Lower Variable Income and Unfavorable Underwriting Mark Prudential’s Third-Quarter Results

No-moat-rated Prudential Financial reported disappointing third-quarter results with adjusted operating income of $2.13 per share, down 44% compared with $3.78 per share in the previous year. The third-quarter results were mainly impacted by lower variable investment income and unfavorable underwriting in the international business due to an elevated level of COVID-19 hospitalization claims in Japan. The weakness in the variable investment income in the current quarter was in line with our expectations given the market valuations. Interest rates have moved up significantly in the past few months, and we do expect the company to benefit from the higher interest rates in the long run given the dynamic of the life insurance business. We are maintaining our $105 fair value estimate for Prudential after incorporating the third-quarter results.