Aflac 1Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

(Aflac has a large book of business in Japan)

“as part of our investment strategy, we have said we would invest about one-third of our cash flow in JGBs. However, with 10-year JGB yields hitting historic lows, we want to be flexible in our asset allocation. We anticipate that the bank of Japan will keep interest rates low for the immediate future. Our investment team is carefully monitoring Japan’s monetary and fiscal policy. As we have seen significant changes impacting financial markets including Japan interest rates and yen/dollar exchange rates.

We are evaluating our investment options and looking for alternatives to lower our planned JGB new money investment allocation. We will consider diversification and liquidity as we approach these investment choices.”

“the one thing that I would remind you is that there is a distinct difference between foreign currency transactions and foreign currency translation. We are certainly interested as Robin indicated in hedging economic events like capital being remitted from Japan to the United States. But we don’t think it makes sense to enter into an economic contract to hedge a financial reporting event. Largely Japan is a yen denominated entity that’s self-funded. We collect premiums in Yen. We pay benefits and expenses in Yen. We back our Yen liabilities with Yen assets, but to the degree that this year’s Yen rate differs from last year’s influences how those Yen get reported in dollars. So again when we think about hedging, we’re really focused on the economics of the business as opposed to financial reporting of the business.”

“we do consider do we want to lockup 20 year or 30 year money at these low yields, given they are at historic lows. And our viewpoint is, that there is a good chance there will be success in Japan. So sometime in the future whether it’s a year out or two, interest rates will eventually rise…We think it’s critical we follow what’s happening in the monetary and fiscal side in Japan and always reflect on that.”