Fitch Affirms Aflac Inc.’s Ratings; Outlook Negative
KEY RATING DRIVERS
The affirmation of Aflac's ratings reflect the company's extremely strong competitive position in the supplemental accident and health insurance markets in
Aflac's IFS rating is capped at one notch above Japan's sovereign rating of 'A', due to
Aflac maintains a dominant market position in both Japan and the
Fitch views Aflac's capitalization as very strong with an estimated NAIC RBC ratio above 800% and Japanese solvency margin ratio (SMR) of 935% as of
Aflac has significant investment concentration in JGBs and related agencies, which represent approximately 40% of total investments as of
Aflac's extremely strong earnings profile reflects the company's disciplined underwriting over an extended period of time and limited exposure to market-sensitive products. However, the company faces earnings headwinds from low interest rates and increasing hedge costs. Aflac reported
Pretax operating margins remained extremely strong at 21.1% for
Fitch views Aflac's asset/liability management as adequate, as investments and liabilities are reasonably well matched. Aflac is exposed to material reinvestment risk due to its long duration liabilities in
RATING SENSITIVITIES
Key rating triggers that could result in a downgrade include:
--A downgrade of Fitch's sovereign rating (local currency) of Japan to 'A-' or lower (currently 'A'/Outlook Negative);
--Significant investment impairments or losses in Aflac's capital position;
--A decline in Aflac's run-rate pre-tax operating margin below 17% in
--A significant increase in either operating (greater than 16x) or financial leverage (greater than 30%);
--NAIC RBC less than 400%, a Prism capital model score below 'Extremely Strong' or SMR sustained below 800%.
An upgrade of Aflac is unlikely in the near term, given Japan's Long-Term Local Currency IDR and Outlook of 'A'/Outlook Negative.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
Aflac Inc.
--Long-Term IDR at 'A';
--2.65%
--2.4%
--4%
--3.625%
--3.625%
--3.25%
--2.875%
--6.9%
--6.45%
--4.00%
--5.5%
Fitch has affirmed the following ratings with a Negative Outlook:
--IFS 'A+'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/site/re/887191
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https://www.fitchratings.com/regulatory
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