AM Best Upgrades Issuer Credit Ratings of Aflac Incorporated and Its Subsidiaries

AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “aa” (Superior) from “aa-” (Superior) and affirmed the Financial Strength Rating (FSR) of A+ (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 Long-Term ICR has been revised to stable from positive while 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 upgraded the Long-Term ICR to “a” (Excellent) from “a-” (Excellent) and all Long-Term Issue Credit Ratings (Long-Term IRs) of Aflac. The outlook of the Long-Term ICR and Long-Term IRs has been revised to stable from positive. (See below for a detailed listing of the Long-Term IRs and shelf registration).

The 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 very strong enterprise risk management (ERM).

The upgrade of Aflac’s Long-Term ICRs is driven by the strength of its ERM program, which is deeply embedded in the organization’s strategy and decision making, and has impacted its balance sheet strength, operational performance and business profile positively. AM Best’s assesses ERM program as very strong, a description of a program that demonstrates robust processes within its framework that are effective in identifying potential risks early, managing those risks and mitigating them. Aflac has established clear risk appetite and tolerances with a program that is structured to control and manage those identified risks effectively. The organization for years has built a risk culture that spans vertically throughout each of its levels. 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’s ERM capabilities allowed it to develop diligent analysis and assessment of the Long Duration Target Improvement (LDTI) accounting change. The company implemented various proactive measures to ensure the balance sheet and financial flexibility remain robust following LDTI GAAP accounting changes in 2023.

Aflac has also leveraged its risk management capabilities to maintain its favorable business profile in Japan’s market and management has made numerous investments in its U.S. market businesses to position the company well to grow product premium over the next few years. The company is the leader in providing 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 lead in marketing supplemental insurance at worksites. The medium to long-term growth strategies include realizing growth from its investments in its network dental and vision insurance products, with high expectations in its group life, disability and absence management insurance products. A good deal of the growth expectations are supported by Aflac’s ability to innovate at the product level and use technology to extend its direct-to-consumer reach during the periods of the pandemic that may have limited its core face-to-face sales strategies that are so very effective by its sales agents.

AM Best assesses the balance sheet strength as strongest, as measured by Best’s Capital Adequacy Ratio (BCAR). 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. Aflac is active in shareholder repurchases and uses its capital to pay dividends; however, its diversified product sales structure across international markets contributes to favorable operating earnings and strong cash flows at the holding company. This has supported Aflac’s strong debt interest coverage where it has issued debt opportunistically over the years and carries an adjusted financial leverage measure well within AM Best tolerances.

Aflac’s pretax operating margins in 2021 were strong in the Japan and U.S. markets, with margins of 25.2% and 22.8%, respectfully. The results through first-quarter 2022 were similar for Japan; however, the profit margin declined to 19.8% for the U.S. operations on higher expenses. Aflac has been investing in its U.S. businesses growth initiatives, which include dental, vision, group life and disability, and leveraging its direct-to-consumer capabilities. These and other integration expenses of recently acquired business have contributed to the higher expenses. The investments in these U.S.-based market products are expected to provide premium growth, and over time, scale, to drive down the cost structure at Aflac’s U.S. operating entities.

The following Long-Term IRs have been upgraded with the outlook revised to stable from positive:

Aflac Incorporated—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following indicative Long-Term IRs have been upgraded with the outlook revised to stable from positive for securities available under the existing shelf registration:

Aflac Incorporated—

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

-- to “a-” (Excellent) from “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 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.

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