Prudential Suffers Big Loss on Rising Rates

The insurer largely blamed rising interest rates for $1.46 billion of  pretax net realized investment losses and related charges and adjustments. About $100 million of pretax losses came from divested and runoff businesses.

Assets under management at Prudential’s global investment-management unit, known as PGIM, fell 20% to $1.206 trillion, as a result of higher interest rates, declines in equities and declines in riskier bonds.  It also cited third-party net outflows—the opposite of the year-earlier quarter when it announced record high assets of $1.514 trillion. 

Prudential Chief Executive

Charles Lowrey

said the results were stung by “the impact of market conditions, including the variability in alternative investment returns and lower fee income.” He added that  higher interest rates “will economically benefit our business over time.”

Insurers invest customers’ premiums until needed to pay claims, and they hold the majority of money in high-quality bonds. A small sliver often goes into private-equity funds and other alternatives, which delivered outsize gains last year. This year, insurers are enjoying higher interest rates on their new bond purchases, but the private-equity results are down sharply year-over-year.

AIG

AIG 0.12%

said its property-casualty insurance operations, which insure companies worldwide and protect the property of wealthy homeowners, among other businesses, delivered higher underwriting profit. Its  life-and-retirement unit, which is being gradually divested, enjoyed robust sales of annuities. 

But those highlights were offset by a 28% decline in net investment income, to $2.67 billion, when the heady alternative-investments didn’t repeat their gains.

AIG’s adjusted income, which excludes items considered non recurring, fell 39% to $509 million. Its net income jumped 63% to $2.7 billion, driven by net realized gains in derivatives tied to a divested unit in which it continues to own a stake.  

AIG said its underwriting profit included $600 million in estimated catastrophe costs from Hurricane Ian, which struck southwest Florida in late September, and other weather events. AIG  is one of Florida’s biggest commercial-property insurers by premium volume, according to data from Moody’s Investors Service. It also is a prominent insurer of homes and other property of well-to-do households, but doesn’t make the state’s top-10 list for homeowners insurance.

AIG’s quarterly catastrophe tally was down modestly from $628 million in the year-earlier period in anticipated costs primarily from Hurricane Ida. Then, Ida landed in Louisiana and delivered tornadoes and flooding as it headed to the Northeastern U.S. 

Ian is on track to displace Ida as the nation’s second-costliest natural disaster to property insurers.  Ida’s insured damage stands at an estimated $36 billion, according to trade group Insurance Information Institute. Publicly traded property insurers’ catastrophe totals for Ian as disclosed so far in third-quarter results indicate that industrywide insured damage will be in the $50 billion to $60 billion range, Wall Street analysts said. Hurricane Katrina, in 2005, is the costliest, at $89.68 billion in insured costs in 2021 dollars.

AIG Chief Executive

Peter Zaffino

said the company’s most-recent results “are even more impressive when viewed against the backdrop of a challenging macro-economic environment and one of the largest insured-loss hurricanes in U.S. history.”

AIG’s quarter also included the delayed start of an initial public offering of its life-insurance unit, branded as

Corebridge Financial,

with a 12.4% slice sold in mid September.  That is on top of a 9.9% ownership interest in the unit by

Blackstone Group.

Write to Leslie Scism at [email protected]

The insurer largely blamed rising interest rates for $1.46 billion of  pretax net realized investment losses and related charges and adjustments. About $100 million of pretax losses came from divested and runoff businesses.

Assets under management at Prudential’s global investment-management unit, known as PGIM, fell 20% to $1.206 trillion, as a result of higher interest rates, declines in equities and declines in riskier bonds.  It also cited third-party net outflows—the opposite of the year-earlier quarter when it announced record high assets of $1.514 trillion. 

Prudential Chief Executive

Charles Lowrey

said the results were stung by “the impact of market conditions, including the variability in alternative investment returns and lower fee income.” He added that  higher interest rates “will economically benefit our business over time.”

Insurers invest customers’ premiums until needed to pay claims, and they hold the majority of money in high-quality bonds. A small sliver often goes into private-equity funds and other alternatives, which delivered outsize gains last year. This year, insurers are enjoying higher interest rates on their new bond purchases, but the private-equity results are down sharply year-over-year.

AIG

AIG 0.12%

said its property-casualty insurance operations, which insure companies worldwide and protect the property of wealthy homeowners, among other businesses, delivered higher underwriting profit. Its  life-and-retirement unit, which is being gradually divested, enjoyed robust sales of annuities. 

But those highlights were offset by a 28% decline in net investment income, to $2.67 billion, when the heady alternative-investments didn’t repeat their gains.

AIG’s adjusted income, which excludes items considered non recurring, fell 39% to $509 million. Its net income jumped 63% to $2.7 billion, driven by net realized gains in derivatives tied to a divested unit in which it continues to own a stake.  

AIG said its underwriting profit included $600 million in estimated catastrophe costs from Hurricane Ian, which struck southwest Florida in late September, and other weather events. AIG  is one of Florida’s biggest commercial-property insurers by premium volume, according to data from Moody’s Investors Service. It also is a prominent insurer of homes and other property of well-to-do households, but doesn’t make the state’s top-10 list for homeowners insurance.

AIG’s quarterly catastrophe tally was down modestly from $628 million in the year-earlier period in anticipated costs primarily from Hurricane Ida. Then, Ida landed in Louisiana and delivered tornadoes and flooding as it headed to the Northeastern U.S. 

Ian is on track to displace Ida as the nation’s second-costliest natural disaster to property insurers.  Ida’s insured damage stands at an estimated $36 billion, according to trade group Insurance Information Institute. Publicly traded property insurers’ catastrophe totals for Ian as disclosed so far in third-quarter results indicate that industrywide insured damage will be in the $50 billion to $60 billion range, Wall Street analysts said. Hurricane Katrina, in 2005, is the costliest, at $89.68 billion in insured costs in 2021 dollars.

AIG Chief Executive

Peter Zaffino

said the company’s most-recent results “are even more impressive when viewed against the backdrop of a challenging macro-economic environment and one of the largest insured-loss hurricanes in U.S. history.”

AIG’s quarter also included the delayed start of an initial public offering of its life-insurance unit, branded as

Corebridge Financial,

with a 12.4% slice sold in mid September.  That is on top of a 9.9% ownership interest in the unit by

Blackstone Group.

Write to Leslie Scism at [email protected]