Feb. 20 (Bloomberg) -- Aflac Inc., the largest seller of supplemental insurance, will take further writedowns on “hybrid” securities in 2009 because the holdings were downgraded by ratings firms.

“As a result of market conditions and the extent of changes in ratings on our perpetual securities, we will incur additional other-than-temporary impairment losses beginning in 2009, which could materially affect our results of operations for a particular fiscal quarter or year,” the Columbus, Georgia-based insurer said today in its 2008 annual report.

Chief Executive Officer Dan Amos is diversifying holdings to reduce the losses from individual investments. The insurer, which wrote down the value of securities in Icelandic banks in the fourth quarter, also invested in U.K. lenders including Royal Bank of Scotland Group Plc, HBOS Plc and Barclays Plc.

Aflac said earlier this month it might have to write down about $400 million on holdings of its riskiest hybrid securities. The estimate assumes the banks issuing the hybrids, which mix characteristics of debt and equity, are nationalized, reducing the value of their outstanding securities, Amos said.

“We’re managing to reduce risk,” Amos said on a conference call Feb. 3. “But we’re generally comfortable with our holdings including our hybrid holdings at this moment.”

Unrealized Losses

The insurer had an unrealized loss on hybrid securities of about $1.03 billion at the end of 2008. Those declines didn’t count against earnings because Aflac considered them temporary. Aflac didn’t say today how much earnings would be reduced this year as a result of ratings downgrades, which change the accounting treatment for the securities.

Aflac advanced 69 cents, or 4.2 percent, to $17.01 at 4:04 p.m. in New York Stock Exchange Composite trading. The insurer declined 63 percent this year.

Aflac did a better job sidestepping losses on commercial mortgage-backed securities than insurers Hartford Financial Services Group Inc. and Principal Financial Group Inc., said Andrew Kligerman, an analyst at UBS AG, in a note to investors today.

To contact the reporter on this story: Linda Shen in New York at Lshen21@bloomberg.net

Last Updated: February 20, 2009 16:23 EST