PRU Prudential Financial Inc

By Leslie Scism 

Prudential Financial Inc.'s second-quarter net profit tumbled nearly 60% from the year-earlier period as it bolstered its reserves for long-term-care insurance policies in a product line it discontinued in 2012.

In earnings reported Wednesday, both Prudential and longtime rival MetLife Inc., posted double-digit-percentage gains in their adjusted operating earnings, which exclude realized capital gains and losses and other items judged nonrecurring. Operating earnings are closely watched by analysts and investors as a measure of the health of continuing operations.

Prudential posted a 40% gain in its operating earnings, and MetLife reported an 18% increase.

Prudential said its net profit of $197 million included a net charge of $1.23 billion, or $2.87 a share, in its divested businesses, primarily driven by the impact of updated actuarial assumptions. Prudential annually reviews the adequacy of its assumptions for the profitability of various products in its second quarter, while MetLife and other insurers update assumptions at other times. Prudential said the hit was $1.6 billion on a pretax basis, of which about $1.5 billion was for the long-term-care policies.

Some Wall Street analysts were anticipating a boost to Prudential's long-term-care reserves, but Morgan Stanley analysts said in a note it was "significantly larger than expected."

The Newark, N.J., company is one of many insurers that used to be big sellers of long-term-care insurance, which helps people pay for nursing homes, assisted living and home aides. But errors in pricing the policies have bedeviled many insurers over the past couple of decades and led many, like Prudential, to quit selling new policies.

Potentially huge shortfalls in reserves industrywide emerged as an issue in January, when General Electric Co. disclosed it would have to set aside $15 billion over seven years to bolster its long-term-care policyholder reserves. GE was a big reinsurer of long-term-care for insurers that sold policies to individuals.

MetLife's 18% gain in adjusted earnings came as its net profit declined 2% to $845 million. MetLife said the decline was largely tied to divesting its stake in Brighthouse Financial Inc., a U.S.-focused life-insurance and annuity company it created through a spinoff a year ago.

MetLife's adjusted earnings jumped to $1.33 billion, or $1.30 a share, up from $1.12 billion, or $1.04 a share. Analysts surveyed by Zacks Investment Research were expecting $1.17 a share.

Its year-earlier results were the last quarter to include results for the retail life-insurance and annuities operations that are now a part of Brighthouse.

Prudential's operating income rose to $1.3 billion, or $3.01 a share. Analysts surveyed by Zacks Investment Research expected $3.08 a share.

MetLife's better-than-expected operating results further distance it from a rocky stretch as its management dealt with an embarrassing misstep in its pension-services business. Last fall, the company disclosed it had failed to pay more than 10,000 retirees whose pension plans it had assumed responsibility for paying. It acknowledged lackluster efforts to find people in the past, some of whom were owed money from as far back as the 1990s.

The people with overdue money represent a tiny percentage of the insurer's overall pension business, but the mistake has had ramifications. Even as MetLife has worked to get the money into people's hands, state and federal authorities have been investigating what went wrong.

Besides its pension business, MetLife's major operations include an international network of life insurers, one of the nation's biggest employee-benefits units and a smaller business of selling home and car insurance in the U.S.

MetLife cited business growth, expense control and lower taxes in reporting strong results across most of its operating units.

Prudential Chairman and Chief Executive John Strangfeld said the company had "significantly strengthened the reserves of our divested businesses, while maintaining a strong capital position." Its asset-management unit delivered one of the strongest profit gains across the company.

Prudential said it is "actively pursuing rate increases and expanding benefit-reduction options" for long-term-care policyholders. The insurer's long-term-care reserves total $6.6 billion after the reserve boost, it said.

Morgan Stanley analysts said Prudential's large charge to boost its long-term-care reserves now means the assumptions it is using are likely "conservative relative to its peers."

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

August 01, 2018 19:19 ET (23:19 GMT)

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