Aflac’s Press Release

I’m glad to see AFLAC (AFL) making a public statement:

“I think it’s also appropriate to comment on the status of the perpetual debentures, or so-called “hybrid securities” we own. Based on preliminary year-end numbers, our holdings of hybrid securities at fair value were $8.1 billion, or approximately 11.8% of our consolidated investment portfolio of $68.6 billion. We purchased the hybrid securities from 1993 to 2005. For GAAP accounting purposes, the perpetual debentures are held in the available-for-sale category. As such, they are marked to market and reflected on the balance sheet at fair value. By contrast, these perpetual debentures are carried at amortized cost for statutory accounting purposes. That means that the changes in the fair value of these hybrid securities are not included in, and therefore do not impact, the risk-based capital ratio.
“As we discussed in our third quarter earnings announcement and conference call, the Securities and Exchange Commission (SEC) issued a letter on October 14, 2008, to the Financial Accounting Standards Board (FASB) on the topic of hybrid securities. The SEC’s letter noted that due to the debt characteristics of hybrid securities, a debt impairment model could be used for filings subsequent to October 14, 2008, until the FASB further addresses whether a debt or equity impairment approach is most appropriate. Aflac’s debt impairment approach is primarily based on an assessment of whether it is highly probable we will receive timely payment of interest and principal, whereas our equity impairment approach is based on the aging and degree of unrealized losses. With no pronouncement forthcoming from the FASB, we continued to apply our debt impairment model to the perpetual debenture investments as of December 31, 2008. Pending new guidance from the FASB, we will continue to use the debt impairment approach. In addition, for statutory accounting purposes, we will continue to evaluate our perpetual debenture holdings using the debt impairment approach, and we do not anticipate that approach changing.”

Posted by on January 23rd, 2009 at 10:12 am


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