Prudential Financial Inc. (PRU:US), the No. 2 U.S. life insurer, swung to a profit in the third quarter, fueled by pension-transfer deals and the acquisition of a unit from Hartford Financial Services Group Inc.
Net income (PRU:US) of $1.04 billion compares with a $584 million loss a year earlier, Newark, New Jersey-based Prudential said today in a statement. Operating profit, which excludes some investments and the results of policies sold before the firm went public, was $2.94 a share, beating the $2.11 average estimate (PRU:US) of 20 analysts surveyed by Bloomberg.
Chief Executive Officer John Strangfeld, 59, is benefiting from deals struck last year to take on pension obligations from Verizon Communications Inc. (VZ:US) and General Motors Co. and life insurance policies from Hartford. Aided by climbing equity markets, Prudential posted operating return on equity of more than 15 percent in the first nine months of this year, on pace to beat the company’s 2013 target.
“The earnings are going to be pretty strong because of the strong equity markets and what happened with interest rates,” Ed Shields, an analyst at Sandler O’Neill & Partners LP, said by phone before results were announced.
The insurer climbed 0.6 percent to $82.25 in extended trading at 5:02 p.m. in New York. Prudential rallied (PRU:US) 53 percent this year, beating the 24 percent advance of the Standard & Poor’s 500 Index. Larger rival MetLife Inc. (MET:US) is up 46 percent. Strangfeld posted results after the close of regular trading.
The U.S. retirement solutions and investment management unit recorded adjusting operating income of $1.26 billion, compared with $506 million a year earlier, fueled by improvements in capital-market performance and an assumptions update. The pension deals drove an $82 million improvement in investment results from a year earlier, Prudential said.
Sales of fixed and variable annuities fell to $2.4 billion, from $5.93 billion a year earlier, as Prudential lowered payouts on some of the retirement products.
Investment income climbed 9.2 percent to $2.87 billion. Book value at Prudential’s main business fell to $70.25 a share on Sept. 30 from $71.93 three months earlier.
The international insurance segment posted adjusting operating earnings of $778 million, compared with $782 million a year earlier. Annualized new-business premiums fell 32 percent to $644 million, after Prudential raised the prices for some products or cut crediting rates.
Prudential said it repurchased (PRU:US) $250 million worth of shares in the quarter, paying an average of $78.45 apiece. The insurer authorized a $1 billion buyback in June.
The company recorded realized investment losses of $556 million before taxes, as costs tied to derivatives were partially cushioned by gains tied to fluctuations in the yen.
The last time Prudential posted a quarterly profit was the three months ended June 30, 2012. Results as measured by generally accepted accounting principles were hurt in late 2012 and early this year by costs tied to derivatives and fluctuations in the yen.
New-business premiums from individual life insurance rose to $165 million from $98 million, driven by universal life policies, after some rivals retreated from the market. Profit at the unit that sells individual and group life coverage jumped to $216 million, from $147 million.
MetLife last week reported operating earnings of $1.34 per share, missing analysts’ estimates by 2 cents on costs to increase reserves for disability claims in Australia. Profit climbed in the Americas and slipped in Asia, the New York-based insurer said.
Prudential purchased Hartford’s individual life business for $615 million in a reinsurance transaction, adding about 700,000 policies. GM shifted more than $25 billion in pension obligations and Verizon offloaded about $7.5 billion. The deals add to assets Prudential manages, while letting the other firms focus on their main businesses.
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