Bloomberg News

Aflac Profit Increases 16% as Investment Results Improve (1)

February 04, 2014

Aflac Store in Japan

Aflac Inc. Chief Investment Officer Eric Kirsch retreated last year from a plan to allocate more funds to U.S. corporate debt after fluctuations in interest rates hurt a measure of solvency monitored by regulators in Japan, the company’s largest market. Photographer: Kiyoshi Ota/Bloomberg

Aflac Inc. (AFL:US), the largest seller of supplemental health insurance, said fourth-quarter profit climbed 16 percent as investment results improved.

Net income rose to $675 million, or $1.45 a share, from $581 million, or $1.24, a year earlier, the Columbus, Georgia-based insurer said today in a statement. Operating profit, which excludes some investing results, was $1.40 a share, beating the $1.39 average estimate (AFL:US) of 21 analysts surveyed by Bloomberg.

Chief Investment Officer Eric Kirsch retreated last year from a plan to allocate more funds to U.S. corporate debt after fluctuations in interest rates hurt a measure of solvency monitored by regulators in Japan, the company’s largest market. Kirsch had favored U.S. company bonds to increase yields, after joining Aflac from Goldman Sachs Group Inc. in 2011.

Investing “has been the piece that they’ve been the weakest on,” said Tony Scherrer, director of research at Smead Capital Management, which oversees more than $790 million including shares of Aflac. “They’ve cleaned that up substantially. We would expect to see continued improvement,” he said before today’s announcement.

Realized investment gains added $6 million to profit, compared with losses of $111 million a year earlier that were fueled by securities from the Republic of Tunisia and Italian lender UniCredit SpA.

Japan Sales

Aflac said today that it resumed purchasing dollar-denominated securities to back obligations in Japan. Chairman and Chief Executive Officer Dan Amos, 62, said in October that as much as 80 percent to 90 percent of cash generated in Japan would be invested in yen-denominated securities. The company has also added interest rate hedges and shifted the accounting treatment of some bonds.

Aflac gained 0.9 percent to $62 at 4:38 p.m. in extended trading in New York. The shares advanced (AFL:US) 16 percent in the past 12 months through the close of regular trading, trailing the 17 percent climb of the Standard & Poor’s 500 Index.

Amos has been working to increase sales in Japan through marketing partnerships, such as with Japan Post Holdings Co., after higher prices for some products limited sales. Aflac, which uses a talking duck in its advertisements, also reached a deal to sell some cancer coverage via Daido Life Insurance Co.

The yen fell 18 percent to 105.31 per dollar last year. Aflac converts results from the Japanese currency to dollars for reporting purposes.

New annualized premium sales in Japan fell 33 percent to 32.9 billion yen, compared with a 1.5 percent increase a year earlier. In the U.S., sales decreased 10 percent to $397 million compared with a 0.7 percent decline in the same period last year.

“We remain disappointed with sales growth in the United States,” Amos said in the statement. Small employers have remained “guarded” on hiring, he said, while uncertainty around health-care reform in the U.S. has limited sales.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

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


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Companies Mentioned

  • AFL
    (Aflac Inc)
    • $59.74 USD
    • -1.64
    • -2.75%
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