International Insurance segment
Prudential Financial’s (PRU) International Insurance segment reported sales of $781 million on a constant dollar basis in the quarter ended March 31, 2016, which was up 12% from the corresponding quarter last year. On a nominal basis, the company reported a fall in its adjusted operating income to $779 million compared to $834 million in 1Q15.
Foreign currency exchange rates, including the company’s currency hedging program, resulted in an impact of -$58 million in 1Q16. The International Insurance segment forms 45% of the company’s total adjusted operating income.
The dollar is expected to remain stable in 2016 despite an expected rise in interest rates. A weakening or stable dollar could boost Prudential’s revenues from international operations.
Life Planner Operations
The Life Planner Operations business segment reported adjusted operating income of $410 million in 1Q16, which was less than the $439 million in 1Q15. The benefit of continued business growth and strong underwriting margins was offset by less favorable claims experience, higher expenses, and a lower contribution from net investment results.
Gibraltar Life and AFP Habitat acquisition
The Gibraltar life segment income was also hit by lower contribution from net investment results. The segment reported adjusted operating income of $369 million compared to $395 million in the corresponding quarter last year. Earnings growth was offset by the negative impact of foreign currency of $28 million.
In March 2016, the company completed the acquisition of the indirect 40% ownership interest in AFP Habitat, a leading provider of retirement services in Chile. The initial contributions from AFP Habitat investments are included in the earnings from business growth for 1Q16.
The lower contribution from net investment results essentially offset the benefit of business growth including the initial contribution from the company’s indirect investment acquired on March 2, 2016, in AFP Habitat, and more favorable claims experience in the current quarter. In addition, foreign currency exchange rates, including the impact of the company’s currency hedging programs, had an unfavorable impact of $28 million.
Prudential Financial expects strong underwriting margins and good core growth for its International Insurance segment in the upcoming quarters backed by continued growth in the Eurozone.
The Financial Select Sector SPDR ETF (XLF) invests 1.3% of its portfolio in Prudential Financial, whereas Metlife (MET), Chubb (CB), and Allstate (ALL) have weights of 1.4%, 0.73%, and 2.7%, respectively, in XLF.