Prudential Financial Inc. (PRU:US), the second- biggest U.S. life insurer, swung to a first-quarter loss as the value of the company’s derivative contracts fell. The stock dropped 5.6 percent in late New York trading.
The $967 million net loss compares with net income of $561 million a year earlier, the Newark, New Jersey-based company said today in a statement. Operating profit, which excludes the results of policies sold before the company went public and some investments, was $1.56 a share, missing the average estimate (PRU:US) of $1.72 from 18 analysts surveyed by Bloomberg.
Chief Executive Officer John Strangfeld is expanding outside the U.S. and buying back stock as he seeks to boost return on equity. Prudential’s derivatives, which are used to guard against market risks, often lose value when interest rates rise and the company’s credit spreads narrow, as they did in the three months (PRU:US) ended March 31.
The loss reflects “fluctuations in claims experience, expense levels, and market-driven items,” Strangfeld said in the statement. “Our business fundamentals remain solid and we are continuing to grow quality business and build our franchises in attractive markets.”
Prudential fell $3.44 to $57.50 at 5:03 p.m. Prior to the close of regular trading, the company had risen 22 percent this year in New York, compared with a 15 percent gain for MetLife Inc. (MET:US), the largest U.S. insurer, which reported a quarterly net loss of $144 million on April 26.
Prudential posted pretax charges of $1.49 billion tied to foreign exchange derivatives as the Japanese yen weakened against the dollar and other currencies, the company said. That contributed to $1.84 billion of pretax net realized investment losses.
Book value, a measure of assets minus liabilities, was $70.80 a share at the main business at the end of March, compared with $69.07 on Dec. 31, Prudential said. The company, which three months ago reported book value per share of $75.04 as of Dec. 31, said a change in accounting standards required it to revise the way it classifies some costs.
Strangfeld, 58, told investors last year he was focusing on boosting ROE, a measure of how well the company reinvests shareholder money, to 13 percent to 14 percent in 2013. That compares with Prudential’s ROE of 11 percent to 11.5 percent last year and less than 10 percent in 2010.
Strangfeld is scaling back in some U.S. markets as he focuses on life insurance sales abroad. Prudential sold its real estate brokerage and relocation business in December and in March said it will halt sales of individual long-term care policies. Prudential bought two Japanese life insurance units from American International Group Inc. (AIG:US) in February 2011 for more than $4 billion.
Net sales of individual annuities dropped 33 percent to $3.24 billion, the company said. Operating income from the retirement products jumped 54 percent to $421 million, helped by $136 million of net reductions in reserves for guaranteed benefits, Prudential said.
Prudential’s international insurance business posted $606 million in adjusted operating income, down from $628 million in the year-earlier period, the firm said. The company had a pretax charge of $57 million to integrate its businesses in Japan.
Prudential has raised its dividend (PRU:US) three times since 2008, and in June it announced a $1.5 billion buyback. MetLife has been blocked twice in the last year by regulators from increasing its dividend and starting a share repurchase. New York-based MetLife is subject to greater U.S. scrutiny than Prudential because of its status as a federally regulated bank holding company.
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