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Aflac triples Japan equity wagers to counter low interest rates

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(Bloomberg) —Aflac Inc. (NYSE:AFL), the supplemental health insurer that counts Japan as its biggest market, more than tripled its stock bets in that country last quarter to counter low interest rates in its bond portfolio.

The insurer’s Japan operation had $493 million of equity securities at the end of 2015, Columbus, Georgia-based Aflac said Thursday in a regulatory filing. That compares with $126 million as of Sept. 30 and $23 million at the end of 2014.

Chief Executive Officer Dan Amos, 64, has been expanding investments in commercial loans and stocks to boost returns on the firm’s more-than $100 billion portfolio. The insurer’s shares were battered after the Bank of Japan adopted a negative-interest rate strategy in January, a move that may pressure its bond holdings.

“In 2015, we continued to address the challenge of investing in this low-interest-rate environment by increasing our allocation to higher-yielding asset classes, while still adhering to our strategic asset allocation,” Aflac said in the filing.

‘Measured approach’

Chief Investment Officer Eric Kirsch, who was hired from Goldman Sachs Group Inc. in 2011, has been reshaping the portfolio to earn more from the investments that back its insurance policies. The company started buying Japanese real-estate exchange-traded funds last year, holdings that were valued at $103 million at the end of September.

The Japanese operation’s equity bets represented about 0.5 percent of its portfolio at the end of 2015. That unit still invests mostly in fixed-income securities, and also has holdings of corporate debt, which is among its largest allocation. Purchases of equities represented about 7.7 percent of the Japan unit’s new-investment costs in 2015, up from virtually nothing the year before, according to the filing.

The insurer “will take a measured approach to adding growth assets, which include public and private equity, hedge funds and other alternative-asset classes,” Chief Financial Officer Fred Crawford told analysts on a conference call in December. “This is a slow ramp-up with growth in assets expected to reach roughly $3 billion in 2017.”

See also:

Fear and loathing of negative-yield debt: Bond trader’s dilemma

Liftoff remorse? Don’t blame Fed for turmoil, Yellen says


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