Prudential Shuns Derivative-Trader Party Amid Focus on Capital

Prudential Financial Inc. told investors that it’s no time to celebrate when the insurer wins pension risk-transfer deals, and that the company is focused on managing long-term obligations.

“When we do these big PRT deals we take in more money than we have to recognize, in terms of the real core liability,” Vice Chairman Mark Grier said at an investor presentation Wednesday. “That’s the money we’ve made. A derivative trader would book that, by the way, and have a really big party that night. But for us, that gain at issue goes into the reserve.”

Prudential, the second-largest U.S. life insurer, has agreed in recent years to take on pension obligations from large employers such as General Motors Co. and Verizon Communications Inc. The Newark, New Jersey-based company gets assets to manage, and takes on risks tied to market returns and longer-than-expected life expectancies.

Prudential has reported net losses in half of the last 12 quarters, partly on fluctuations in currency markets. The insurer joins larger rival MetLife Inc. in urging investors to look beyond short-term results under generally accepted accounting principles. Both companies have underperformed the Standard & Poor’s 500 Index over the past year.

The two insurers have been designated by regulators as non-bank systemically important financial institutions, a tag that can lead to tighter capital rules. Both companies have said they should be judged by different metrics than banks, which can be subject to more client withdrawals, and don’t pose a risk to the financial system.

“We expect that we will comfortably exceed any reasonable regulatory capital standards,” Grier said at the event in New York. “You have these themes about reserving that you have to understand, and you have to value, in order to get to the right answers about solvency.”

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