Aflac Wagers on Japan Real Estate by Taking Stake in REIT Funds

  • Insurer invests in yen-denominated exchange traded funds
  • Aflac takes impairment tied to student loan servicer Navient

Aflac Inc., the supplemental health insurer that counts Japan as its biggest market, started buying ETFs in that country last quarter to bet on property.

“We began investing in yen-denominated exchange-traded funds holding Japan real estate investment trusts,” the Columbus, Georgia-based insurer said Tuesday in a regulatory filing. At the end of September, the investment was valued at $103 million.

Aflac is seeking to diversify holdings and boost income in a portfolio that is valued at more than $100 billion and has its biggest allocation to Japanese government bonds. The nation’s 10-year bonds have yielded less than 0.4 percent for most of the past few months.

Chief Investment Officer Eric Kirsch has pushed into dollar-denominated corporate debt, hedged to the yen, to boost returns since joining the insurer in 2011 from Goldman Sachs Group Inc. He has also sought to limit risks, after the company was burned before his arrival on yen-denominated securities tied to lenders in nations such as Greece and Portugal.

Aflac was hurt in the third quarter by an $89 million investment loss fueled by impairments tied to Navient Corp.

Navient, the largest servicer of government-backed student debt, has suffered as investors became concerned that Moody’s Investors Service and Fitch Ratings might downgrade student-loan bonds as more Americans miss payments.

Poor Liquidity

“While we don’t believe there are any near-term risk of default, the majority of these holdings are long-dated and yen-denominated with poor liquidity,” Aflac Chief Financial Officer Frederick Crawford said Oct. 28 in a conference call discussing third-quarter results. “As a result, these holdings trade at a deep discount. At roughly 50 cents on the dollar, we felt it prudent to take impairment.”

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