S&P cuts credit ratings on AFLAC

Standard and Poor’s Ratings Services today cut its credit ratings on AFLAC Inc., placing the Columbus, Ga., health carrier on CreditWatch with negative implications. AFLAC’s insurance company, American Family Life Assurance Co. of Columbus, had its financial-strength rating downgraded to AA-, from AA. Meanwhile, the holding company AFLAC Inc. was cut to A-, from A. AFLAC’s investment exposure to banks and financial institution sector credits, along with the weak credit quality in the sector, contributed to the ratings cut, Shellie Stoddard, S&P’s credit analyst, said in her report. That investment exposure includes subordinated, hybrid security investments that are concentrated in the financial sector. “While AFLAC’s issuer investment concentrations have previously been cited by Standard & Poor’s as an ongoing concern, the potential for the weakness within the broader financial sector to negatively impact the company’s capitalization and financial flexibility prospectively has become significant enough to warrant a one-notch downgrade today,” Ms. Stoddard wrote. She said that the CreditWatch listing will be resolved as the company’s potential for economic investment losses and the effect on statutory capital becomes more quantifiable in the first quarter of 2009. The ratings will be cut another notch if the investment losses erode the statutory capital by more than $400 million, Ms. Stoddard wrote. If the fall in statutory capital is more than $800 million, the ratings will fall by at least two notches.