Prudential Profit Jumps Sevenfold on Investments

Prudential Financial Inc., the second-biggest U.S. life insurer, reported its fourth-straight profit increase as investment results improved.

Second-quarter net income surged sevenfold to $1.08 billion from $163 million in the same period a year earlier, the Newark, New Jersey-based company said today in a statement distributed by Business Wire. Excluding the results of policies sold before the company went public and some investments, profit was $1.51 a share, beating the $1.31 average estimate of 17 analysts surveyed by Bloomberg.

Chief Executive Officer John Strangfeld, who boosted capital last year by selling stock and a brokerage investment, is adding clients in the U.S. and considering an acquisition abroad. The insurer has reported six straight profits since posting a $1.6 billion loss in the fourth quarter of 2008.

“That’s an indication of how far they’ve come,” said Drew Woodbury, an analyst with Morningstar Inc. “Last year they were raising capital and now they’re talking about how they’ve got excess capital to look for expansion.”

Prudential rose 59 cents to $57.30 at 5:10 p.m. in late New York trading. The firm advanced about 23 percent on the New York Stock Exchange in the past 12 months, the fourth-biggest gain in the 11-company Standard and Poor’s Supercomposite Life & Health Insurance Index. MetLife Inc., the biggest U.S. life insurer, rose 13 percent.

Investment Gains

Prudential had realized investment gains of $212 million, compared with an investment loss of $868 million in the year-earlier period. Derivatives boosted the investment result by $349 million, while impairments of $169 million weighed on the total, Prudential said.

Book value, a measure of assets minus liabilities, rose to $59.94 a share at the main business, from $54.63 on March 31. Net unrealized gains on fixed maturity holdings at the main portfolio climbed to $5.8 billion at June 30 from $2.4 billion on March 31.

Net sales of individual annuities rose to $3.5 billion from $2 billion a year ago, the insurer said. Operating income from the retirement products fell to $286 million from $432 million as holdings in clients’ accounts declined in the quarter amid a declining stock market.

Annuity Sales

“We continue to see benefits from our enhanced competitive position in sales,” Strangfeld said in the statement. “We are focused on growing distribution in our U.S. and international markets.”

Prudential jumped five spots to No. 1 among sellers of variable annuities in the U.S. last year as bailed-out rivals including Lincoln National Corp. and American International Group Inc. scaled back. Sales of the equity-linked retirement products rose 58 percent at Prudential in 2009 to $16.1 billion, according to data from trade group Limra International. New York-based MetLife was second with $15.4 billion in sales.

Prudential’s international insurance business posted $459 million in adjusted operating income, down from $465 million in the year-earlier period.

Prudential got a $385 million benefit tied to a deterioration in its own credit. According to accounting rules, insurers reduce the value of liabilities when their credit deteriorates, said Jay Hanson, partner and national director of accounting at McGladrey & Pullen LLP.

Japan, China

Strangfeld has said Prudential is a “buyer” as U.S. rivals hobbled by the recession retreat from international markets. The company may add to its businesses outside the U.S., according to its annual report. Prudential acquired bankrupt Yamato Life Insurance Co. last year in its third purchase in more than two decades of business in Japan. It’s also seeking expansion in China and India.

MetLife, led by CEO Robert Henrikson, sold $3.62 billion in stock and $3 billion in notes this week to fund its acquisition of an AIG unit with business in Japan, Russia and Poland.

Prudential has $1 billion at the holding company and about $1.7 billion at a regulated underwriting subsidiary that it defines as “excess liquidity,” Chief Financial Officer Richard Carbone told analysts on a May 6 conference call. Prudential also has “additional capacity” to raise about $5 billion of debt, Carbone said.

In December, Prudential got $4.5 billion in cash for exiting its securities brokerage joint venture with Wells Fargo & Co.