Prudential Financial Inc., the No. 2 U.S. life insurer, posted a fourth-quarter loss on costs tied to fluctuation of currencies including the yen, which tumbled versus the dollar in the fourth quarter.
The net loss of $232 million compares with net income of $604 million a year earlier, the Newark, New Jersey-based insurer said Wednesday in a statement. Operating profit, which excludes the results of policies sold before the firm went public and some investments, was $1.69 a share, missing by 5 cents the average estimate of 19 analysts in a Bloomberg survey.
Chief Executive Officer John Strangfeld, 59, is counting on nations outside the U.S., led by Japan, to boost Prudential’s profitability as low interest rates weigh on results. The insurer uses derivatives to guard against market risks such as interest-rate drops and currency fluctuations.
“Almost all of its non-U.S. business is centered on the low-growth nation of Japan,” Sean Dargan, an analyst at Macquarie Group Ltd., wrote in a Jan. 16 research note. “In quarters where the yen weakened versus other currencies there has been some noise” in results.
The results include a $1.53 billion pretax cost tied to foreign exchange, primarily from fluctuations in the value of the yen, Prudential said. The Japanese currency weakened 10 percent in the fourth quarter against the dollar. Prudential said losses tied to currencies were cushioned by adjustments to its financial strength that aren’t included in the net loss.
The weakening yen also hurt fourth-quarter results at U.S. insurers Aflac Inc. and Hartford Financial Services Group Inc.
Prudential shares fell 2 percent to $57.35 at 5:02 p.m. in extended trading Wednesday in New York. The company dropped 2.5 percent in the 12 months ended Wednesday, trailing the 12 percent gain of the Standard & Poor’s 500 Index. MetLife Inc., the largest U.S. life insurer, fell 0.3 percent in that period.
Full-year profit tumbled to $469 million in 2012 from $3.57 billion in 2011. Prudential was unprofitable in three quarters last year amid losses linked to currency fluctuations and derivatives.
At the international insurance unit, adjusted operating income jumped to $647 million from $502 million a year earlier.
Return on equity, a measure of profitability, may rise to 19 percent this year from 17.5 percent in 2011 in the international business as Strangfeld integrates Star Life Insurance Co. and Edison Life Insurance Co., bought from American International Group Inc. in 2011, according to a company presentation in September.
“Our international insurance business continues to perform well, with results benefiting from growth in multiple distribution channels and our achievement of cost synergies consistent with our goals,” Strangfeld said in the statement.
Prudential has turned to deals and buybacks to help boost results. The insurer bought Hartford Financial Services Group Inc.’s individual life business for $615 million in a transaction completed last month.
Prudential completed deals to assume pension obligations from General Motors Co. and Verizon Communications Inc. in the fourth quarter. The insurer received about $25 billion from GM for a group annuity contract, it said in November.
Prudential was the largest seller of the retirement products known as variable annuities in the first nine months of 2012, while MetLife scaled back, according to data from industry group Limra. Low interest rates and stock-market volatility can weigh on profits from the savings products.
Gross annuity sales fell to $3.8 billion, from $4.4 billion in the fourth quarter of 2011. Profit from the retirement products dropped to $304 million from $373 million a year earlier.
Book value declined to $79.19 a share at Prudential’s main business as of Dec. 31. The measure of assets minus liabilities was $79.63 three months earlier.
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