Aflac Inc.'s shares gained speed this week after using its first-quarter earnings call to abate concerns over the life insurer's investment exposure to commercial real estate and middle-market loans.
Aflac Global Chief Investment Officer Brad Dyslin said during the call that there is some pressure in the commercial real estate space as the difficult market for office leasing persists, but he expressed confidence that the company's exposure is "manageable" even in a severe downturn.
Office space comprises about 30% of Aflac's total $8.1 billion commercial mortgage loan portfolio, with most of its exposure sitting in its transitional real estate book. Dyslin said approximately $500 million of Aflac's commercial mortgage loans are expected to enter some form of foreclosure and noted that overall $900 million of Aflac's transitional real estate loans are on the company's "watch list."
"We think concerns around Aflac's transitional commercial mortgage loans are easing," Wells Fargo analyst Wesley Carmichael said in a note. "Impacts are manageable in the context of Aflac's overall size and excess capital position."
There is a lot of potential "good news" for Aflac in the foreseeable future as the insurer is set to launch new products and the COVID-19 situation in Japan is softening, CreditSights analyst Josh Esterov said in an interview.
The insurer booked total revenues of $4.8 billion in the first quarter, down from $5.2 billion in the year-ago quarter. Net earnings were $1.2 billion, or $1.94 per diluted share, up from $1.0 billion, or $1.60 per diluted share, compared to a year earlier.
Aflac shares were up 6.4% for the week as of midafternoon on Friday, April 28.
Busy earnings
It was a busy week of earnings across the insurance industry.
The Hartford Financial Services Group Inc. released first-quarter earnings showing net income of $530 million, up 21% from $438 million in the year-ago period. Earned premiums also grew 9% to $5.06 billion from $4.65 billion in 2022.
During its earnings call, CEO Christopher Swift said the company is dealing with more headwinds than expected in its personal lines. The insurer is increasing its rate filing activity as it sees its personal auto combined ratio jump to over 110%.
The Hartford's shares were up 2.3% for the week as of midafternoon on April 28.
Meanwhile, Chubb Ltd. also reported first-quarter earnings that reflected a year-over-year increase in both core operating income, pretax net investment income and adjusted net investment income. Net premiums written amounted to $10.71 billion, a 16.6% increase from $9.19 billion a year ago.
During Chubb's earnings call, CEO Evan Greenberg said the $5.36 billion acquisition of The Cigna Group's personal accident, supplemental health and life insurance business across six markets in Asia-Pacific has rocketed the net premiums written for the company's life segment.
Chubb's shares were trading mostly flat as of midafternoon April 28.
Principal Financial Group Inc. also released earnings this week with a first-quarter net loss of $140 million, or 58 cents per share, a sharp drop from net income of $338.7 million, or $1.28 per share, in the year-ago quarter.
Principal attributed $487 million of that loss to exited business.
Principal was trading down 1.4% as of midday April 28.
The S&P 500 and the S&P 500 US Insurance index were both relatively flat ending the week up 0.49% and 0.47%, respectively, around 2:30 p.m. ET on April 28.