Aflac Drops as Insurer Reports Losses on Spanish Holdings

Aflac Inc. (AFL), the world’s biggest seller of supplemental health insurance, dropped in extended trading yesterday after reporting losses on Spanish holdings.

Aflac fell 1.7 percent to $41.30 after the close of regular trading in New York. The Columbus, Georgia-based insurer reported after-tax realized investment losses from impairments of $223 million in the second quarter, primarily from investments in Bankia SA (BKIA) and the government of Catalonia.

Chief Executive Officer Daniel P. Amos is bolstering the investment-management unit led by Eric Kirsch after Aflac’s portfolio of about $100 billion suffered losses on European holdings. Kirsch, who joined Aflac from Goldman Sachs Group Inc. last year, hired BlackRock Inc. (BLK)’s Timothy Stevens as global head of trading and Bradley E. Dyslin as global head of credit last month.

“We expected to see volatility in Europe, and that’s exactly what we saw in the second quarter,” Amos said in a statement yesterday. “While we still view Europe as an area of potential investment risk, I believe our portfolio is now better-positioned to accommodate market volatility.”

Net income increased 76 percent to $483 million, or $1.03 a share, from $274 million, or 58 cents, a year earlier, the company said in the statement. Operating profit, which excludes some investment results, was $1.61 a share, matching the average estimate of 19 analysts in a Bloomberg survey.

Aflac declined 2.9 percent this year through yesterday’s close, compared with the 2 percent drop of the 24-company KBW Insurance Index. (KIX)

Japan Sales

Realized investment losses were $272 million, compared with $453 million a year earlier when Aflac sold securities of European financial firms at a loss. Book value, a measure of assets minus liabilities, rose to $30.37 a share as of June 30 from $29.19 three months earlier.

Aflac will begin investing this quarter in dollar- denominated public fixed-income securities and currency hedges to the yen, Amos said in the statement. The strategy will help diversify the insurer’s holdings beyond Japanese government bonds, he said.

New annualized premium sales in Japan, the company’s largest market, jumped 47 percent, after rising 54 percent in the first quarter. In dollar terms, new annualized premium sales were $664 million, compared with $442 million in the same period a year earlier.

Aflac said sales in Japan will increase 22 percent to 25 percent this year compared to last, boosting an April forecast that sales would rise 10 percent. Deals through banks, sales of a hybrid whole-life product and an upgraded medical policy offering helped increase Aflac’s Japan sales in the first quarter, the insurer said at the time.

U.S. sales are on pace to match the company’s target for an annual increase of 3 percent to 8 percent, according to the statement. U.S. premium income increased 5.5 percent to about $1.3 billion in the second quarter from a year earlier, Aflac said.

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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