Amid a mounting death toll and the specter of radioactive fallout from damaged nuclear plants, life and health insurer Aflac moved today to reassure investors its business in Japan won’t be harmed financially.
The Columbus-based company, which derives 70 percent of its revenue in the Asian nation, said less than 5 percent of its new sales and current insurance policies are held by residents in the hard-hit Iwate, Miyagi and Fukushima areas of northern Japan.
A magnitude-8.9 earthquake off its coast Friday rocked the country and generated a huge tsunami, with media reports saying the number of people killed could top 10,000. The disaster also caused explosions at several nuclear plants.
Stocks of insurance companies with a presence in Japan took a hit in trading today, with Aflac and Hartford Financial both tumbling nearly 4 percent out of the gate amid an overall down market. By the market’s close, Aflac’s stock had recovered slightly, down $1.65, or just under 3 percent, at $53.57.
“First and foremost, our thoughts go out to all those affected here in Japan. We are very grateful none of our employees were injured,” Tohru Tonoike, Aflac Japan president and chief operating officer, said in a statement.
“We are working with our sales force to ensure that we provide them with assistance and help them take care of our customers,” he said. “We remain ready to respond to the needs of our policyholders by paying claims swiftly, and will prioritize our response to those in the affected areas. We successfully executed our disaster preparedness plan and as a result, our operations stand ready to serve our policyholders and claimants.” Aflac employs roughly 5,000 in Japan, about 80 percent of staffers working at two office complexes in Tokyo and 10 percent of them at offices in Osaka, with operations in both cities fully functional. The rest of its work force is scattered in sales offices across the country. The company said all but two of its 82 sales offices are in operation.Aflac posted a profit of $2.3 billion on total revenue of $20.7 billion last year.
As he issued a statement today reassuring customers in Japan that the company stands ready to “deliver on our promise” of helping them during the catastrophe, Aflac Chairman and Chief Executive Officer Dan Amos also attempted to soothe current and prospective stockholders’ nerves.
“As we look to the remainder of 2011, we expect Aflac Japan sales will only be minimally impacted by these events,” he said. “Our earnings guidance for the year remains unchanged: We will likely be at the low end of the 8 percent to 12 percent range for operating earnings per diluted share growth in 2011, excluding the impact of currency.”
A report issued Sunday by Thomas Gallagher, an analyst with financial services and research firm Credit Suisse, for the most part backed up Aflac’s outlook on the evolving situation in Japan.
“The human element of this news is deeply disturbing,” the report said. “The financial implications for U.S. life insurers with large Japanese operations are not likely to be material to annual earnings or capital.”
Credit Suisse, too, said it expects earnings per share for the company to take a hit of less than 5 percent, primarily because the area of Japan slammed by the quake is more rural, with major city’s escaping the brunt of the twin disasters. But Gallagher also pointed there are some unknown factors facing Aflac and its competitors.
“Aside from mortality claims, we also note the potential for elevated hospitalization claims and, given concerns over damaged nuclear power plants, risk of elevated cancer claims over the next few years,” he wrote. “We also suspect that sales will likely experience some disruption, creating some weakness for (first quarter 2011) results.”
Aflac, which employs just under 4,000 people in Columbus, has responded charitably to the carnage in Japan, donating $1.2 million, to the International Red Cross.
“Additionally, funds have been established by both our U.S. and Japanese employees and sales forces for our friends in Japan, including fellow employees and sales associates that have been most impacted by the disaster,” said Amos, who was supposed to fly to Tokyo Sunday for a visit scheduled before the quake. He is now expected to leave this weekend.