-312-368-3136
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
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Director
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or
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Teruki Morinaga
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or
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or
Media Relations
Hannah James, +1-646-582-4947
[email protected]

Source: Fitch Ratings

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