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Japan Post May Invest $2.6 Billion in Aflac

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Aflac Inc. says Japan Post Holdings Co. Ltd. simply wants to invest $2.6 billion in Aflac stock, not acquire Aflac.

Aflac put out a press release about Japan Post’s plans Thursday, after some news organizations reported that Japan Post might acquire Aflac.

(Related: Aflac Says Its Agents Are Selling More)

Aflac confirmed that it is engaged in discussions with Japan Post Holdings.

Japan Post Holdings would invest in Aflac by buying stock through open market purchases, Aflac said.

“The discussions do not involve Aflac Incorporated or any of its subsidiaries becoming a member of the Japan Post Group,” Aflac said. “No assurance can be given that any transaction will occur or agreement will be reached.”

Aflac does not intend to make any further press releases or announcements regarding the negotiations unless a definitive agreement has been reached or discussions have ended, the company said.

What Is Aflac?

Aflac is a Columbus, Georgia-based insurer that sells life insurance, supplemental health insurance products and other products in the United States and Japan.

The supplemental health market has been highly competitive in recent years, because insurers see that market as being relatively resistant both to the effects of low interest rates on insurance company investment earnings and to the turmoil in the U.S. major medical insurance regulatory framework.

The company reported $845 million in net income for the third quarter on $5.6 billion in revenue.

The company’s market capitalization value — the value of all of its stock, or the current price a buyer might, theoretically, pay for the whole company — is about $34 billion, according to share number data from Aflac and stock price data from the New York Stock Exchange.

A $2.6 billion investment in Aflac stock would amount to about 8% of Aflac’s market cap.

What Is Japan Post?

Japan Post is a Tokyo-based postal services and financial services giant that started out as an arm of the Japanese government.

Like many other countries, including the United States, Japan used its postal system to make savings bank and life insurance services available to a mass audience. Japan Post ended up creating a huge savings and insurance operation.

When the Japanese government began privatizing Japan Post, U.S. and Japanese life insurers joined in efforts to lobby for restrictions that would keep Japan Post’s financial services operations from crowding out other players.

Japan Post Holdings came to life as a stand-alone entity in 2006. Japan Post Holdings’ Japan Post Insurance Co. Ltd. unit started up in 2007. Japan Post Insurance began selling life insurance on its own, for corporate clients, in 2008.

Japan Post Insurance generated the equivalent of about $900 million in operating income in the fiscal year ending March 31 on about $7 billion in revenue.

Japan Post Insurance and Aflac

Japan Post Insurance has been selling cancer insurance products from Aflac since 2014.

Today, Japan Post Insurance helps Aflac sell medical insurance, individual variable annuities, and executive life insurance in Japan.

Why Invest in Aflac?

The Japanese population is much older than the U.S. population, and insurers in Japan face even worse constraints on sales growth and lower returns on high-quality bonds than U.S. and European issuers face.

Many Japanese insurers see investing in U.S. insurers as a way to diversify and increase their growth potential.

In recent years, for example, Meiji Yasuda has acquired StanCorp Financial Group Inc., and Dai-Ichi Life Holdings Inc. has acquired Protective Life Corp.

What Could This Mean for U.S. Agents?

A closer relationship could make Aflac a little more resistant to turmoil in the U.S. stock market, but it might not have much of a noticeable effect at all, partly because Aflac already has a strong focus on the insurance market in Japan.

— Read ACLI Praises U.S., E.U. Work On Japan PostGroups Unite To Blast Japan Postal Life Proposalon ThinkAdvisor.

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