Prudential Financial Inc. (PRU:US), the second-largest U.S. life insurer, said results improved in its home nation after buying a unit from Hartford Financial Services Group Inc. (HIG:US) and adding pension accounts from General Motors Co.
Operating earnings (PRU:US), which exclude some investments and results from policies sold before the insurer went public, were $2.30 per share, beating the $1.99 average estimate (PRU:US) of 20 analysts in a Bloomberg survey. The company had a net loss (PRU:US) of $521 million on costs tied to derivatives and the yen’s decline.
Chief Executive Officer John Strangfeld, 59, has struck deals to expand in the U.S. as he targets return on equity of as much as 14 percent this year, from about 11 percent in 2011 and 2012. The Newark, New Jersey-based company completed a deal this year to with Hartford to add 700,000 policies and has taken on pension obligations from Verizon Communications Inc. and GM.
“Our market-leading pension-risk transfer transactions late last year contributed to record-high earnings for the quarter in the retirement business,” Strangfeld said in a statement today announcing results. “We are continuing to benefit from the quality book of business” from Hartford.
Strangfeld’s company gained 1.4 percent to $80.50 at 5:20 p.m. in New York, after results were announced. The insurer has advanced 49 percent this year in regular trading, compared with the 50 percent rally of larger rival MetLife Inc. (MET:US)
Prudential’s U.S. retirement-solutions and investment-management unit recorded adjusting operating income of $847 million, more than double the $306 million profit a year earlier, as asset prices rose, adding to fees, and the insurer benefitted from the pension deals.
At the business that sells individual and group life insurance in the U.S., adjusted operating income rose to $163 million, from $94 million a year earlier.
Profit rose 25 percent to $850 million in the quarter at Prudential’s international business, as the company cut about $55 million in costs tied to the integration of Japanese life units purchased from American International Group Inc. (AIG:US) Prudential bought Star Life Insurance Co. and Edison Life Insurance Co. from AIG in 2011 to expand in Japan.
Prudential uses hedges to guard against fluctuations in the yen. Fluctuations in Japan’s currency contributed to a pretax charge of about $1.6 billion, and contracts that help the company manage the duration of its investments drove $953 million in derivatives losses.
MetLife said last week that profit fell 78 percent as rising interest rates and foreign-currency fluctuations weighed on results. Yields (USGG10YR) rose after Federal Reserve Chairman Ben S. Bernanke signaled that some of the central bank’s stimulus efforts could end in 2014. The yen weakened about 5 percent in the quarter against the dollar.
Book value at Prudential’s main business fell to $71.93 a share on June 30 from $81.96 three months earlier. The measure of assets minus liabilities declined at insurers including MetLife and Allstate Corp. amid a bond slump. Prudential authorized a $1 billion share repurchase (PRU:US) in June.
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