UPDATE: Aflac Sells Greek Debt After Stock Decline

Aflac Inc. (AFL) unloaded its holdings of Greek debt after the insurer's stock fell more than 20% on concern about European securities in its investment portfolio.

Aflac's sale of the country's sovereign debt, which it valued at $270 million at the end of March, will cost about $67 million in the second quarter. The charge will be offset by an $80 million gain from two other transactions that reduced Aflac's exposure to European hybrid securities, which had been another area of concern for the Columbus, Ga., company's shareholders.

Investors, worried about the ability of a handful of European countries to meet their obligations, have pushed down the value of their sovereign debt and punished companies that hold it. J.P Morgan insurance analyst Jimmy Bhullar noted last month that Aflac had the highest exposure to sovereign and corporate debt from Greece, Ireland, Italy, Portugal and Spain among the U.S. companies he tracked.

That exposure has hurt Aflac's stock. Shares have fallen more than 20% since reaching their 2010 peak of $56.56 in mid-April. The shares rose 3.2% to $45 in recent trading.

Aflac, which sells life and disability insurance in Japan and the U.S., said early Monday it exchanged one hybrid security for senior debt and further reduced its holdings with a "privately negotiated transaction with another European issuer." The two transactions reduced the company's exposure to hybrids, which have characteristics of both debt and equity, by 8.4%, or $725 million.

Aflac Chief Executive Kris Cloninger said in a statement the sale of the Greek debt took place after an "extensive credit analysis." The company's risk based-capital ratio, used by regulators to track insurance-company solvency, will improve by about 20 points, he said.

He also reiterated the company's target of increasing operating earnings per share of 9% to 12% in 2010 and 8% to 12% in 2011, excluding the effects of fluctuations in the Japanese Yen.

Bhullar, in his analyst note last month, had raised his rating on Aflac shares to overweight from neutral, and said the decline in the stock had created a buying opportunity.

"Despite the uncertainty about investment impairments, we believe that the stock's underperformance this year has created one of the most attractive risk-reward profiles in the life insurance sector," Bhullar wrote at the time. "Lingering fears about the health of European credit markets could weigh on the stock in the near term, but we expect investor concerns with AFL's balance sheet to diminish over time."

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com.

(Matt Jarzemsky contributed to this article.)

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