Oct. 28 (Bloomberg) -- Aflac Inc., the world’s largest seller of supplemental health insurance, said third-quarter profit more than tripled as investment losses narrowed and a stronger yen magnified revenue from Japan.

Net income rose to $363 million, or 77 cents a share, from $100 million, or 21 cents, in the same period a year earlier, the Columbus, Georgia-based insurer said today in a statement. Operating income, which excludes some investment results, was $1.25 a share, beating the $1.20 average estimate of 17 analysts surveyed by Bloomberg. The stronger yen boosted quarterly profit by 9 cents a share, Aflac said.

Aflac, which gets most of its revenue from Japan, is counting on earnings there and in the U.S. to support capital as the recession pressures the value of investments held to back policies. Chief Executive Officer Daniel Amos is diversifying holdings to reduce potential losses from defaults. Realized investment losses in the third quarter shrank 42 percent to $226 million from a year earlier, Aflac said today.

“They’re still working through some of their issues, but the results look pretty impressive,” said Bill Smead, who helps manage $160 million, including Aflac shares, as chief investment officer of Seattle-based Smead Capital Management. “It’s the beginning of a long process” of improving earnings.

Aflac’s Holdings

The insurer posted writedowns this year on holdings of CIT Group Inc. and hybrid securities, which combine characteristics of debt and equity. Last year it wrote down investments in financial firms including Lehman Brothers Holdings Inc., failed lender Washington Mutual Inc. and Icelandic banks. KBW Inc. cut its rating on the insurer to “market perform” last month, saying the hybrid portfolio’s value may decline.

Aflac, whose policies supplement work and government- sponsored health-insurance plans, holds hybrid securities in 38 issuers spread across 15 countries in Europe and in Japan and Australia, the insurer said in February.

Aflac will reach targets of a 13 percent to 15 percent rise in operating earnings this year and 9 percent to 12 percent in 2010, Amos said today in the statement.

In Japan, Aflac sold new policies worth 30 billion yen ($320 million), rising from a year earlier on growing medical and life-insurance sales. In the quarter, the yen grew 15 percent stronger against the dollar from a year earlier, Aflac said. U.S. sales of new policies declined 7.2 percent to $342 million because of “weak economic conditions,” the firm said.

Aflac fell $1.73, or 4 percent, to $40.58 as of 4:10 p.m. in New York Stock Exchange composite trading. It has declined 11 percent this year.

Shareholders’ equity, a measure of assets minus liabilities, improved to $7.9 billion as of Sept. 30 from $6.4 billion at June 30 as some of the company’s holdings rebounded. Unrealized losses, which don’t count against earnings, are monitored by ratings firms, regulators and investors as a measure of financial strength.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: October 28, 2009 17:29 EDT