Prudential Financial Inc. (PRU:US), the second- largest U.S. life insurer, posted the biggest decline in the Standard & Poor’s 500 Index after first-quarter results missed (PRU:US) analysts’ estimates.
The insurer plunged 10 percent to $54.81 at 4:04 p.m. in New York trading, the biggest fall since August. The Newark, New Jersey-based company has gained about 9 percent this year.
Prudential posted a net loss of $967 million on the decline in the value of derivatives, compared with net income of $561 million a year earlier, the firm said yesterday. Operating profit, which excludes some investments results, was $1.56 a share, missing by 16 cents the average estimate of 18 analysts surveyed by Bloomberg. The group insurance segment swung to a $38 million adjusted operating loss, from $39 million in profit.
“Unfavorable mortality, disability claims and expenses,” weighed on results in group benefits, FBR Capital Markets analysts led by Randy Binner said in a note. “Operating results in the international, annuity, retirement, and individual life segments were all moderately below our forecast.”
Chief Executive Officer John Strangfeld last month named Stephen Pelletier to head the group business, replacing Lori High, who resigned. Pelletier had been president of annuities.
“In group disability, we have clear performance issues and we are moving aggressively to address and correct them,” Strangfeld said in a conference call today. “Under Steve’s leadership, you can be sure that we will be comprehensively reviewing all facets of group insurance and will make all needed changes.”
Return on Equity
Strangfeld, who has been expanding outside the U.S. and buying back stock, told investors last year he was focusing on boosting return on equity 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.
First-quarter results “call into question the ability to recover momentum toward longer-term ROE target,” John Nadel, an analyst at Sterne Agee & Leach Inc., said in a note to clients. “PRU’s group disability business has been troublesome for a while and we don’t expect that to rebound soon,”
Nadel lowered his price target to $77 a share, from $83. He advises investors to buy the stock.
Group-benefits results at Hartford Financial Services Group Inc. (HIG:US) were “well below” the company’s expectations, the life insurer and property-casualty carrier said today. Earnings from the business will probably be little changed this year from 2011, Hartford Chief Financial Officer Christopher Swift told analysts on a conference call. That’s down from the improvement of 15 percent to 17 percent that the company forecast in December, he said.
Hartford, based in the Connecticut city of the same name, declined 2.5 percent to $19.93 today, and has advanced 23 percent this year.
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