AM Best Revises Issuer Credit Rating Outlook to Positive for Aflac Incorporated and Its Subsidiaries

AM Best has revised the outlook to positive from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) of Aflac Life Insurance Japan, Ltd. (Aflac 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). The outlook of the FSR is stable. 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 revised the outlook to positive from stable and affirmed the Long-Term ICR of “a-” (Excellent) and all existing Long-Term Issue Credit Ratings (Long-Term IR) of Aflac. (See below for a detailed listing of the Long-Term IRs.)

These Credit Ratings (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 appropriate enterprise risk management (ERM).

The outlook change to positive reflects Aflac’s continued evolution and improvements in its ERM practices. The management team’s focus on improving financial operating metrics and financial management tools aimed at protecting the balance sheet are seeded in its actionable risk management plans and practices. The success of the company’s risk management practices was most recently displayed in its ability to adapt to the operational challenges presented during the COVID-19 pandemic, including its digitized selling efforts to bolster product growth without its face-to-face engagement at worksites and diversification of both product and geographies during this time. All of these have been managed through the lens of risk management and Aflac’s mature and embedded ERM program, including its well-developed scenario testing and evolving modeling capabilities. AM Best believes the attention Aflac has given to risks through this program has guided it through the challenges of market disruption and local government directives to shelter in place in the first half of 2020, which hindered new sales growth. The company met those challenges through heavy customer engagement in the individual and group segments. Additionally, a new medical product was introduced into the Japan market in early 2021 along with a reactivation of cancer product sales on April 1, 2021 through its relationship with Japan Post, both of which are expected to impact sales in Japan favorably.

Aflac is a leading provider of cancer and supplemental medical insurance in Japan and supplemental accident and health sales through the worksite market in the United States. AM Best has recognized Aflac as a leader in product innovation and customer service, working toward claims payment efficiency. Over the past few years, Aflac has expanded its portfolio and presence by adding to its group insurance and worksite offerings. The organization has employed several approaches, through purchase and partnership of group life and disability assets, dental network capabilities and most recently a pet insurance offering. Aflac’s U.S. businesses have been challenged to grow through its worksite distribution model in much of 2020 and into 2021, but these diversification efforts, as well as prior investments in digitizing sales processes and diversifying the distribution channels, have mitigated the lack of access to potential new and existing customers. Actions to adapt and leverage innovative selling techniques during the COVID-19 pandemic required years of risk management planning, and preparation to implement successfully.

Aflac Incorporated Group continues to report risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and maintains favorable risk-based capital levels in the United States and excellent solvency ratios in Japan. Its diversified product sales structure contributes to strong operating earnings and steady cash flows to the holding company, supporting its cash position and interest coverage measures. Aflac’s adjusted financial leverage was approximately 25%, with strong interest coverage ratios as well. AM Best notes that Aflac’s capitalization, liquidity and access to capital provide financial flexibility and support for the overall enterprise and its operating entities.

From an operating performance view, pre-tax net gains of $4.2 billion reported for year-end 2020 were slightly lower than 2019 and reflect the mitigating strategies in place to address pandemic risks. This includes Aflac’s strategy to encourage its U.S. customers to utilize wellness programs, which led to more engagement and partially drove its strong persistency measures in 2020. The earnings projections for the U.S. business in 2021 indicates the company’s expectation of a return to more normal utilization trends as this market experiences more states pulling back on restrictions and access to client worksites open up. The company’s projected result is lower margins compared with 2020.

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

Aflac Incorporated—

-- “a-” (Excellent) on $700 million 3.625% senior unsecured notes, due 2023

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-- “bbb+” (Good) on 60 billion JPY, 2.108% subordinated debentures, due 2047

The following indicative Long-Term IRs have been affirmed with a positive outlook for securities available under the existing shelf registration:

Aflac Incorporated—

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

-- “bbb+” (Good) 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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

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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