Prudential misses estimates as losses from derivatives soar

NEW YORK (Reuters) - Prudential Financial, the second-largest U.S. life insurer, reported a quarterly profit that fell short of market estimates by a wide margin, mainly due to losses tied to its derivatives program.

Overall charges and losses during the quarter totaled US$1.13 billion, with derivatives-linked losses forming the majority.

Nearly half of the losses stemmed from a stronger dollar, particularly against the Japanese yen. Japan accounts for about a third of the company's international premiums.

The dollar rose 5.2 per cent against the yen in the third quarter from a year earlier.

Prudential, like other insurers, is heavily exposed to persistently low interest rates and wild swings in foreign exchange rates. But it has long had a substantial derivatives program designed to smooth out that risk.

The company reported operating earnings on an adjusted basis of US$2.20 per share, well below the average analyst estimate of US$2.41 per share.

Operating income from the individual annuities business halved to US$367 million. Profit in its U.S. life insurance business fell 88 per cent to US$24 million in the quarter ended Sept. 30, hurt by one-time charges.

Net profit in the financial services businesses attributable to the company was US$465 million, or 99 cents per share, for the quarter ended Sept. 30, from US$966 million, or $2.04 per share, a year earlier.

The company's financial services business includes individual annuities, retirement services and investment management businesses.