Aflac 2007 Annual Report Download - page 43

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The increase in securities purchased in the AAA rated category
is primarily due to the purchase of U.S. Treasury bills by Aflac
Japan prior to repatriating profits to Aflac U.S. in the third
quarter of 2007.
The distributions of debt securities we own, by credit rating,
were as follows:
The increase in AAA and AA rated holdings compared with
December 31, 2006, resulted from purchases and credit rating
upgrades by rating agencies; the offset was a corresponding
decrease in the A rated holdings. The decline in BB or lower
rated securities resulted from the upgrade of KLM Royal
Dutch Airlines from below investment grade to investment
grade during the second quarter of 2007.
In the event of a credit rating downgrade to below-
investment-grade status, we do not automatically liquidate our
position. However, if the security is in the held-to-maturity
portfolio, we immediately transfer it to the available-for-sale
portfolio so that the security’s fair value and its unrealized gain
or loss are reflected on the balance sheet.
Once we designate a security as below
investment grade, we intensify our monitoring
of the issuer. We do not automatically
recognize an impairment if the security’s
amortized cost exceeds its fair value. Our
investment management starts by reviewing its
credit analysis. Included in this process are an
evaluation of the issuer, its current credit and
liquidity posture, its operations and an
assessment of the future prospects for the issuer. We then
obtain fair value information from at least three independent
pricing sources. Upon determining the fair value, we move our
focus to an analysis of whether the decline in fair value, if any,
is other than temporary. For securities with an amortized cost
in excess of fair value, investment management then reviews
the issue based on our impairment policy to determine if the
investment should be impaired and/or liquidated. The
assessment of whether a decline is other than temporary
requires significant management judgment and is discussed
more fully in the Critical Accounting Estimates section of this
MD&A. Securities classified as below investment grade as of
December 31 were as follows:
Occasionally a debt security will be split rated. This occurs
when one rating agency rates the security as investment grade
while another rating agency rates the same security as below
investment grade. Our policy is to review each issue on a case-
by-case basis to determine if a split-rated security should be
classified as investment grade or below investment grade. Our
review includes evaluating the issuer’s credit position as well as
current market pricing and other factors, such as the issuer’s or
security’s inclusion on a credit rating downgrade watch list.
Split-rated securities as of December 31, 2007, represented .7%
of total debt securities at amortized cost and were as follows:
39
Annual Report for 2007
Composition of Purchases by
Credit Rating
2007 2006 2005
AAA 18.4% 10.6% 6.1%
AA 44.1 48.9 45.5
A30.2 35.1 42.9
BBB 7.3 5.4 5.5
Total 100.0% 100.0% 100.0%
Composition by Credit Rating
December 31, 2007 December 31, 2006
Amortized Fair Amortized Fair
Cost Value Cost Value
AAA 6.3% 6.2% 5.8% 5.7%
AA 44.3 45.3 35.0 35.8
A30.7 30.4 39.4 39.2
BBB 16.8 16.6 17.2 17.2
BB or lower 1.9 1.5 2.6 2.1
Total 100.0% 100.0% 100.0% 100.0%
Below-Investment-Grade Securities
2007 2006
Par Amortized Fair Par Amortized Fair
(In millions) Value Cost Value Value Cost Value
Ahold $ 310 $ 311 $ 272 $ 299 $ 300 $ 245
Ford Motor Credit 263 263 215 252 252 229
KLM Royal Dutch Airlines ***252 252 229
CSAV 210 210 143 201 201 145
BAWAG 123 123 90 118 118 103
Ford Motor Company 111 122 93 111 122 100
Tennessee Gas Pipeline ***31 30 35
International Securities Trading Corp. 20 – – ***
Patrick Family Housing (Patrick AFB) 411***
Aloha Utilities Inc. 221***
Total $ 1,043 $1,032 $ 815 $ 1,264 $1,275 $ 1,086
*Investment grade at respective reporting date
Split-Rated Securities
Amortized Moody’s S&P Fitch Investment-Grade
(In millions)
Cost Rating Rating Rating Status
Signum (Ahold) $280 Baa3 BB+ BB+ Below Investment Grade
Tennessee Gas Pipeline 31 Baa3 BB BBB- Investment Grade
Union Carbide Corp. 15 Ba2 BBB- BBB Investment Grade
Ahold (Finance USA Inc.) 15 Baa3 BB+ BB+ Below Investment Grade
Oncor Electric Delivery 11 Ba1 BBB- BBB- Investment Grade
Bell Canada 9 Baa1 BB+ BB- Investment Grade