Insurance giant Aflac (NYSE:AFL) is making major inroads into the private credit market. The company is picking up a 40% stake in direct lender Tree Line Capital Partners.
Aflac’s Private Credit Move
Aflac provides a host of insurance products via two geographic verticals, the U.S. and Japan. Its Tree Line deal is aimed at getting in on the action in the thriving private credit market. Tree Line primarily lends to small and medium-sized enterprises. According to the Wall Street Journal, Aflac is picking up the stake for $100 million from Tree Line’s private equity investor Stone Point Capital as well as Treeline’s management.
Moreover, Aflac plans to fund Tree Line with the investible cash it generates via insurance premiums on a multi-year timeframe. Importantly, Aflac stands to benefit from both Tree Line’s growth and its dividend distributions.
The stake acquisition also points to insurance companies’ focus on generating steady returns and scouting for ways to effectively deploy their cash piles. The current rally in the equity markets has made it difficult for firms with ample cash generation capacity to deploy their capital effectively and at reasonable valuations. Berkshire Hathaway (NYSE:BRK.B) is also sitting on nearly $190 billion in cash. In the latest, Berkshire revealed a stake in property and casualty insurer Chubb (NYSE:CB).
What Is the Price Target for AFL?
Aflac’s share price has rallied by nearly 36% over the past year. Overall, the Street has a Hold consensus rating on the stock, alongside an average AFL price target of $84.63.
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