Insurance Center

As the leading insurance company, Prudential endeavored to explain how it came up with a loss of $166 million for the third quarter this afternoon, Prudential Financial (PRU:NYSE) shares were trading sharply down.

While in initial trading early on Thursday, Prudential's shares had opened at $35.25, they later rose 7% in early trading. Following that their shares fell as low as $26.11 and then closed at $28.87, with a loss of 18% for the day. It is not understood what actually caused the sudden drop, but it is a good guess that the market was definitely unsettled by the lack of advice regarding future earnings, combined with a disinclination on the part of management to provide details about any excess capital reserves.

It is possible that the market might have reacted more strongly if it had been heard that CFO Richard Carbone had matter-of-factly
announced to the listening analysts that Prudential was changing its accounting practices, to take effect immediately, so as to better follow SEC guidelines, and that now the $500 million in fixed-income securities that would have previously been reported as an impairment other than temporary will now be recorded as an unrealized loss. The securities will be considered as being good cash. The way CFO Carbone explains it is that the company is changing the way that they take account for assets part of the way throughout the year, enabling them to hide the loss.

If they were to factor in this loss, then the comparable figures would indicate a quarterly loss of $666 million. This would be significantly different from the story told by the profit-and-loss statement. It is to be understood that the quarterly report includes a significant loss with regard to investments in the amount of $1.1 billion, and that the consolidated $166 million loss was down $1 billion from the same quarter in the previous year and a prodigious $2.3 billion year to date.

According to Carbone, the losses represent a change that the company feels is required at this time. This is not surprising in the face of a recent news report indicating a loss of 23 cents per common share, which would have been closer to $1.29 per share had the same identical accounting practices been followed. Industry analysts had been looking for a profit of 78 cents per share. At 74 cents per common share, Prudential did meet the range for the pre-announcement of operating income earnings per share. This excludes the fact that life insurance business closed to new policies that lost $58 million for the quarter.