Prudential Expects $200 Million Earnings Cut on Virus Deaths

(Bloomberg) -- Prudential Financial Inc. expects coronavirus deaths to cut earnings by about $200 million this year after it swung to a net loss in the first quarter.

The life insurer's earnings will be hardest hit in the second quarter, by an estimated $135 million, company executives told analysts Wednesday on a conference call. That assumes 100,000 fatalities in the U.S. and 40,000 in Japan.

Key Insights

Prudential expressed a gloomy sales outlook. First-quarter operating income slid 39% at the U.S. individual business that includes annuities and life, and its sales will probably drop further. The international division is likely to see a significant decline, and the market for pension risk transfer deals will slow down, too.
“While the severity and duration of the pandemic, and related economic impact remains unknown, we are confident about the strength of our company,” Chief Executive Officer Charles Lowrey said on the call, citing Prudential's balance sheet and its playbook to handle operational and financial risks.
Earnings per share missed forecasts as turbulent markets hurt results. After-tax adjusted operating income was $2.32 a share, falling short of the $2.78 median estimate of 14 analysts in a Bloomberg survey. The adjusted profit decreased to $939 million, missing the $1.16 billion average estimate. The net loss was $271 million, compared with net income of $932 million a year earlier.
Investment-management unit PGIM reported a 23% drop in operating income as strategic investment earnings fell and expenses rose.
Prudential's credit losses on its investments are forecast to reach about $2.4 billion, after taxes, over three years. Even still, the insurer said this was manageable. “We feel comfortable about our ability to manage equity-market fluctuations and continued low interest rates over time,” Lowrey said.

Market Reaction

Prudential shares fell as much as 6.8% in New York on Wednesday, and have declined about 41% this year.

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Prudential's statement is here. Its presentation is here.
U.S. life insurers may face as much as $7.2 billion in claims if coronavirus deaths rise to the high end of projections of 150,000, according to Samantha Chow, an analyst at Aite Group LLC. Still, the industry is in strong financial shape and should be able to manage surging costs, she wrote in a report last month.