Prudential Profit Beats Estimates as Assets Advance (Update1)

By Andrew Frye
Bloomberg News
August 6, 2009

Aug. 5 (Bloomberg) -- Prudential Financial Inc., the second-biggest U.S. life insurer, beat analysts' estimates for quarterly profit as annuity sales gained and the company reduced reserves against market declines.

Second-quarter operating earnings were $1.88 a share, exceeding by 66 cents the average estimate of 15 analysts surveyed by Bloomberg. The figures exclude some results from investments and policies sold before the company went public. Individual annuity gross sales jumped about 21 percent to $3.4 billion, the company said today in a statement.

Chief Executive Officer John Strangfeld, who reported a $1.1 billion loss for Prudential last year, turned down a U.S. bailout and tapped private investors for $2.4 billion in the second-quarter to guard against portfolio losses. Asset values gained in the period as stocks and bonds rallied, and Newark, New Jersey-based Prudential said full-year earnings would be at the higher end of its forecast.

"Compared to six months ago, basically every part of their business has improved," said Alan Rambaldini, an analyst with Morningstar Inc. in Chicago. "Before people were scared to buy policies but we're seeing inflows now."

Prudential has advanced about 55 percent on New York Stock Exchange this year after the shares lost two-thirds of their value in 2008 trading. MetLife Inc., the biggest U.S. life insurer, has gained about 6.3 percent since Dec. 31, and it lost 43 percent last year. Prudential slipped 2.9 percent to $45.51 in extended New York trading after results were released.

Annuity Business

Prudential cut the amount of money set aside to protect savers from asset declines as stock markets rallied. That helped produce $432 million of adjusted operating earnings in the individual annuities business, more than double the total in the year-ago period. Assets under management advanced about 7 percent in three months to $580 billion on June 30.

Operating earnings will probably $5 a share to $5.20 a share for the full year, Strangfeld said in the statement. That compares with a forecast of $4.80 to $5.20 that Prudential gave in May.

Second-quarter net income declined to $163 million from $581 million in the year-earlier period as some investments dropped in value, the company said. Prudential's results were also hurt by an improvement in its own creditworthiness.

The bond market rally also hurt second-quarter results at MetLife and Lincoln National Corp. as both companies recorded losses tied to the improvement in their own credit spreads, meant to account for the increasing likelihood they will make good on their liabilities.

MetLife, Lincoln

Prudential followed New York-based MetLife in shunning federal aid after credit markets thawed in May. Life insurers, including Prudential, applied for bailouts last year as investment losses and costs to protect savers from market declines depleted capital. Prudential lost $1.1 billion in 2008.

North American insurers have posted more than $200 billion in writedowns and unrealized losses tied to the slumping U.S. housing market since 2007, according to Bloomberg data. Prudential accounted for about $11.7 billion of that total as of the end of March.

Gross unrealized losses on fixed-maturity investments at the main business narrowed 31 percent in three months to $7.8 billion at the end of June. The losses reflect declines in the market price of securities and aren't subtracted from earnings.

Prudential is set to further improve liquidity by selling a minority stake in a brokerage venture to Wells Fargo & Co. by the start of 2010. The stake in Wells Fargo Advisors, which has been valued by the insurer at $5 billion, dates from a 2003 joint venture with Wachovia Corp.

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