Tags: AFLAC | duck | Europe | AFL

AFLAC to Duck Europe Risk

By Tim Plaehn   |   Wednesday, 26 Oct 2011 10:30 AM

Insurance company AFLAC (AFL) puts forth an interesting picture for prospective investors. This stock has provided some outstanding returns to investors over the last five- and 10-year periods. However, the company is currently taking significant losses while shoring up its portfolio against extensive European debt holdings.

AFLAC sells supplemental life and health insurance products in the United States and Japan. (You probably know the fidgety, ill-tempered duck from its ubiquitous TV commercials.) U.S. products include cash payment supplemental health insurance policies, group life insurance and short term disability insurance.

Japanese insurance products include supplemental coverage to the national insurance coverage and cancer policies, which pay cash or hospital benefits if a policy owner is diagnosed with cancer. AFLAC generates an astounding two-thirds of its pre-tax operating earnings from Japan.

For the second quarter of 2011, operating income was $1.56 per share, up 15 percent from the $1.35 earned a year earlier. Of the gain, 11 cents was due to a stronger yen per dollar exchange rate.

GAAP income was 96 cents per share, up from a 12 cents loss for the same quarter in 2010. The difference between net and operating income is due to realized losses in the company's investment portfolio.

European exposure

According to the AFLAC results report, the company has reduced eurozone investments to 2.8 percent of the company's portfolio from 5.9 percent at the beginning of 2008.

In the same time period, the holdings in financial and perpetual securities were reduced to 30 percent and 8 percent from 42 percent and 14.7 percent, respectively. These moves incurred portfolio losses but reduced the ongoing investment risk of AFLAC's investment portfolio.

AFLAC is currently paying a 30 cents per share quarterly dividend and has increased the distribution rate for 28 consecutive years. Through the end of 2010, the stock — including reinvested dividends — earned investors a total return of 34.8 percent for 5 years and 80.8 percent for 10 years.

Citigroup analysts recently reiterated their hold rating on AFLAC and reduced the target price by $4. Moody's downgraded the company's senior debt to A2 from A3, noting the continued risk from the European exposure in the investment portfolio.

The company next reports on Oct. 26.

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Insurance company AFLAC (AFL) puts forth an interesting picture for prospective investors. This stock has provided some outstanding returns to investors over the last five- and 10-year periods. However, the company is currently taking significant losses while shoring up its...
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2011-30-26
 

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