June 23, 2011 / 1:24 PM / 8 years ago

UPDATE 3-Aflac offloads more European debt, books losses

* Sees $445 million Q2 pretax impairment losses on investments in Portuguese banks

* Files with Japanese authorities to issue debt securities up to 100 billion yen (Adds details, analyst comments in paragraphs 3,6-10)

By Rachel Chitra and Ben Berkowitz

BANGALORE/NEW YORK, June 23 (Reuters) - Disability insurer Aflac Inc , which has a $6.3 billion exposure to European long-term debt, said it would book pretax losses of $610 million in the second quarter from the sale of some of its souring European investments.

Coming at a time when governments are aggressively pressing banks and insurance companies to take part in a rollover of Greek debt as part of a second rescue for the country, Aflac’s warning is bound to draw attention in Europe.

“Aflac has even seen double-digit growth in its earnings in the last decade, so its May forecast of 0-5 percent earnings growth in 2012 — mainly due to de-risking activity — is a historical low,” S&P Equity insurance analyst Bret Howlett said.

Aflac will be cutting its exposure to crisis-ridden countries such as Portugal, Greece, and Spain over the course of this year; which stood at about $4.46 billion at the end of December.

“Discounting the $77 million investments in Allied Irish Banks that the company sold, Aflac’s PIIGS exposure as of March is around $4.39 billion,” a company spokeswoman said.

Aflac said on Thursday it will complete its de-risking activity by the end of the year.

“In May they said they will see $1.5-$2 billion in realized losses — a 30 percent write-down on an average for these riskier securities. They have been more aggressive on offloading risk, but they it will most probably spill into 2012,” S&P analyst Bret Howlett said.

Of the total second-quarter investment loss, nearly $445 million stems from Aflac’s investments in Portuguese banks, while the rest $165 million is booked from the company’s investments in banks and financial institutions in Greece and Ireland.

In the first quarter, Aflac recorded losses of $376 million — a majority of which it incurred after it sold investments in Greek financial institutions.

“The pace at which they are de-risking has been uneven,” Sandler O’Neill analyst Edward Shields said.

The losses are nearly equal to a full quarter of operating profit for the company, which is based in the United States but does the vast majority of its business for supplemental disability insurance in Japan.     In May, Aflac said it wanted to reduce risk in its investment portfolio, and some of the losses it announced Thursday had previously been disclosed.     The losses associated with cutting risk in the portfolio are expected to cut growth in the short term, though analysts believe it will leave the company with a stronger balance sheet over time.     Some analysts have also said that investors who avoided Aflac because of its risky exposures would move into the stock as the portfolio gets reduced.

Aflac, which has been offloading its European investments, gave this update in a filing with the Japanese authorities on its plan to issue debt securities up to 100 billion yen.

Aflac shares were trading down 1.4 percent at $44.75 in afternoon trading on Thursday on the New York Stock Exchange. (Reporting by Rachel Chitra in Bangalore & Ben Berkowitz in New York; Editing by Prem Udayabhanu and Gopakumar Warrier)

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