Late today another doom and gloom write up showed up on the Internet suggesting disaster for AFL's Q4 earnings....
While he makes some good points, he comes short acknowledging that Aflac has a great Hedging strategy vis a vis YEN and is always a quarter or two ahead of the game....
Our Japan sales will grow by 15% this quarter and that Hedging has already taken care of the currency manipulation by Japan Central Bank....
This news was out two weeks ago and we went down to $51.00 and then jumped back up to near $54.00 and the folks who shorted the stock need to come on side by the end of this month so they paid another "guru" to write some false half truth so they can cover their shorts.
Here is an excerpt from Bloomberg after the Q3 CC:
"The largest seller of supplemental health insurance, is expanding a program to favor U.S. corporate bonds over Japanese government debt in an effort to increase investment yield.
Aflac will invest about two-thirds of its Japanese cash flow into dollar-denominated corporate bonds for the remainder of the year, after buying $2.5 billion in the third quarter, Chief Executive Officer Dan Amos, 61, said today on a conference call with analysts. The U.S. bonds yielded about 3.6 percent in the period, not including the cost of hedging to the yen, Amos said.
Aflac's new money yield in Japan was 2.76 percent at the end of the third quarter, up from 2.48 percent at the start of the year, the company said. The insurer had $124.2 billion of investments and cash as of Sept. 30.
Aflac hired Eric Kirsch, 52, from Goldman Sachs Group Inc. to oversee its Hedging operations.
Kirsch, Aflac’s chief investment officer, said today that the firm’s Japan yield will probably climb as more money is invested in the new allocation.
Kirsch “did an excellent job of changing Aflac’s investment mix and new money yields in Japan surged,” Eric Berg, an analyst at RBC Capital Markets, wrote in a research note today.
Aflac’s new money yield in Japan was 2.76 percent at the end of the third quarter, up from 2.48 percent at the start of the year, the company said. The insurer had $124.2 billion of investments and cash as of Sept. 30.
The average yield on U.S. investment-grade corporate bonds was 2.78 percent as of yesterday, according to Bank of America Merrill Lynch index data. Ten-year Japanese government debt yielded about 0.78 percent today, according to data compiled by Bloomberg.
The insurer yesterday reported that sales of Japanese government bonds added $192 million to third-quarter profit, which jumped 36 percent to $1 billion.
Sales in the country will rise as much as 15 percent in the fourth quarter, the insurer said yesterday".
Here is some more interesting points from the company's filings:
"Aflac has limited hedging activities. Our primary exposure to be hedged is our investment in Aflac Japan, which is affected by changes in the yen/dollar exchange rate.
To mitigate this exposure, we have taken the following courses of action. First, Aflac Japan maintains a portfolio of dollar-denominated securities, which serve as an economic currency hedge of a portion of our investment in Aflac Japan. Second, we have designated the Parent Company’s yen-denominated liabilities (Samurai and Uridashi notes and yen-denominated loans) as a hedge of our investment in Aflac Japan.
At the beginning of each quarter, we make our net investment hedge designation. If the total of our yen-denominated liabilities is equal to or less than our net investment in Aflac Japan, the hedge is deemed to be effective and the related exchange effect is reported in the unrealized foreign currency component of other comprehensive income.
Should these yen-denominated liabilities exceed our investment in Aflac Japan, the foreign exchange effect on the portion of the liabilities that exceeds our investment in Aflac Japan would be recognized in net earnings (other income).
We estimate that if our yen-denominated liabilities exceeded our investment in Aflac Japan by 10 billion yen, we would report a foreign exchange gain/loss of approximately $1 million for every one yen weakening/strengthening in the end-of-period yen/dollar exchange rate".
Thanks Osso for playing detective as this joker Meeks is full of hot air.
He says he has advised all his clients to sell AFL so to save themselves from this calamity.
I am no hedging guru, but any company that has business in Japan can easily hedge their earnings at the start of each quarter and sell YEN forward and buy USD for their estimated contribution to earnings from their Japan operations.