A.M. Best Affirms Ratings of Aflac Incorporated and Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of American Family Life Assurance Company of Columbus (Omaha, NE), American Family Life Assurance Company of Columbus (Japan Branch), its wholly owned subsidiary, American Family Life Assurance Company of New York (New York, NY) and Continental American Insurance Company (Continental American) (Columbia, SC).

Concurrently, A.M. Best has affirmed the ICR of “a-” and all existing debt ratings of the ultimate parent, Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL]. The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.)

Aflac’s ratings reflect its continued strong profitable operating results, solid capital position and strong brand recognition in Japan and the United States. Aflac’s financial leverage remains below 25%, which is consistent with its current ratings. In addition, Aflac’s management has implemented an initiative to methodically reduce the risk in its investment portfolio.

Aflac’s increased earnings in 2010 and in the first quarter of 2011 recognize the strong growth of its insurance operations in Japan, where the company maintains a dominant market position, as well as the weakness in the U.S. dollar relative to the Japanese yen. In addition, sales in the United States grew significantly, reflecting an increase in agent production despite sales challenges from a prolonged weak economy. Aflac continues to sustain its leading market position in the supplemental health market in this country. However, going forward, A.M. Best believes sales in Japan will be challenged to grow, at least in the near term, in the aftermath of the Japanese earthquake and tsunami disasters.

Aflac reported elevated realized investment losses primarily as a result of its investment de-risking activities. While the company lowered some of its largest credit exposures, the portfolio still maintains considerable exposure to European perpetual preferred investments heavily concentrated in the financial sector, and more specifically in troubled European financial institutions. A.M. Best is concerned with the negative impact that repositioning its investment portfolio will have on its net income. However, given Aflac’s strong earnings capabilities and sources of cash flow, as well as its favorable risk-adjusted capitalization, A.M. Best believes the organization can comfortably withstand additional write-downs in its investment portfolio.

The following debt ratings have been affirmed:

Aflac Incorporated—-- “a-” on $300 million 3.45% senior unsecured notes, due 2015-- “a-” on $850 million 8.50% senior unsecured notes, due 2019-- “a-” on $396 million 6.90% senior unsecured notes, due 2039-- “a-” on $448 million 6.45% senior unsecured notes, due 2040Yen-denominated Samurai notes:-- “a-” on JPY 26.6 billion 1.87% senior unsecured notes, due 2012Yen-denominated Uridashi notes:-- “a-” on JPY 15 billion 1.52% senior unsecured notes, due 2011-- “a-” on JPY 8 billion 2.26% senior unsecured notes, due 2016-- “a-” on JPY 20 billion variable interest rate senior unsecured notes, due 2011

The following indicative ratings have been affirmed for securities available under the existing shelf registration:

Aflac Incorporated—-- “a-” on senior unsecured debt-- “bbb+” on subordinated debt

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Rating Health Companies”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “A.M. Best’s Liquidity Model for U.S. Life Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s Ratings & the Treatment of Debt”; and “Assessing Country Risk.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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