A.M. Best Co. has assigned a debt rating of “bbb+” to the newly issued $450 million 5.50% subordinated debentures due 2052 of Aflac Incorporated (Aflac) (Columbus, GA) [NYSE: AFL]. Additionally, there is a green shoe provision for Aflac to issue $67.5 million or 15% of the original deal size. The assigned outlook is stable. The financial strength, issuer credit and existing debt ratings of Aflac and its life/health companies are unchanged.
The assigned debt rating reflects the debentures’ subordinated status within Aflac’s capital structure. Specifically, these securities will rank junior to Aflac’s existing and future senior indebtedness and do not restrict the company’s ability to incur additional debt that ranks senior to the debentures.
A.M. Best notes that the newly issued subordinated debentures may be redeemed on or after September, 2017 or at any time within 90 days after the occurrence of a “tax event” or a “rating agency event.” Proceeds from the issuance will be used for general corporate purposes. A.M. Best notes that Aflac’s overall financial leverage, incorporating some equity credit for the new debentures, is expected to remain below 25%, while interest coverage is expected to remain above 10 times. Both measures are well within A.M. Best’s guidelines for Aflac’s current rating level.
A.M. Best’s ratings recognize Aflac’s status as a leading provider of individual guaranteed-renewable health and accident insurance along with life insurance in both Japan and the United States. In addition to the company’s strong sales growth, Aflac has reported improved operating earnings while maintaining adequate risk-adjusted capital ratios. However, despite strong operating earnings and sales growth, Aflac continues to report sizeable impairments within its investment portfolio. A.M. Best will be monitoring the impact of the company’s new investment portfolio strategy and the potential for further realized investment losses.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 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. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.