Bloomberg News

Aflac Buybacks Held Up as ‘Stupid Debt Deal’ Eludes U.S.

July 28, 2011

(Updates with CFO comment in the sixth paragraph.)

July 28 (Bloomberg) -- Aflac Inc., the world’s largest seller of supplemental health insurance, said the outlook for share repurchases is unclear due in part to uncertainty caused by the showdown in Congress over the federal debt limit.

“We gotta get the stupid debt deal done in the U.S., for one thing,” Chief Financial Officer Kriss Cloninger said today on a conference call with analysts and investors. “Who knows how that’s going to affect world markets.”

President Barack Obama and Congress face an Aug. 2 deadline to raise the $14.3 trillion debt ceiling and steer the U.S. government away from the threat of default. Columbus, Georgia- based Aflac said that while it plans to increase the rate of buybacks, it hasn’t decided by how much.

“Whether we’re in a position to apply $1 billion or $2 billion to share repurchases, we just haven’t determined yet,” Cloninger said. “Because we do still have a fairly uncertain outlook, I think, as far as other economic developments.”

Aflac is focusing on repurchases after a review of its worst-performing holdings in the first half. Aflac posted more than $1 billion of investment losses as it sold and took impairments on securities issued by European banks.

“My big concern is not so much the effect on U.S. treasuries, but what overflowing effect it might have to Europe and, you know, even Japan,” Cloninger said. “Particularly if it impacted interest rates in Europe or economic conditions in Europe, which I doubt that it would.”

Portugal, Greece

Aflac’s biggest market is Japan, and the company bought yen-denominated bonds of European banks to back policies. Second-quarter profit dropped 52 percent to $280 million on writedowns tied to banks in Portugal, Greece and Ireland, Aflac said yesterday.

Aflac advanced $2.39, or 5.4 percent, to $46.54 at 12:52 p.m. in New York Stock Exchange composite trading after Chief Executive Officer Dan Amos said the sale of underwater securities has been “substantially completed.”

The insurer, with a market value of about $22 billion, bought back 4.1 million shares in the first half of the year, according to yesterday’s statement.

Aflac joins commercial property insurer Travelers Cos. in expressing frustration over the debt ceiling debate. New York- based Travelers, the lone insurer in the Dow Jones Industrial Average, told analysts on a July 21 conference call that it didn’t know what would happen if the U.S. defaulted.

‘It’s Unimaginable’

“It’s unimaginable, right?” Travelers CEO Jay Fishman said. “Unthinkable, that a sovereign entity that has a printing press in the basement, somehow makes a decision to stop printing.”

Obama administration officials will brief the public no earlier than after financial markets close tomorrow on priorities for paying the nation’s bills if the U.S. debt limit isn’t raised, a Democratic Party official said. A Treasury official said in an e-mail earlier today the department would provide more information on how the government would operate in the absence of borrowing authority.

“It’s a terrible problem,” William Berkley, CEO of insurer W. R. Berkley Corp., said on a July 26 conference call. “We’ve become so politicized that no one seems to put our nation’s interest first.”

--Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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