2nd UPDATE: Aflac Sells Greek Debt After Stock Decline

28th Jun 2010 22:18

(Updates with details about possible issuers, analyst comments) By Erik Holm Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Aflac Inc. (AFL) unloaded its holdings of Greek debt after the insurer's stock fell more than 20% on concern about European securities in its investment portfolio. Aflac's sale of the country's sovereign debt, which it valued at $270 million at the end of March, will cost about $67 million in the second quarter, the company said Monday. The charge will be offset by an $80 million gain from two other transactions that reduced Aflac's exposure to European hybrid securities, which had been another area of concern for the Columbus, Ga.-based insurer's shareholders. Investors, worried about the ability of a handful of European countries to meet their obligations, have pushed down the value of sovereign debt and punished companies that hold it. J.P. Morgan insurance analyst Jimmy Bhullar noted last month that Aflac had the highest exposure to sovereign and corporate debt from Greece, Ireland, Italy, Portugal and Spain among the U.S. companies he tracked. That exposure has hurt Aflac's stock. Shares have fallen more than 20% since reaching their 2010 peak of $56.56 in mid-April. The shares rose 2.7% to close at $44.78 after Monday's announcement. Aflac, which sells life and disability insurance in Japan and the U.S., said early Monday it exchanged one hybrid security for senior debt and further reduced its holdings with a "privately negotiated transaction with another European issuer." The two transactions reduced the company's exposure to hybrids, which have characteristics of both debt and equity, by 8.4%, or $725 million. The first was likely a Royal Bank of Scotland Group PLC (RBS, RBS.LN, RBSB) security, while the second could have been issued by HBOS PLC, which was taken over by Lloyds Banking Group PLC (LYG, LLOY.LN) last year, according to Thomas Gallagher, an analyst with Credit Suisse. Another analyst, Suneet Kamath at Bernstein Research, agreed on HBOS but suggested the first was a security from Abbey National PLC, now called Santander UK PLC. A spokeswoman for Aflac declined to comment. The transactions leave Aflac with $3.9 billion in "peripheral Europe exposure," Gallagher wrote in a note to clients Monday. "The most troubled" securities, he said, are $1 billion in hybrids from Greek banks that he estimated are now trading at 35 to 45 cents on the dollar. "We would expect Aflac to hold on to these securities considering the distressed valuations and Aflac's current capital cushion," he wrote. Aflac Chief Executive Kriss Cloninger said in a statement the company's risk based-capital ratio, used by regulators to track insurance-company solvency, will improve by about 20 points. He also reiterated the company's target of increasing operating earnings per share of 9% to 12% in 2010 and 8% to 12% in 2011, excluding the effects of fluctuations in the Japanese yen. -By Erik Holm, Dow Jones Newswires; 212-416-2892; [email protected] (Matt Jarzemsky contributed to this article.) (END) Dow Jones Newswires June 28, 2010 17:18 ET (21:18 GMT)