Net income (AFL:US) climbed to $889 million, or $1.90 a share, from $483 million, or $1.03, a year earlier, the Columbus, Georgia-based insurer said today in a statement. Operating profit (AFL:US), which excludes some investment results, was $1.62 a share, beating the $1.51 average estimate (AFL:US) of 21 analysts in a Bloomberg survey.
Aflac, which counts Japan as its largest market (AFL:US), cut investments in European nations to limit risk after soured bets on bonds from financial firms in Iceland and Greece. Realized investment gains added $130 million to profit, compared with losses of $272 million a year earlier when the company recorded impairments on Spanish holdings.
“Aflac’s investment portfolio has been completely retooled,” Tony Scherrer, director of research at Smead Capital Management, which oversees about $600 million including Aflac shares, said in an e-mail before results were announced.
The insurer said today it would allocate most of third-quarter cash flow to Japan government bonds, with less of an investment in U.S. corporate debt. The strategy is a reversal from plans discussed by the insurer as recently as May.
“In light of the financial market volatility in both the United States and Japan in the second quarter, our investment team has been carefully evaluating investment options,” the company said in the statement. “We remain committed to further building out our investment functions and capabilities to enable us to respond to a changing economic environment.”
Book value, a measure of assets minus liabilities, fell to $29.46 a share from $33.34 on March 31 as the value of Aflac’s investment portfolio declined, fueled by a rise in interest rates and the yen’s weakening against the dollar.
Aflac advanced (AFL:US) 15 percent this year through 4 p.m., trailing the 35 percent gain of the 24-company KBW Insurance Index. The company said in May it plans to repurchase (AFL:US) $600 million of shares in 2013, the top end of an earlier projection.
In Japan, total new annualized premium sales fell 43 percent after Aflac raised prices for some products. That compares with a 47 percent gain in the second quarter of 2012. Some customers chose to invest in stocks and bonds rather than insurance products as returns improved, Aflac Chief Executive Officer Dan Amos said in the statement.
The insurer reached a deal last week with Japan Post Holdings Co. to sell policies in as many as 20,000 post offices. Aflac, the exclusive provider of cancer insurance through Japanese post offices, currently offers the coverage in about 1,000 locations. The companies may also work together to design insurance products, according to a July 26 statement.
Aflac converts results from yen to dollars for reporting purposes. The yen traded at 99.14 per dollar on June 28, weaker than the 79.79 level at the middle of 2012.
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