Aflac shares plummeted more than 36 percent Thursday after a Morgan Stanley stock market analyst expressed concern over the supplemental insurer’s exposure to hybrid securities investments issued by European financial firms.
Morgan Stanley analyst Nigel Dally recommended investors avoid buying Aflac stock before the supplemental insurer releases its fourth quarter earnings report Feb. 2. He said Columbus-based Aflac may have invested too heavily in the securities, which have fallen in price in the past week — in some cases below 50 cents on the dollar.
After Aflac shares plunged more than $13 to nearly $22 per share early Thursday, company spokeswoman Laura Kane issued a statement saying her company is “comfortable with our current capital position and are constantly monitoring our investment portfolio.”
Kane said Aflac will provide more details when it releases earnings data Feb. 2.
Dally expressed concern about Aflac because the firm is holding an estimated $7.9 billion in hybrid securities, an investment normally favored because of steady returns. He estimated about 80 percent of the exposure is to European financial services firms, including Royal Bank of Scotland and Barclays.
Earlier this week, Royal Bank of Scotland posted a larger-than-expected earnings loss, driving European hybrid prices down. Dally said some investors are now concerned that their issuing institutions may be taken over by the government.
“Should this occur, there is the possibility that various hybrid securities issued by these companies could have little value, similar to the situation that transpired here in the U.S. with Freddie (Mac)/Fannie (Mae),” Dally wrote Thursday in a report to investors.
Bernstein Research, a firm that follows and analyzes Aflac and its financial performance, also released a report Thursday addressing the drop in the insurer’s stock price and the possibility the Columbus firm may face investment losses.
Bernstein analysts pointed out that Aflac generates a high recurring stream of capital every year. They also reaffirmed their expectations that Aflac stock will “outperform” its competitors.
“While the company’s exposure to financial services securities will remain an overhang in the near-term, we argue the stability of capital generation should allow Aflac to absorb these losses, while maintaining appropriate capital ratios,” Bernstein analysts wrote in Thursday’s report.
By the close of trading Thursday, Aflac shares were down $13.37, or 36.86 percent, at 22.90 per share. They bottomed out at $22.08 per share in early-morning trading Thursday before a slight rebound.
Aflac registered its 52-week high of $68.81 on April 18, 2008.
The overall market was off Thursday as well, with the Dow Jones Industrial average slipping 105.3 points, or 1.28 percent, to 8,122.8.