Prudential Falls Most Since 2012, Leading Life Insurer Slump

  • Life insurers have been pressured by equity market decline
  • MetLife, Lincoln National among insurers falling in New York

Prudential Financial Inc. led a slump in U.S. life insurers after profit missed analysts’ estimates as market volatility pressured the company.

Prudential fell the most in almost four years, declining 10 percent to $57.47 a share at 12:44 p.m. in New York, and extending its fall since Dec. 31 to 29 percent. MetLife Inc., the only U.S. life insurer larger than Prudential, slipped 4.8 percent Thursday. Lincoln National Corp. dropped 9.6 percent.

Slumping equity prices and falling bond yields have pressured the industry, squeezing returns on investments and increasing liabilities on retirement products such as variable annuities. Newark, New Jersey-based Prudential reported Wednesday that fourth-quarter operating profit was $1.94 a share, missing analysts’ estimates by 36 cents. Results included an $80 million charge tied to the securities-lending operation, and net investment income, or NII, slipped 1.9 percent to $2.96 billion.

“While it’s not atypical for PRU to miss in 4Q on elevated expenses, in our view that was not the sole culprit, with a step-down in retirement earnings and lower non-coupon NII also weighing on results,” Piper Jaffray Cos. analysts led by John Nadel said in a note.

Japan Rates

The insurer, which has a significant operation in Asia, is also coming under pressure after the Bank of Japan decided to adopt negative interest rates, according to Chief Executive Officer John Strangfeld. Slumping equity prices and falling bond yields contributed to a challenging start to the year, he said.

“Market headwinds have only intensified in early 2016,” Strangfeld said Thursday in a conference call. “While these pressures are meaningful, we benefit from our unique mix of businesses that produce top-tier returns and diverse sources of earnings and cash flow, as well as our very strong capital position.”

Prudential has been deemed by a U.S. panel as a systemically important financial institution, a tag that could come with higher capital requirements. MetLife, which has also been tagged as a SIFI, announced last month that it was planning a sale, spinoff or public offering of part of its U.S. retail operation, as stricter capital rules could put that business at a significant competitive disadvantage. Prudential, while noting that it was working with regulators, said it was well prepared to deal with the rules, especially given the global mix and scale of its operations.

“While we do not know what these standards will ultimately be, we continue to manage our business to very strong capital levels and this gives us confidence that we are well positioned to meet any reasonable standards without competitive disadvantages to our products,” Strangfeld said.

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