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Prudential's profit rises to $1.41 billion on annuities gain

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(Bloomberg) – Prudential Financial Inc., the second- largest U.S. life insurer, reported second-quarter profit that beat analysts’ estimates as results improved at the U.S. unit that offers retirement products including annuities.

Net income rose 29 percent to $1.41 billion from $1.09 billion a year earlier, the Newark, New Jersey-based insurer said Wednesday in a statement. Operating profit, which excludes some investment results, was $2.91 a share, compared with the $2.47 average estimate of 19 analysts surveyed by Bloomberg.

Prudential has sought large pension buyouts as companies from General Motors Co. to Verizon Communications Inc. turn to the insurer to manage retirement obligations. The transfers allow employers to limit risks tied to interest rates and life expectancies while giving insurers more funds to manage.

“Assuming they’re priced correctly, they’re good things,” Steven Schwartz, an analyst at Raymond James & Associates Inc., said of the pension deals in a phone interview before results were announced. “It is a growing area. It is a good use for capital, but you don’t want to get too big in any one business.”

The insurer promoted Scott Kaplan in March to manage the pension-risk transfer unit that won more than $37 billion in deals last year, including transactions with Motorola Solutions Inc. and Bristol-Myers Squibb Co. The completion of four “significant” pension risk-transfer deals contributed to $5.7 billion of retirement net flows in the quarter, according to the statement.

Investment Management

Profit at Prudential’s U.S. retirement and investment management division increased 12 percent to $981 million from a year earlier. The individual annuity segment contributed $548 million, an increase of 41 percent, fueled by a gain tied to financial markets.

At the division providing U.S. individual life policies and group insurance, profit rose 53 percent to $312 million.

Prudential rose 0.7 percent to $90.50 in extended trading at 4:42 p.m. in New York, little changed from the 2014 closing price. That compares with the 4.3 percent gain this year of the Standard & Poor’s 500 Insurance Index. Results were announced after the close of regular trading.

The international insurance division posted an operating profit of $842 million, down from $884 million a year earlier, partly because of currency fluctuations.

Book value, a measure of assets minus liabilities, declined to $91.17 a share on June 30 from $98.16 as of March 31. Insurers including MetLife Inc. and American International Group Inc. have reported that their bond portfolios lost value in the period as interest rates climbed.

MetLife, the largest U.S. life insurer, reported second- quarter profit last week that beat analyst estimates as results improved in Asia. The New-York based firm has advanced about 2.6 percent since Dec. 31.


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