Aflac Inc., the provider of supplemental health insurance whose largest market is Japan, is pushing further into dollar-denominated assets after a $1 billion bet on risky debt paid off.
Eric Kirsch, the insurer’s chief investment officer, is seeking to invest in high-yield debt, commercial loans and private equity as he expects the dollar to remain strong against the yen for the next one to two years, he said Thursday at an analyst briefing. A billion-dollar transfer from high-grade corporate bonds to junk debt and bank loans boosted investment income by about $19 million, he said.
“We will underweight any JGB purchases due to current market conditions of extremely low yield, continue to expand into dollar asset classes, and build our growth-asset portfolio,” Kirsch said, referring to Japanese government bonds. New investments are beating Japanese government debt, and “a large part of this outperformance was the contribution of the U.S.-dollar program,” he said.
Aflac Chief Executive Officer Dan Amos hired Kirsch from Goldman Sachs Group Inc. in 2011 to build an investing operation at the Columbus, Georgia-based insurer, which got about three-quarters of its revenue from Japan last year. Twenty-year government bonds from that country yield about 1.2 percent, and Aflac’s Japan investments portfolio had a yield of 2.83 percent at the end of December, down from 3.77 percent five years earlier, according to the company.
The dollar has gained 15 percent against the yen since 2013. Kirsch said Aflac will invest in investment-grade corporate debt, bank loans and structured assets to take advantage of the stronger currency.
Aflac fell 2.4 percent to $63.15 at 1:06 p.m. in New York. It has gained about 3.4 percent this year.
Amos announced earlier Thursday that he will seek to replace Chief Financial Officer Kriss Cloninger by the end of June. Cloninger will stay on as president.