Fitch Ratings has assigned an 'A-' rating to Aflac, Inc.'s issuance of 50 billion of Yen denominated three-year and five-year senior unsecured debt. At the same time, Fitch has affirmed all existing ratings of Aflac Inc. and its subsidiaries. The Rating Outlook for all ratings is Stable. See the complete list of ratings below.
Fitch expects the proceeds from the debt issuance will be used to repay two senior debt issues totaling approximately 35 billion Yen that mature in September 2011. Pro forma for the debt issuance Aflac's Total Financing and Commitments Ratio remains less than 0.4 times (x) and financial leverage excluding accumulated other comprehensive income, increases from approximately 23% at March 31, 2011 to approximately 26%. After the maturing debt is repaid financial leverage drops to approximately 24%. Both leverage measures remain within expectations for the rating category.
The rating affirmations and Stable Outlook reflect Fitch's view that Aflac has sufficient capital and run-rate earnings to absorb potential impairments in the company's investment portfolio. Fitch estimates Aflac had statutory capital of $6.6 billion and Aflac estimates its RBC at 520% at March 31, 2011. The investment portfolio losses on securities issued by Greek, Irish, and Portuguese entities Aflac's anticipates in its second quarter 2011 financial statements are within a range of potential outcomes previously considered by Fitch under various stress tests.
Fitch notes Aflac's strong and steady statutory operating earnings, which in recent years have exceeded $1.8 billion per year. Fitch believes the company will continue to generate strong earnings in 2011 despite challenges in the company's core Japanese market due to the disasters occurring there in March of this year.
Key rating drivers that could result in an upgrade include:
--A decline in investment risks, particularly in the financial sector.
--Capital growth and increases in targeted RBC ratios that enhance Aflac's ability to mitigate investment risks.
Key rating drivers that could result in a downgrade include:
--Significant investment impairments or losses on Aflac's financial institution securities or Japanese government bonds.
--Significant losses on insurance policies related to the March 2011 earthquake, tsunami, or nuclear crisis in Japan.
--A decline in Fitch's expectations for Aflac's run-rate earnings.
--A decline in anticipated earnings before interest and taxes based interest coverage below 17x.
--A decline in RBC below 400%.
--A significant increase in either operating or financial leverage above 16x or 30%, respectively.
Fitch has assigned the following new ratings:
Aflac Inc.
--1.47% 28.7 billion Samurai senior notes due July 8, 2014 'A-;
--1.84% 15.8 billion Samurai senior notes due July 8, 2016 'A-;
--Floating rate 5.5 billion Samurai senior notes due July 8, 2014 'A-.
Fitch has affirmed the following ratings with a Stable Outlook:
Aflac Inc.
--Issuer Default Rating (IDR) at 'A';
--1.52% Uridashi notes due September 2011 at 'A-';
--2.26% Uridashi notes due September 2016 at 'A-';
--Variable Uridashi notes due September 2011 at 'A-';
--1.87% Samurai notes due June 2012 at 'A-';
--8.5% senior notes due May 15, 2019 at 'A-';
--6.9% senior notes due Dec. 17, 2039 at 'A-'.
--3.45% senior notes due Aug. 15, 2015 at 'A-';
--6.45% senior notes due Aug. 15, 2040 at 'A-'.
American Family Life Assurance Co. of Columbus
American Family Life Assurance Co. of New York
Aflac Japan
--Insurer Financial Strength at 'AA-'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (March 31, 2011);
--'Rating Hybrid Securities' (Dec. 29, 2009);
--'Life Insurance Rating Methodology' (March 31, 2011);
--'Fitch's Approach to Rating Insurance Groups' (Dec. 14, 2010);
--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (March 31, 2011).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266
Rating Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086
Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905
Fitch's Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Insurance Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265
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.
Contacts:
Fitch Ratings
Primary Analyst:
Bruce Cox, +1-312-606-2316
Director
Fitch,
Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary
Analyst:
Mark Rouck, +1-312-368-2085
Senior Director
or
Committee
Chairperson:
Julie Burke, +1-312-368-3158
Managing Director
or
Media
Relations:
Cindy Stoller, +1-212-908-0526 (New York)
cindy.stoller@fitchratings.com