Ratings agency, A.M. Best, reiterated its credit and insurance
strength ratings on
) and its operating divisions, maintaining a stable outlook.
Accordingly, the rating agency affirmed an issuer credit rating
(ICR) of "a-" on Aflac's senior unsecured debt and "bbb+" rating
on subordinated debt and senior debentures.
Simultaneously, A.M. Best also asserted its financial strength
rating (FSR) of "A+" (Superior) and ICR of "aa-" on all the
subsidiaries of Aflac. The subsidiaries include American Family
Life Assurance Co. of Columbus (Omaha), American Family Life
Assurance Co. of Columbus (Japan Branch), its wholly owned
subsidiary, American Family Life Assurance Co. of New York (New
York) and Continental American Insurance Co.
Rationale for Ratings
A.M. Best remains confident about Aflac's core operating
strength. The company's dominant position in Japan also supports
a consistent growth outlook, according to the firm. Its bank
channel sales, covering more than 90% of the banks in Japan, and
WAYS policies have been steady revenue drivers so far, and
exceeded the annualized premium sales target for the past couple
Although Aflac's key mortality-based products and
cancer-related products in Japan are areas of concern, these
products are expected to gain traction in the near future.
Moreover, the ratings are based on Aflac's significant
improvement in the U.S. operations owing to increase in agent
production and improved distribution channels amid the weak sales
Along with a strong brand name, Aflac enjoys a solid business
model and healthy risk-based capitalization with reduced asset
impairments. Healthy financial leverage and interest-coverage
ratios also reflect a minimal risk exposure and strong solvency
ratio. At the end of Mar 2013, Aflac projected its risk-based
capital ratio to be higher than 630% at 2012-end, whereas its
solvency ratio in Japan is expected to exceed 669% at
However, A.M. Best believes that Aflac's earnings will be
hampered by consistent realized investment losses at least until
the de-risking activities are completed. Although the company's
exposure in the European sovereign debt and hybrid securities has
narrowed from the past years, it continues to pose risk from
impairments on investment portfolio in the future.
Overall, we believe that Aflac has the potential to maintain
its dominant position in Japan and expand its reach in the U.S.
markets, once the dollar/yen exchange rates improve and
interest-rate fluctuations subside. This will pave the way for
extended investment and growth opportunities, thereby generating
higher earnings for the company.
While Aflac carries a Zacks Rank #4 (Sell), other
outperformers in the insurance sector such as
Hilltop Holdings Inc.
Employers Holdings Inc.
) are worth a look. All these stocks carry a Zacks Rank #1
AFLAC INC (AFL): Free Stock Analysis Report
AMERISAFE INC (AMSF): Free Stock Analysis
EMPLOYERS HLDGS (EIG): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
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