UPDATE: Prudential Swings To 4Q Loss On Investment Losses
February 04 2009 - 6:40PM
Dow Jones News
Prudential Financial Inc. (PRU) fell into the red in the fourth
quarter on investment losses, reporting a $1.64 billion loss in its
financial-services business.
"We are very disappointed in our current quarter results,
reflecting recognition of unfavorable financial and economic
conditions, which unfortunately overshadowed solid fundamentals in
most of our businesses," Chairman and Chief Executive John
Strangfeld said in a release. But he added he believes the company
has ample liquidity and is "well positioned to manage through this
challenging environment." He also reiterated Prudential's 2009
earnings guidance.
The company's earnings have been hurt by falling equity markets.
In late October, Prudential reported a third-quarter loss amid the
financial markets woes and withdrew its earnings guidance. That
helped stoke concerns about life insurers' commercial real estate
and annuities portfolios, and whether they may force the companies
to raise new capital.
Unlike several other life insurers that have subsequently signed
deals to buy small thrifts in a bid to gain cheap capital from the
Treasury Department's rescue fund, Prudential already has
bank-holding status. As such, the company said in December that it
was applying for funds under the Troubled Asset Relief Program. The
company hasn't yet received word about the application.
The life insurance and annuity company reported a net loss of
$1.57 billion compared with year-earlier net income of $871
million. The figures include Prudential's closed-block business,
made up of life-insurance and annuity policies that it sold while
it was a mutual company but no longer offers.
Prudential's financial-services business swung to a loss of
$1.64 billion, or $3.85 a share, from a profit of $792 million, or
$1.75 a share, a year earlier. The latest results included $511
million in pretax net realized investment losses and related
charges and adjustments, including $1.19 billion of write-downs,
partially offset by $894 million in derivatives gains. Year-ago
results included $91 million of pretax investment losses and
related items. Excluding those items, the financial-services loss
was $2.04 a share, compared with earnings of $1.74 a year
earlier.
Its individual annuity segment racket up the biggest adjusted
operating loss of its businesses, at $1.04 billion. The loss was
mostly driven by a $498 million charge from an increase in the
amortization of deferred policy acquisition charges and a $409
million charge due to an increase in costs associated with the
guaranteed minimum death and income benefits many of its annuities
carry.
In a January report, Moody's Investors Service said the falling
equity market would test the risk-management strategies that
insurers use to hedge against the cost of variable annuity
guarantees.
Moody's said the guarantees "are likely to place moderate strain
on the economic capital of most life insurers" that sell variable
annuities, but that the impact would vary by insurer. The rating
agency said that overall it expects only a few ratings will be
affected by a company's exposure to the guarantees.
On Tuesday, rival MetLife Inc. (MET) reported a much smaller
$106 million operating loss in its individual fixed annuity
business, partly driven by $665 million in amortization of deferred
acquisition costs..
Prudential's financial-services revenue declined 12% to $5.9
billion.
Analysts polled by Thomson Reuters projected a per-share loss of
$1.19 on revenue of $6.36 billion.
The U.S. retirement solutions business had a loss of $975
million on an adjusted operating basis, compared with a $500
million profit a year earlier. The individual annuities business
had an adjusted operating loss of $1.04 billion, compared with a
$171 million profit a year earlier.
The closed-block business reported a 6.3% decline in net income
to $74 million. Revenue declined 4.4%.
Assets under management fell 14% to $558 billion.
Looking ahead, Prudential reiterated its projection for 2009
earnings of $5.25 to $5.65 a share. When it issued its original
forecast in December, the estimate was well below Wall Street
expectations.
Prudential shares rose 1.56% to $26.75 in late trading. The
company lost more than two-thirds of its value since
mid-September.
-By Shara Tibken, Dow Jones Newswires; 201-938-2168;
shara.tibken@dowjones.com; and Lavonne Kuykendall, 312-750-4141;
lavonne.kuykendall@dowjones.com