Prudential Financial Profit Advances on Gains Outside U.S.

Prudential Financial Inc. (PRU), the life insurer that expanded in Japan through acquisitions, said fourth-quarter profit more than tripled on non-U.S. earnings and narrower losses from investments and derivatives.

Net income advanced to $686 million from $177 million in the same period a year earlier, Newark, New Jersey-based Prudential said today in a statement distributed by Business Wire. Operating profit, which excludes results of policies sold before the company went public and some investments, was $1.97 a share, beating the $1.76 average estimate of 18 analysts surveyed by Bloomberg.

Chief Executive Officer John Strangfeld spent more than $4 billion last year to buy two Japanese subsidiaries from American International Group Inc. (AIG) The units, Star Life Insurance Co. and Edison Life Insurance Co., are being combined with a business that Prudential has built in Japan for two decades. The insurer uses derivatives to hedge against fluctuations in currencies and interest rates.

“Pru should realize margin expansion from Star-Edison cost saves,” said Suneet Kamath, an analyst with Sanford C. Bernstein & Co., in an interview before results were released. Kamath has an “outperform” rating on the insurer.

Prudential, the second-biggest U.S. life insurer, has gained 21 percent since Dec. 31 in New York trading. Last year the company fell 15 percent, while No. 1 MetLife Inc. (MET) declined 30 percent. The insurer advanced 21 cents after results were released to $60.75 in extended trading at 4:44 p.m. in New York.

Book Value

Book value, a measure of assets minus liabilities, rose to $75.04 a share at the main business, from $74.52 on Sept. 30. Net unrealized gains on fixed maturity holdings at the main portfolio climbed to $10.5 billion on Dec. 31 from $9.8 billion at the end of September.

Full-year net income rose to $3.53 billion in 2011 from $2.71 billion a year earlier, as the company benefited from a larger non-U.S. business.

Prudential’s international insurance business posted $692 million in adjusted fourth-quarter operating income, up from $588 million in the year-earlier period. The segment recorded $94 million in costs tied to integrating Star and Edison and a benefit of $96 million from the sale of a private pension fund manager in Mexico.

‘More Focused’

The “addition of the Star and Edison businesses in Japan and divestiture of several non-core operations have made us a stronger, more focused company,” Strangfeld, 58, said in the statement.

Prudential had realized investment losses of $568 million, compared with a loss of $906 million in the year-earlier period, tied in part to derivatives. A jump in interest rates in the final three months of 2010 hurt derivatives results at life insurers that hedge their bond portfolios against declines in yields.

The yield on two-year U.S. Treasuries slipped 1.6 percent in the fourth quarter, compared with a surge of 41 percent in the same period of 2010.

Net sales of individual annuities fell to $2.9 billion from $4.2 billion a year earlier, the insurer said. Operating income from the retirement products advanced to $391 million from $345 million.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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