Aflac (TG:AFL)
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By Alistair Barr

SAN FRANCISCO (Dow Jones) -- Shares of Aflac Inc. lost more than a third of their value Thursday on concern about exposures within the insurer's investment portfolio.

Aflac said it's "comfortable" with its current capital position and will provide more details about its investments when the company reports fourth-quarter results on Feb. 2.

The insurer may be exposed to investment losses stemming from a recent slump in the value of hybrid securities issued by European financial institutions such as Royal Bank of Scotland PLC, according to Morgan Stanley analyst Nigel Dally.

Aflac (AFL) has $7.9 billion of exposure to hybrid securities, Dally wrote to investors Thursday. He estimated, using the statutory filings, that roughly 80% of this exposure is to European financial-services firms, with U.K. banks including RBS (RBS), Barclays PLC (BCS), and HBOS among the holdings.

"The hybrid-security prices related to these institutions were already under pressure at the end of last year," Dally said. "However, those price declines pale in comparison to the sharp fall-offs we have seen in the past week, where the investor concerns over the possibility of nationalization of some institutions has led many of these securities to decline 30% or more."

If institutions are nationalized, holders of their hybrid and preferred securities could be wiped out, according to John Nadel, an analyst at Sterne, Agee & Leach.

When Fannie Mae (FNM) and Freddie Mac (FRE) were seized by the U.S. government last year, the preferred securities of the mortgage giants were wiped out, he noted.

The PowerShares Financial Preferred Portfolio (PGF), an exchange-traded fund that tracks preferred and hybrid securities issued by financial firms, has slumped 27% during the past week on concern about the potential nationalization of RBS and other banks. The ETF fell 6% on Thursday.

If even a small portion of the losses on Aflac's hybrid holdings are realized, the hit to the insurer's capital ratios could be "substantial," and its overall capital adequacy could be significantly less than most investors believe, Dally warned.

Aflac shares slumped 31% to $24.71 during afternoon trading on Thursday. The stock fell as low as $22.08 earlier in the day.

"We're comfortable with our current capital position and are constantly monitoring our investment portfolio," said Laura Kane, a spokeswoman at Aflac. "We will be issuing our earnings release on Feb. 2 and specific details will be available then."

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