Aflac 2009 Annual Report Download - page 53

greater of the net income from operations, which excludes
net realized investment gains, for the previous year
determined under statutory accounting principles, or 10% of
statutory capital and surplus as of the previous year-end. In
addition, the Nebraska insurance department must approve
service arrangements and other transactions within the
afliated group of companies. These regulatory limitations
are not expected to affect the level of management fees
or dividends paid by Aac to the Parent Company. A
life insurance company’s statutory capital and surplus is
determined according to rules prescribed by the NAIC,
as modied by the insurance department in the insurance
company’s state of domicile. Statutory accounting rules
are different from GAAP and are intended to emphasize
policyholder protection and company solvency.
The continued long-term growth of our business may
require increases in the statutory capital and surplus of our
insurance operations. Aac’s insurance operations may
secure additional statutory capital through various sources,
such as internally generated statutory earnings or equity
contributions by the Parent Company from funds generated
through debt or equity offerings. The NAIC’s risk-based
capital (RBC) formula is used by insurance regulators to
help identify inadequately capitalized insurance companies.
The RBC formula quanties insurance risk, business risk,
asset risk and interest rate risk by weighing the types and
mixtures of risks inherent in the insurer’s operations. Aac’s
company action level RBC ratio was 479% as of December
31, 2009. Our RBC ratio remains high and reects a
strong capital and surplus position. As of December 31,
2009, our total adjusted capital exceeded the amounts to
achieve a company action level RBC of 400% and 350%
by $953 million and $1.6 billion, respectively. See Note 11
of the Notes to the Consolidated Financial Statements for
information regarding the impact of permitted practices by
the Nebraska Department of Insurance on our statutory
capital and surplus. Currently, the NAIC has ongoing
regulatory initiatives relating to revisions to the RBC formula
as well as numerous initiatives covering insurance products,
investments, and other actuarial and accounting matters.
In addition to limitations and restrictions imposed by
U.S. insurance regulators, Japan’s FSA may not allow
prot repatriations or other transfers from Aac Japan if
they would cause Aac Japan to lack sufcient nancial
strength for the protection of policyholders. The FSA
maintains its own solvency standard. As of December 31,
2009, Aac Japan’s solvency margin ratio was 885.5%,
which signicantly exceeds regulatory minimums. See the
Japanese Regulatory Environment section of this MD&A for
a discussion of proposed changes to the calculation of the
solvency margin ratio.
Payments are made from Aac Japan to the Parent
Company for management fees and to Aac U.S. for
allocated expenses and remittances of earnings. The
following table details Aac Japan remittances for the years
ended December 31.
Aac Japan remitted less prot to Aac U.S. in 2009 to
support its solvency margin ratio.
For additional information on regulatory restrictions on
dividends, prot repatriations and other transfers, see Note
11 of the Notes to the Consolidated Financial Statements.
Rating Agencies
Aac is rated AA- by S&P, Aa2 (Excellent) by Moody’s, and
A+ (Superior) by A.M. Best for nancial strength and AA- by
R&I for insurance claims-paying ability. Aac Incorporated’s
senior debt, Samurai notes, and Uridashi notes are rated
A- by S&P, A2 by Moody’s and A by R&I. S&P, Moody’s and
A.M. Best have classied Aac’s credit outlook as negative,
consistent with their outlook on the insurance industry. R&I
has classied Aac’s credit outlook as stable.
Other
For information regarding commitments and contingent
liabilities, see Note 13 of the Notes to the Consolidated
Financial Statements.
Aac Japan Remittances
(In millions of dollars and billions of yen) 2009 2008 2007
Aflac Japan management fees paid to
Parent Company $ 26 $ 26 $ 32
Expenses allocated to Aflac Japan 37 36 33
Aflac Japan profit remittances to
Aflac U.S. in dollars 230 598 567
Aflac Japan profit remittances to
Aflac U.S. in yen ¥ 20.0 ¥ 64.1 ¥ 67.8
Aflac Annual Report for 2009 49