How AFLAC Hedges Currency Risk

AFLAC (AFL) gets about 70% of its income from Japan. This causes an issue for the company because that money needs to be converted to dollars for its shareholders.

The problem is that a large currency swing can wipe out its profits. Right now, the yen is at a 20-year low versus the dollar.

That’s why AFLAC hedges its currency risk. The WSJ had an article today taking a closer look at how the company goes about this. The company employs three strategies.

First, AFLAC’s Japanese subsidiary owns dollar-denominated assets. Conversely, the U.S. holding company owns yen-denominated debt. The third part is that the company buys forward contracts that let it convert yen to dollars at different prices and at different times. The contracts typically go out less than two years and are long the dollar and short the yen.

This helps AFLAC reduce its currency risk, but there’s always going to be some. For example, in Q1, the currency exchange pinged its earnings by six cents per share. That’s not so much.

The next earnings report is due out on August 1.

Posted by on July 18th, 2022 at 11:02 am


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