Aflac Incorporated (NYSE: AFL) announced today that the Lloyds Banking Group plc has accepted the exchange of two of its investment securities owned by Aflac. The exchange offer program was announced by Lloyds on November 3, 2009, and the exchanges are expected to settle on December 1, 2009.
When the transaction settles, Aflac will have exchanged its investment in Lloyds TSB Bank plc yen-denominated, Upper Tier II perpetual securities (par value of $222 million at September 30, 2009) into yen-denominated, Lower Tier II fixed-maturity securities. The company will also have exchanged its holdings of Bank of Scotland plc yen-denominated, Upper Tier II perpetual securities (par value of $188 million at September 30, 2009) into yen-denominated, Lower Tier II fixed-maturity securities. The newly issued securities are enhanced capital notes, which convert to common equity if the published Lloyds Banking Group's consolidated core Tier I capital ratio falls below 5%.
Previously, the company had communicated its expectation to book an impairment charge of $100 million in the fourth quarter of 2009, $32 million of which was related to the impairment of one of its Lloyds holdings. As a result of the securities exchanges announced today, which are considered to be sales and purchases of assets, Aflac now expects to incur an estimated after-tax realized investment loss of $66 million on two of its Lloyds holdings in the fourth quarter of 2009. The realized loss of $66 million will be reflected in the company's generally accepted accounting principles (GAAP) and statutory accounting statements.
Aflac did not exchange its HBOS plc yen-denominated, Upper Tier II perpetual securities (par value of $471 million at September 30, 2009). In addition, the company continues to hold Lloyds Banking Group dollar-denominated, Tier I perpetual securities (par value of $33 million at September 30, 2009). The Lloyds Tier I instruments owned by Aflac were not included in the exchange offer. The company expects the coupon payments on the Lloyds Tier I securities to be suspended. However, the coupons on the HBOS securities are not discretionary and as a result, Aflac expects to continue to receive coupon payments on its HBOS investment.
Commenting on the securities exchanges, Aflac Incorporated President and Chief Financial Officer Kriss Cloninger III stated, "We are very pleased with these securities exchanges. As we have repeatedly discussed, our primary objective is to maintain a strong capital position. In that regard, our analysis suggested that exchanging these two securities will modestly benefit our risk-based capital ratio."
ABOUT AFLAC
For more than 50 years, Aflac products have given policyholders the opportunity to direct cash where it is needed most when a life-interrupting medical event causes financial challenges. As the number one provider of guaranteed-renewable insurance in the United States and the number one insurance company in terms of individual insurance policies in force in Japan, Aflac insurance products provide protection to more than 40 million people worldwide. Aflac has been recognized by Ethisphere magazine as one of the World's Most Ethical Companies for three consecutive years and was also named by the Reputation Institute as the Most Reputable Company in the Global Insurance Industry for two consecutive years. In 2009 Fortune magazine recognized Aflac as one of the 100 Best Companies to Work For in America for the eleventh consecutive year. Fortune magazine also ranked Aflac No. 1 on its global list of the Most Admired Companies in the Life and Health Insurance category. Aflac appears on Hispanic Enterprise magazine's list of the 50 Best Companies for Supplier Diversity and on Black Enterprise magazine's list of the 40 Best Companies for Diversity. Aflac was also named by Forbes magazine as America's Best-Managed Company in the Insurance category. Aflac Incorporated is a Fortune 500 company listed on the New York Stock Exchange under the symbol AFL. To find out more about Aflac, visit aflac.com.
