A life insurer is asking the National Association of Insurance Commissioners (NAIC) to help it deal with shifts in the credit rating agency industry.

Aflac Inc., Columbus, Ga., has a large branch in Japan that invests in Japanese bonds to back business written in Japan.

Aflac owns 5 bonds issued by Tohoku Electric Power Company Inc., Sendai, Japan. The NAIC, Mo., normally exempts bonds from NAIC Securities Valuation Office (SVO) filing requirements if a rating agency recognized by the SVO has assigned a bond a solid rating.

Until 2009, 5 separate rating agencies — including Standard & Poor’s (S&P), New York; Moody’s, New York; and Fitch Ratings, New York — rated each of the bonds. In 2009, S&P, Moody’s and Fitch withdrew their ratings of the bonds because they were changing their business strategy in Japan, not because of any action by Tohoku, W. Jeremy Jeffery, chief investment officer at Aflac, writes in a letter to Matti Peltonen, chair of the Valuation of Securities (VOS) Task Force at the NAIC.

The only rating agencies that still rate the Tohoku bonds — Rating and Investment Information Inc., Tokyo, and Japan Credit Rating Agency Ltd., Tokyo — are designated as “nationally recognized securities rating organizations” by the U.S. Securities and Exchange Commission, but those agencies are not recognized by the NAIC, Jeffery says.

The Nebraska Department of Insurance, the regulator for the state of domicile for Aflac’s life insurance company, gave Aflac permission to use the Japanese rating agencies’ ratings for the Tohoku bonds through a “permitted practice.”

Aflac believes similar situations could arise in the future, Jefferies says.

“Rather than relying on permitted practices to remedy this otherwise unfair situation in the future, Aflac
respectfully requests that the VOS Task Force consider and adopt a prospective remedy that can be
consistently applied across the board,” Jefferies says.

The Valuation of Securities Task Force has posted the Aflac rating agency letter as an exposure draft. Comments on the letter are due Sept. 17.