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06 Feb 2009
Approximately $1.7 billion of debt affected
New York, February 06, 2009 -- Moody's Investors Service has affirmed the A2 senior debt rating of Aflac,
Inc. (Aflac; NYSE: AFL) and the Aa2 insurance financial
strength (IFS) rating of the company's operating subsidiary,
American Family Life Assurance Company of Columbus, but changed
the outlook of the companies to negative from stable. The rating
action follows Aflac's fourth quarter earnings announcement,
which included $1.3 billion of net income and investment
losses of $262 million for the quarter.
Moody's said the rating affirmation was based on Aflac's very
strong franchise and market position in supplemental health insurance
in both Japan and the U.S., well-established
niche distribution channels, robust and predictable earnings capacity,
excellent capital adequacy, and moderate financial leverage.
However, the outlook was changed to negative primarily because of
concerns about the performance of Aflac's investment portfolio--given
its composition and concentration--in the current harsh
credit environment. Although the company has very modest exposure
to structured mortgage securities, there is the potential for sizeable
investment losses in Aflac's $9 billion of perpetual preferred
securities (65% of which are hybrid securities issued by banks
domiciled in Europe) under certain downside scenarios. In addition,
the company's very sizeable single-name exposures relative
to regulatory capital--especially in comparison to other
life insurers--increases the likelihood of significant investment
losses during the current recession in which corporate default rates are
expected to rise noticeably.
Moody's Vice President & Senior Credit Officer Scott Robinson
indicated: "Based on an analysis of the terms of the hybrid
securities, as well as the company's sizeable exposure to
single name investments, we believe that potential realized losses
over the next 1-2 years, combined with a substantial strengthening
of the yen against the dollar, could hurt Aflac's earnings
and regulatory capital levels and put downward pressure on the ratings."
However, the rating agency noted that--even in a downside
scenario--the company's very substantial statutory
earnings capacity should help rebuild regulatory capital.
With respect to liquidity, Moody's noted that while Aflac's
operating company's cash flow is strongly positive, the holding
company has $450 million of debt maturing in April 2009.
Although the company has indicated that it plans to refinance the debt
if market conditions allow, the rating agency said that Aflac has
adequate internal resources including holding company cash and dividends
or loans from the operating company to pay off the upcoming debt maturity.
According to Moody's, a downgrade of Aflac's ratings could
occur if: 1) investment losses exceed $1 billion pre-tax
in 2009; 2) financial leverage increases above 25%; or
3) NAIC RBC ratio at the operating company falls consistently below 350%.
Conversely, the outlook could return to stable if: 1) investment
losses diminish to an annual run rate of less than $500 million
pre-tax, and 2) concentration of top investment holdings
are reduced as a percentage of regulatory capital.
Moody's has affirmed the following ratings, while changing the outlook
to negative from stable:
Aflac, Inc: senior debt at A2;
American Family Life Assurance Company of Columbus: insurance financial
strength at Aa2.
Aflac Incorporated is headquartered in Columbus, Georgia.
For 2008, Aflac reported total revenues of $16.6 billion
and net earnings of $1.3 billion. The company reported
consolidated assets as of December 31, 2008 of approximately $79.3
The last rating action on Aflac occurred on June 8, 2007 when Moody's
assigned an A2 rating to Aflac's proposed issuance of JPY30 billion
senior unsecured notes, maturing in June 2012.
The principal methodology used in rating Aflac was Moody's Global Rating
Methodology for Life Insurers, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to punctually pay senior policyholder claims and
For more information please visit Moody's website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Moody's affirms Aflac (A2 senior debt); outlook changed to negative
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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