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

A.M. Best 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), American Family Life Assurance Company of New York (New York, NY) and Continental American Insurance Company (Continental American) (Columbia, SC).

These companies represent the life/health insurance subsidiaries of Aflac Inc. (Aflac) (Columbus, GA) [NYSE: AFL]. Concurrently, A.M. Best has affirmed the ICR of "a-" and all existing debt ratings of Aflac. The outlook for all ratings is stable.

The ratings recognize Aflac's growth in risk-adjusted capitalization, strong operating earnings and the ongoing execution of its long-term investment allocation strategy. In addition, the ratings reflect the company's status as a provider of individual guaranteed-renewable health and accident insurance both in Japan and the United States.

In recent years, the growth in Aflac's risk-adjusted capitalization has been primarily driven by favorable operating earnings across its subsidiaries through its diversified business segments, ongoing expense management and its controlled distribution strategy. The majority of the organization's earnings continue to come from its insurance operations in Japan, despite the weakening of the yen and the adverse impact on its statutory results, due to Aflac's dominant market position. In addition, the U.S. operations have delivered consistent earnings despite a lack of overall sales growth in recent years. However, A.M. Best notes that there has been modest sales growth through the company's Continental American affiliate, which is focused primarily on voluntary sales of accident and health products in the employer market. A.M. Best also notes that Aflac's financial leverage and interest coverage ratios remain well within the guidelines for its current ratings.

While operating earnings have been strong, Aflac continues to report net realized investment losses. However, A.M. Best notes that the investment losses have been significantly lower than what was experienced in prior years. Furthermore, given Aflac's strong operating earnings and the substantial cash flow from its operating activities, as well as its much improved risk-adjusted capitalization, A.M. Best believes the organization has the capacity to withstand a reasonably high level of additional realized losses should they occur.

Factors that could lead to positive rating actions include material, sustained growth in both sales and statutory operating results from Aflac's domestic and Japanese operations. Factors that could lead to negative rating actions include a significant decline in net premiums in its core lines of business, sizeable realized losses as the company continues to implement its new investment strategy and/or a material deterioration in its risk-adjusted capitalization.

The following debt ratings have been affirmed:

Aflac Inc.--- "a-" on $300 million 3.45 percent senior unsecured notes, due 2015-- "a-" on $650 million 2.65 percent senior unsecured notes, due 2017-- "a-" on $850 million 8.50 percent senior unsecured notes, due 2019-- "a-" on $350 million 4.00 percent senior unsecured notes, due 2022-- "a-" on $700 million 3.625 percent senior unsecured notes, due 2023-- "a-" on $400 million 6.90 percent senior unsecured notes, due 2039-- "a-" on $450 million 6.45 percent senior unsecured notes, due 2040-- "bbb+" on $450 million 5.50 percent senior debentures, due 2052

Yen-denominated Samurai notes:-- "a-" on JPY 28.7 billion 1.47 percent senior unsecured notes, due 2014-- "a-" on JPY 5.5 billion variable interest rate senior unsecured notes, due 2014-- "a-" on JPY 15.8 billion 1.84 percent senior unsecured notes, due 2016

Yen-denominated Uridashi notes:-- "a-" on JPY 8 billion 2.26 percent senior unsecured notes, due 2016

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

Aflac Inc.- -- "a-" on senior unsecured debt -- "bbb+" on subordinated debt

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology: ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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