A.M. Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of American Family Life Assurance Company of Columbus (Omaha, NE), American Family Life Assurance Company of Columbus (Japan Branch), American Family Life Assurance Company of New York (Albany, NY) and Continental American Insurance Company (Continental American) (headquartered in Columbia, SC). These companies represent the life/health insurance subsidiaries of Aflac Incorporated (Aflac) (Columbus, GA) [NYSE:AFL]. Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” and all existing Long-Term Issue Credit Ratings (Long-Term IR) of Aflac. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of Long-Term IRs.)

The rating affirmations reflect Aflac’s continued strong risk-adjusted capitalization and financial flexibility, the company’s well-managed investment portfolio, which has performed favorably despite interest rate pressures in Japan and the United States, and its consistent operating earnings reported. The ratings also reflect Aflac’s favorable reputation as market leader in the increasingly competitive supplemental/voluntary worksite benefit space. Partially offsetting these positive rating factors are the company’s challenges to grow sales of its products, particularly in the United States, and its need to further enhance distribution strategies, as well as macroeconomic pressures that exist within its Japan markets.

Through the first quarter of 2017, Aflac produced good financial results; however, less favorable than the prior year, same quarter. GAAP net income was impacted by several one-time charges related to the Penn Treaty guaranty fund assessment and Japan branch conversion expenses, as well as change in accounting for hedging costs. In general, operating results remain in line with publicly provided guidance, supporting long-term growth rates of 4%-6% in Japan and 3%-5% in the United States, similar to prior year. The company’s operations are supported by significant financial flexibility at its parent company, with a debt-to-capital ratio of roughly 22.9% reported at March 31, 2017, and interest coverage in excess of 15 times. Aflac continues to maintain a favorable solvency margin ratio in Japan, supported by several internal reinsurance treaties, and retains contingent capital/committed reinsurance for risk mitigation needs. In the United States, risk-adjusted capital also remains strong, supported by favorable operating metrics.

Aflac continues to navigate the lower interest rate environment favorably, with a modest increase in net investment income reported year over year as of first-quarter 2017. The company has a well-managed, diversified investment portfolio, with new cash flows being allocated to investment grade corporate bonds (USD and JPY), middle-market loans and infrastructure. A.M. Best notes that the company has implemented its “tactical hedging strategy” aimed toward improved duration matching and proactive management of hedge costs.

While both of Aflac’s operating segments historically have produced favorable results, the company continues to be challenged to grow sales materially, due to the increasingly competitive supplemental health market in the United States and interest rate pressures in Japan. While in recent years the company has implemented a plan to enhance distribution in the United States, new sales growth remains modest. The company continues to focus on client retention strategies and administrative efficiencies. As a result of continued unfavorable interest rates in Japan, Aflac deemphasized marketing of its first-sector products in 2016. As a result, overall sales metrics were less favorable compared with prior year. However, sales of third-sector products benefited by the roll-out of several new products more recently and its strategic partnership with Japan Post. Additionally, Aflac continues to move forward with its plan to convert its Japan Branch operations into a Japan insurance subsidiary. A.M. Best will closely monitor the execution of the Japan Branch conversion, as the key milestones are achieved.

The following Long-Term IRs have been affirmed:

Aflac Incorporated—

-- “a-” on $550 million 2.40% senior unsecured notes, due 2020

-- “a-” on $350 million 4.00% senior unsecured notes, due 2022

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

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

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

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

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

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

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

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

-- “bbb+” on $450 million 5.50% subordinated debentures, due 2052

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

Aflac Incorporated—

-- “a-” on senior unsecured debt

-- “bbb+” on subordinated debt