Aflac Inc. (AFL), the largest seller of supplemental health insurance, said first-quarter profit increased 14 percent as investing results improved.
Net income rose to $892 million, or $1.90 a share, from $785 million, or $1.68, a year earlier, the Columbus, Georgia- based company said today in a statement. Operating profit, which excludes some investment results, was $1.69 a share, beating the $1.62 average estimate of 21 analysts in a Bloomberg survey.
Chief Investment Officer Eric Kirsch, hired from Goldman Sachs Group Inc. in 2011, has scaled back bets on European financial firms that soured amid the financial crisis. Kirsch, 52, has favored U.S. corporate bonds over Japanese government debt in the portfolio that backs Aflac’s obligations in Japan.
“It’s more important today, in the face of a weaker yen, to have these U.S. dollar-denominated assets,” Edward Shields, an analyst at Sandler O’Neill & Partners LP, said in an interview before results were announced. “It should ultimately help the earnings strength from the Japanese segment.”
Aflac, led by Chief Executive Officer Dan Amos, 61, does most of its business in Japan and converts results from yen to dollars for reporting purposes. The yen slid 7.9 percent to 94.22 per dollar in the first three months of the year.
Aflac rose 1.8 percent to close at $51.56 in New York and was little changed in extended trading. Shares have fallen 2.9 percent this year, making Aflac the only decliner on the 24- company KBW Insurance Index. (KIX)
Net realized investment gains were $102 million, compared with net losses of $29 million a year earlier. Book value, a measure of assets minus liabilities, fell to $33.34 per share as of March 31, from $34.16 three months earlier, as Aflac changed how it values some privately issued securities.
“Our investment team is carefully monitoring Japan’s monetary and fiscal policies to evaluate investment options,” Amos said in the statement. “Low investment yields, particularly in Japan, remain a significant challenge. As such, we continue to invest a significant portion of our cash flows in U.S. corporate bonds.”
Aflac forecast operating earnings for the current quarter that fell below some analysts’ estimates, as the weakening yen weighs on results. Operating profit will probably be as much as $1.56 a share in the period, the firm said, compared with the $1.57 average estimate of 20 analysts surveyed by Bloomberg.
Sales in Japan increased as customers purchased coverage ahead of a planned premium increase, Amos said. New annualized premium sales rose 2.6 percent to 53.8 billion yen or $578 million in the quarter, according to the statement. That compares with a 54 percent surge a year earlier.
In the U.S., sales declined 5.2 percent to $332 million. Amos said U.S. sales “will be weighted more toward the latter half of the year,” and may increase as much as 5 percent in 2013.
Aflac said it repurchased about $150 million of shares in the first quarter, and will buy back $400 million to $600 million this year.
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