Prudential Reports Lower Earnings, Raises Guidance

Prudential Financial, one of the largest U.S. life insurers, said on Wednesday that third-quarter net income fell about 25 percent, hurt by investment losses on foreign exchange and subprime mortgages, but operating earnings beat analysts' expectations.

Net income dropped to $860 million, or $1.88 a share, from $1.15 billion, or $2.38 a share, in the year-earlier quarter.

Newark, New Jersey-based Prudential , a top U.S. writer of annuities, said adjusted operating earnings, which analysts use to measure performance, were $905 million, or $1.97 a share.

That beat the average analyst target of $1.69 a share, according to Reuters Estimates, and was above the year-ago quarter, when it posted $828 million, or $1.72 a share, in operating earnings.

The insurer also raised its outlook for the full year to $7.45 to $7.60 a share in adjusted operating income from a previous forecast of $7.20 to $7.40 a share.

In the most recent third-quarter Prudential was hurt by $44 million of losses from impairments and sales of securities, and $67 million from disposals of asset-backed securities backed by subprime mortgages.

Prudential spokesman Bob DeFillippo said the company also had a loss of $109 million in the most recent third quarter due to a hedge against the yen.

Analysts said the write-downs in assets for Prudential, as well as most other life insurers, do not worry the analysts as long as operating earnings continue to improve.

"We expect these investment losses on subprime mortgages and in the credit market, and we'll see more of it in the fourth quarter," said Douglas Meyer, an analyst with Fitch. "They are marking their portfolios to market."

Credit spreads have widened as the market grows more volatile. Subprime securities, collateralized and sold to insurers and other investors, have dropped in value because of the slumping housing market.

However, analysts said that these securities could rebound in the future, and insurers, who buy them for the long-term, do not have to sell them into a down market.

While Prudential's insurance and international businesses improved from the year ago quarter, corporate operations took a loss of $5 million in the third quarter as its real estate and relocation business contributed $15 million less than a year ago.