Aflac said on Thursday it will take an enormous second quarter loss of $610 million related to souring European investments.
It is the clearest example yet of a Georgia company’s exposure to the debt crisis in Europe.
For the year, Aflac has written off nearly $1 billion in troubled European investments. The Columbus-based supplemental and disability insurer charged off $376 million in soured Greek bank investments in first quarter.
The charge-offs come as European nations and banks struggle to keep Greece out of default. Ireland, Spain and Portugal have also struggled in the wake of the Great Recession.
Aflac, which reports second quarter results July 27, signaled last month it intended to continue deleting risky investments from its portfolio. On March 31, Aflac reported it had approximately $3.55 billion in exposure to European bank and sovereign debt investments.
Thursday's moves eliminate Aflac’s exposure to Greek banks and significantly reduces its risk to Irish and Portuguese institutions.
On Wednesday, Federal Reserve Chairman Ben Bernanke said U.S. financial firms have limited direct exposure to the most challenged European nations, like Greece. But he said that large firms do have indirect exposure through investments in major Euro banks.
“The real issue is a lot of European banks own these bad sovereign bonds,” said Adrian Cronje, chief investment officer at Balentine, a Buckhead wealth advisory firm. "It’s jarring to hear a company like Aflac having so much exposure.”
Aflac said it would recognize a pre-tax loss of $165 million on the sale of investments with Greek and Irish financial firms, of which $72 million was previously disclosed.
The insurer also will recognize a $445 million pre-tax loss on its investments in Portuguese banks.
“We have made substantial progress with this derisking program this quarter and anticipate concluding this initiative by the end of 2011,” Aflac Chairman and CEO Dan Amos said in a statement.
The disclosures were made in a Securities and Exchange Commission filing. In the SEC report, Aflac also said it amended a regulatory filing with Japanese authorities outlining plans to potentially take on up to $1.24 billion in bond debt.
Aflac stock closed down 32 cents at $45.05.
About the Author
