Prudential Earnings Pressured by Hedging Costs, Market Swings

(Bloomberg) -- Markets created headaches for Prudential Financial Inc. in the third quarter.

  • The higher cost of hedging individual annuity products fueled a 21 percent drop in adjusted income from that business, while investment gains narrowed from a year earlier. Those factors spurred a 25 percent decline in net income to $1.67 billion.

Key Insights

  • Chief Executive Officer John Strangfeld gave a nod to upcoming changes at the company. The 41-year veteran will hand over to Charles Lowrey on Dec. 1 and said in Wednesday’s statement that he’s “confident” in Prudential’s future performance.
  • The company finally succeeded in its campaign to get U.S. regulators to drop its too-big-to-fail label this month. The decision removes a layer of regulatory oversight, potentially saving the life insurer millions of dollars annually in compliance costs.
  • Prudential’s been a player in the pension-risk transfer market, where employers offload obligations to insurers. Adjusted earnings in the insurer’s retirement segment slipped 3.6 percent to $239 million. Rival MetLife Inc. said earlier this month that it saw smaller-sized deals in that market during the third quarter.
  • While adjusted profit from the insurer’s $1.2 trillion investment manager slid 11 percent, that business reported a record-high amount of third-party assets under management.

Market Reaction

  • The stock dropped 2.7 percent to $98 a share at 4:53 p.m. in New York and had fallen 12.4 percent this year through Wednesday’s close.

Get More

  • Profit came in at $3.15 a share, just short of the $3.16 estimate from 16 analysts surveyed by Bloomberg. That’s the second straight quarter it’s missed estimates.
  • For more details on the results, click here.
  • Read the statement here.

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