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On September 16, 2015, S&P downgraded their credit rating of Japan’s sovereign debt. Following this action, they
also downgraded several other foreign insurers, including Aflac. Although we are a U.S.-based insurer, our significant
operations in Japan and corresponding regulation by the Japanese FSA, combined with our significant exposure to JGBs
as outlined above, resulted in S&P downgrading the financial strength rating of our core insurance operations to A+ and
our senior debt rating to A-, both with a stable outlook. While S&P made no further downgrades to our ratings in 2016,
they have stated in the past that a downgrade of Japan's sovereign rating could lead to a downgrade of our financial
strength rating. As a matter of policy, S&P rarely rates insurance companies above the sovereign long-term rating of the
country of domicile because during times of stress, the sovereign’s regulatory and supervisory powers may restrict an
insurer’s or financial system’s flexibility.
In addition to the impact on our access to liquidity, as mentioned above, a downgrade of our ratings could have a
material adverse effect on agent recruiting and retention, sales, competitiveness and the marketability of our products
which could negatively impact our liquidity, operating results and financial condition. Additionally, sales through the bank
channel in Japan could be adversely affected as a result of their reliance and sensitivity to ratings levels.
We cannot predict what actions rating agencies may take, or what actions we may take in response to the actions of
rating agencies, which could adversely affect our business. As with other companies in the financial services industry, our
ratings could be downgraded at any time and without any notice by any NRSRO.
Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified
or unanticipated risk, which could adversely affect our businesses or result in losses.
We have developed an enterprise-wide risk management and governance framework to mitigate risk and loss to the
Company. We maintain policies, procedures and controls intended to identify, measure, monitor, report and analyze the
risks to which the Company is exposed.
However, there are inherent limitations to risk management strategies because there may exist, or develop in the
future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective,
the Company may suffer unexpected losses and could be materially adversely affected. As our businesses change and
the markets in which we operate evolve, our risk management framework may not evolve at the same pace as those
changes. As a result, there is a risk that new products or new business strategies may present risks that are not
appropriately identified, monitored or managed. In times of market stress, unanticipated market movements or
unanticipated claims experience resulting from greater than expected morbidity, mortality, longevity, or persistency, the
effectiveness of our risk management strategies may be limited, resulting in losses to the Company. In addition, under
difficult or less liquid market conditions, our risk management strategies may not be effective because other market
participants may be using the same or similar strategies to manage risk under the same challenging market conditions. In
such circumstances, it may be difficult or more expensive for the Company to mitigate risk due to the activity of such other
market participants.
Many of our risk management strategies or techniques are based upon historical customer and market behavior and
all such strategies and techniques are based to some degree on management’s subjective judgment. We cannot provide
assurance that our risk management framework, including the underlying assumptions or strategies, will be accurate and
effective.
Management of operational, legal and regulatory risks requires, among other things, policies, procedures and controls
to record properly and verify a large number of transactions and events, and these policies, procedures and controls may
not be fully effective. Models are utilized by our businesses and corporate areas primarily to project future cash flows
associated with pricing products, calculating reserves and valuing assets, as well as in evaluating risk and determining
capital requirements, among other uses. These models are utilized under a risk management policy approved by our
executive risk management committees, however, the models may not operate properly and rely on assumptions and
projections that are inherently uncertain. As our businesses continue to grow and evolve, the number and complexity of
models we utilize expands, increasing our exposure to error in the design, implementation or use of models, including the
associated input data and assumptions.
Past or future misconduct by our employees or employees of our third parties (suppliers which are cost-based
relationships and alliance partners which are revenue-generating relationships) could result in violations of law by us,
regulatory sanctions and/or serious reputational or financial harm and the precautions we take to prevent and detect this
activity may not be effective in all cases. Despite our published Supplier Code of Conduct, due diligence of our alliance
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