AFLAC stock goes south on capital level doubts

Shares of AFLAC Inc., a Columbus, Ga.-based health insurer, plunged after a research note from Morgan Stanley aired concerns about the company’s capital levels. New York-based Morgan Stanley expects a large decline in year-end 2008 risk-based-capital ratios due to a combination of the Japanese yen’s appreciation, growing credit impairments and increasing unrealized losses, according to the note, written by Nigel Dally. AFLAC had $4.97 billion of gross unrealized losses in its investment portfolio as of the end of the third quarter. Following the release of the report, AFLAC’s stock plunged to a $23.16 in mid-afternoon trading, from its $32.21-per-share open. Morgan Stanley also predicted that risk-based-capital levels will decline to a range of 435% to 440%, only slightly above the insurer’s target of 400% and way down from the 547% level at the end of 2007. AFLAC’s $7.9 billion exposure to hybrid securities, much of which is related to preferred equity in financial institutions, also caught Mr. Dally’s attention. “We believe the potential for credit loss on these securities is somewhat larger, especially given that some of the prior assumptions on when these securities would be called may no longer be accurate,” he wrote.