OREANDA-NEWS. After-tax adjusted operating income for the Financial Services Businesses of USD 1.079 billion, or USD 2.28 per Common share, compared to USD 1.61 per Common share for year-ago quarter.

Financial Services Businesses First Quarter Highlights
   
Pre-tax adjusted operating income up 42% from year-ago quarter, with increases in each operating division.
                  
International Insurance earnings up 47%.
                 
Record high earnings in Prudential Retirement, driven by first full quarter of results from two significant pension risk transfer transactions in late 2012.
 
Retirement account values USD 299.4 billion at March 31, up 25% from a year earlier; gross deposits and sales for the quarter of USD 9.5 billion, net additions USD 2.5 billion.
 
Asset Management net institutional and retail net flows, excluding money market, total USD 8.7 billion; segment assets under management USD 840.3 billion at March 31, up 15% from a year earlier.
 
Individual Annuity account values USD 142.7 billion at March 31, up 15% from a year earlier; gross sales for the quarter of USD 4.2 billion, net sales USD 2.4 billion.
 
U.S. Individual Life earnings up 22%, reflecting initial contribution from in-force business acquired from The Hartford in January 2013.
 
U.S. Individual Life annualized new business premiums USD 216 million, compared to USD 79 million a year ago; expanded distribution from Hartford Life acquisition contributes USD 63 million to current quarter sales.
 
Significant items included in current quarter adjusted operating income:
       
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Pre-tax net benefit of USD 62 million in Individual Annuities, including release of reserves for guaranteed death and income benefits and reduced amortization of deferred policy acquisition and other costs reflecting market performance.
     
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Pre-tax charge of USD 8 million in Individual Life for integration costs relating to the acquisition of The Hartford’s individual life insurance business.       
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Pre-tax benefit of USD 66 million in International Insurance’s Gibraltar Life operation from sale of our remaining investment, through a consortium, in China Pacific Group; pre-tax charge of USD 3 million for integration costs relating to the acquisition of AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Company.
       
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Pre-tax charge of USD 11 million in Corporate and Other operations for writeoff of issuance costs on debt securities expected to be redeemed prior to maturity.   
Net loss of Financial Services Businesses attributable to Prudential Financial, Inc. for first quarter 2013 of USD 721 million, or USD 1.55 per Common share.
 
The current quarter net loss reflects pre-tax charges of approximately USD 2.5 billion from net changes in value relating to foreign currency exchange rates primarily resulting from changes in value of the Japanese yen in relation to other currencies. These currency-driven value changes were largely offset by corresponding adjustments to accumulated other comprehensive income which are not reflected in net income or loss.
 
Other financial highlights:
 
GAAP book value for Financial Services Businesses, USD 38.5 billion or USD 81.96 per Common share at March 31, 2013, compared to USD 37.1 billion or USD 79.19 per Common share at December 31, 2012. Book value per Common share excluding total accumulated other comprehensive income, USD 55.94 at March 31, 2013 compared to USD 57.86 at December 31, 2012.
   
Excluding net changes in value relating to foreign currency exchange rates reflected in net loss, book value per Common share excluding total accumulated other comprehensive income increased USD 1.50 since December 31 after payment of Common Stock dividend of 40 cents per share.
   
Net unrealized gains on general account fixed maturity investments of the Financial Services Businesses of USD 22.1 billion at March 31, 2013 compared to USD 18.6 billion at December 31, 2012; gross unrealized losses of USD 2.1 billion at March 31, 2013, essentially unchanged from December 31, 2012.
       
There were no repurchases during the first quarter under the June 2012 authorization by Prudential’s Board of Directors to repurchase at management’s discretion up to USD 1.0 billion of the Company’s outstanding Common Stock through June 2013. From the commencement of share repurchases in July 2011 through March 31, 2013, the Company has acquired 31.3 million shares of its Common Stock under its share repurchase authorizations at a total cost of USD 1.65 billion, for an average price of USD 52.72 per share. These repurchases included 2.7 million Common shares acquired at a total cost of USD 150 million during 2012 under the June 2012 authorization.

Prudential Financial, Inc. (NYSE:PRU) today reported after-tax adjusted operating income for its Financial Services Businesses of USD 1.079 billion (USD 2.28 per Common share) for the first quarter of 2013, compared to USD 765 million (USD 1.61 per Common share) for the year-ago quarter. The net loss for the Financial Services Businesses attributable to Prudential Financial, Inc. was USD 721 million (USD 1.55 per Common share) for the first quarter of 2013, compared to a net loss of USD 960 million (USD 2.03 per Common share) for the year-ago quarter. Information regarding adjusted operating income, a non-GAAP measure, is provided below.

The Company acquired The Hartford’s individual life insurance business through a reinsurance transaction on January 2, 2013. Results of the Financial Services Businesses include the results of this business from the date of acquisition.

“Our outstanding first quarter results, reflecting solid earnings growth in each of our Divisions, give us a strong start toward achievement of our objectives for the year, and we are continuing to build our base of high quality business with strong sales and flows virtually across the board. Our U.S. Retirement business reported record-high earnings, driven by the first full quarter contribution of the landmark pension risk transfer transactions we completed late last year. We’ve strengthened our franchise as a leading U.S. life insurer with our acquisition of The Hartford’s individual life insurance business in January, and we are pleased to welcome valued distribution partners, talented staff, and over 650,000 new clients to Prudential. Our International Insurance business continues to perform well, with record-high earnings in the quarter and strong sales across multiple distribution channels,” said Chairman and Chief Executive Officer John Strangfeld.

Adjusted operating income is not calculated under generally accepted accounting principles (GAAP). Information regarding adjusted operating income, a non-GAAP measure, is discussed later in this press release under “Forward-Looking Statements and Non-GAAP Measures,” and a reconciliation of adjusted operating income to the most comparable GAAP measure is provided in the tables that accompany this release.

Financial Services Businesses

Prudential Financial’s Common Stock (NYSE:PRU) reflects the performance of its Financial Services Businesses, which consist of its U.S. Retirement Solutions and Investment Management, U.S. Individual Life and Group Insurance, and International Insurance divisions and its Corporate and Other operations.

In the following business-level discussion, adjusted operating income refers to pre-tax results.

The U.S. Retirement Solutions and Investment Management division reported adjusted operating income of USD 775 million for the first quarter of 2013, compared to USD 705 million in the year-ago quarter.

The Individual Annuities segment reported adjusted operating income of USD 372 million in the current quarter, compared to USD 421 million in the year-ago quarter. Current quarter results benefited USD 62 million from net reductions in reserves for guaranteed minimum death and income benefits and a net reduction in amortization of deferred policy acquisition and other costs, reflecting an updated estimate of profitability for this business. Results for the year-ago quarter included a net benefit of USD 196 million from adjustment of these items to reflect an update of estimated profitability. These benefits to results in both the current quarter and the year-ago quarter were largely driven by market performance relative to our assumptions during the respective periods. Excluding the effect of the foregoing items, adjusted operating income for the Individual Annuities segment increased USD 85 million from the year-ago quarter. The increase reflected higher asset-based fees due to growth in variable annuity account values, net of related amortization of deferred policy acquisition and other costs and distribution expenses.

The Retirement segment reported adjusted operating income of USD 228 million for the current quarter, compared to USD 156 million in the year-ago quarter. The increase reflected greater net contributions from investment results and from case experience on group annuity and similar contracts totaling approximately USD 70 million. These greater contributions to results were driven largely by two significant pension risk transfer transactions consummated during the fourth quarter of 2012. The benefit of higher fees associated with growth in account values was essentially offset by higher current quarter expenses.

The Asset Management segment reported adjusted operating income of USD 175 million for the current quarter, compared to USD 128 million in the year-ago quarter. The current quarter contribution to results from the segment’s incentive, transaction, strategic investing and commercial mortgage activities was USD 26 million greater than in the year-ago quarter, primarily reflecting higher performance-based fees and more favorable commercial mortgage results. Excluding the contribution from these segment activities, Asset Management segment adjusted operating income increased USD 21 million from the year-ago quarter. This increase came primarily from higher asset management fees reflecting growth in assets under management, net of expenses.

The U.S. Individual Life and Group Insurance division reported adjusted operating income of USD 146 million for the first quarter of 2013, compared to USD 72 million in the year-ago quarter.

The Individual Life segment reported adjusted operating income of USD 137 million for the current quarter, compared to USD 112 million in the year-ago quarter. Current quarter results include a charge of USD 8 million for integration costs related to the Company’s acquisition of The Hartford’s individual life insurance business. Excluding this charge, adjusted operating income increased USD 33 million from the year-ago quarter. This increase included an estimated initial contribution of USD 32 million from the acquired in-force business. The benefit of improved current quarter mortality experience on legacy Prudential business was largely offset by a lower net contribution from investment results and higher distribution costs reflecting expanded third party distribution and greater current quarter sales.

The Group Insurance segment reported adjusted operating income of USD 9 million in the current quarter, compared to a loss of USD 40 million in the year-ago quarter. The improved results were largely driven by more favorable group life claims experience, reflecting adverse claims severity in the year-ago quarter, and more favorable disability claims experience.

The International Insurance segment reported adjusted operating income of USD 877 million for the first quarter of 2013, compared to USD 597 million in the year-ago quarter.

Adjusted operating income of the segment’s Life Planner insurance operations was USD 422 million for the current quarter, compared to USD 382 million in the year-ago quarter. The USD 40 million increase in adjusted operating income reflected continued business growth and a favorable impact of USD 14 million in comparison to the year-ago quarter from foreign currency exchange rates including the impact of the Company’s currency hedging programs.

The segment’s Gibraltar Life and Other operations reported adjusted operating income of USD 455 million for the current quarter, compared to USD 215 million in the year-ago quarter. Current quarter results include a benefit of USD 66 million from the sale of the Company’s remaining investment, through a consortium, in China Pacific Group. In addition, results for the current quarter reflect absorption of USD 3 million of integration costs related to the Star and Edison businesses acquired on February 1, 2011, while results for the year-ago quarter include USD 57 million of such costs. Excluding these items, adjusted operating income increased USD 120 million from the year-ago quarter. This increase reflected a greater contribution from investment results, approximately USD 50 million of cost savings resulting from business integration synergies compared to approximately USD 30 million in the year-ago quarter, a more favorable level of policy benefits, and continued business growth. Current quarter results also benefited USD 6 million in comparison to the year-ago quarter from foreign currency exchange rates including the impact of the Company’s currency hedging programs.

Corporate and Other operations resulted in a loss, on an adjusted operating income basis, of USD 314 million in the first quarter of 2013, compared to a loss of USD 326 million in the year-ago quarter. Current quarter results include a charge of USD 11 million to write off bond issuance costs on debt securities expected to be redeemed prior to maturity. Excluding this charge, the loss from Corporate and Other operations was reduced by USD 23 million in comparison to the year-ago quarter, reflecting lower expenses.

Assets under management amounted to USD 1.061 trillion at March 31, 2013, compared to USD 1.060 trillion at December 31, 2012.

The net loss of the Financial Services Businesses attributable to Prudential Financial, Inc. amounted to USD 721 million for the first quarter of 2013, compared to a net loss of USD 960 million in the year-ago quarter.

The current quarter net loss includes USD 3.003 billion of pre-tax net realized investment losses and related charges and adjustments. The forgoing net loss includes pre-tax losses of USD 2.465 billion representing net changes in value relating to foreign currency exchange rates primarily resulting from changes in value of the Japanese yen in relation to other currencies. These currency-driven value changes were largely offset by corresponding adjustments to accumulated other comprehensive income which are not reflected in net income or loss. Net realized investment losses for the current quarter also include net losses of USD 412 million from products that contain embedded derivatives and associated derivative portfolios that are part of a hedging program related to the risks of these products as well as mark to market of derivatives under a capital hedge program. Net realized investment losses also reflect losses from impairments and sales of credit-impaired investments amounting to USD 87 million. The remainder of the net realized investment loss reflects decreases in market value of derivatives used in other risk management activities, partly offset by net gains from general portfolio activities.

At March 31, 2013, gross unrealized losses on general account fixed maturity investments of the Financial Services Businesses amounted to USD 2.120 billion, including USD 1.836 billion on high and highest quality securities based on NAIC or equivalent ratings. Gross unrealized losses include USD 254 million related to asset-backed securities collateralized by sub-prime mortgages. Gross unrealized losses on general account fixed maturity investments of the Financial Services Businesses amounted to USD 2.146 billion at December 31, 2012. Net unrealized gains on general account fixed maturity investments of the Financial Services Businesses amounted to USD 22.129 billion at March 31, 2013, compared to USD 18.606 billion at December 31, 2012. The increase in net unrealized gains is primarily due to increases in value of non-yen denominated investments in our Japanese operations.

The net loss for the current quarter reflects pre-tax increases of USD 95 million in recorded asset values and USD 143 million in recorded liabilities representing changes in value which are expected to ultimately accrue to contractholders. These changes primarily represent interest rate related mark-to-market adjustments. The net loss for the current quarter also reflects pre-tax income of USD 33 million from divested businesses, primarily relating to the Company’s former real estate brokerage and relocation services business, reflecting disposal of certain assets that were retained when the business was divested.

The net loss of the Financial Services Businesses for the year-ago quarter included USD 1.838 billion of pre-tax net realized investment losses and related charges and adjustments, primarily driven by net changes in value relating to foreign currency exchange rates, and increases of USD 234 million in recorded assets and USD 246 million in recorded liabilities for which changes in value are expected to ultimately accrue to contractholders, in each case before income taxes.

Closed Block Business

Prudential’s Class B Stock, which is not traded on any exchange, reflects the performance of its Closed Block Business.

The Closed Block Business includes our in-force participating life insurance and annuity policies, and assets that are being used for the payment of benefits and policyholder dividends on these policies, as well as other assets and equity that support these policies. We have ceased offering these participating policies.

The Closed Block Business reported income from continuing operations before income taxes of USD 19 million for the first quarter of 2013, compared to USD 30 million for the year-ago quarter.

The Closed Block Business reported net income attributable to Prudential Financial, Inc. of USD 15 million for the first quarter of 2013, compared to USD 21 million for the year-ago quarter.

Consolidated Results

There is no legal separation of the Financial Services Businesses and the Closed Block Business, and holders of the Common Stock and the Class B Stock are both common stockholders of Prudential Financial, Inc.

On a consolidated basis, which includes the results of both the Financial Services Businesses and the Closed Block Business, Prudential Financial, Inc. reported a net loss attributable to Prudential Financial, Inc. of USD 706 million for the first quarter of 2013 compared to a net loss of USD 939 million for the year-ago quarter.