Prudential Financial Earnings Preview: Focus On Retirement Solutions, International Growth

May 5 2014, 12:52pm CDT | by

Prudential Financial is scheduled to report earnings for the first quarter of 2014 on Wednesday, May 7. The insurance giant’s results last year were helped by the pension risk transfer transactions with General Motors and Verizon, completed in 2012. The company reported a 36% year-on-year increase in pre-tax operating income for its financial services business for the fourth quarter of 2013. The financial services business consists of the company’s continuing businesses and does not include the closed block business. We expect another strong quarter from the company this time around.

Our $80 price estimate for Prudential Financial’s stock is in line with the current market price.

See our full analysis of Prudential here

Retirement Division Will Be Key

The U.S. retirement solutions and investment management division is the biggest contributor to Prudentials earnings, accounting for more than half of the operating income (excluding the corporate division). The retirement solutions division can be broken down into three sub-divisions: individual annuities, retirement and asset management. The individual annuities division offers variable and fixed annuity products to individual customers across the U.S., targeting mass affluent customers with household income over $100,000. The retirement division offers retirement income products and services to employers who set up retirement plans for employees. The asset management division provides investment management products including institutional portfolio management and mutual funds.

Prudential’s revenue comes primarily from fee income from account values. Account values are driven both by sales and the impact of market changes. For the fourth quarter, the company reported an 11% increase in retirement account values, while reached a record high of $323 billion. Individual annuity account values increased 14%, crossing the $150 billion mark. Higher fees as a result of the increase in account values as well as a $112 million improvement in investment results led to a 31% increase in retirement operating income.

Prudential is the sixth largest seller of annuities in the U.S., with a market share of 7%. It is the fourth highest seller of variable annuities, with a market share of close to 10%. More than 95% of the company’s annuity sales last year were through variable annuity products. Prudential uses a distribution network of independent financial planners, wirehouses, banks, and insurance agents including Allstates agency distribution force with over 300 wholesalers across the country. Prudential reported strong sales of its Prudential Defined Income Variable Annuity product, which accounted for 7% of total sales in 2013. We expect a moderate growth in sales combined with market fluctuations to lead to moderate growth in account values in the coming years.

On the institutional side, Prudential announced agreements with Bergmann Associates and LiveOps to manage the companies’ retirement plans during the December quarter, following up the deals with GM and Verizon. Management believes that there is potential for further agreements with mid and large cap companies.

FX Headwinds Will Affect International Performance

International operations account for 35% of Prudential’s operating income. Prudential operates under the name Pramerica in countries including Japan, Taiwan, Italy, Korea, Brazil, Argentina, Poland and Mexico, and has been expanding at an aggressive pace. Premiums from these operations grew at a CAGR of 36% from 2008 to 2012, helped by the acquisition of Star Life Insurance Co., Ltd. and Edison Life Insurance Company from AIG. However, currency fluctuations dampened earnings in 2013; for the fourth quarter, net premiums, policy charges and fee income were $4.3 billion on a constant exchange rate basis, but just $3.8 billion on an actual exchange rate basis.

A third of the company’s international premiums come from Japan, where 2013 fourth quarter premiums were $1.5 billion on a constant exchange rate basis, but just $1.2 billion on an actual exchange rate basis. Prudential has around more than 3,00 life planners in Japan and is expanding its bancassurance model to mega and regional banks, which currently encompasses over a hundred distributors across the country. There are only 43 life insurance companies in Japan, a very small number for a mature market. In comparison, the U.S. has more than 800 life insurers while France has more than 250. Foreign-owned companies have a combined market share of close of 20% in the life insurance market in Japan.

We expect Prudential to continue to focus on the Japanese market for international growth, but it is also looking to expand operations in other emerging markets including China, Argentina, Poland, and Mexico. For more on Prudential’s international prospects, see our recent article, A Look At Prudential’s International Operations.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

IPad Air Giveaway 2014 is Online
IPad Air Giveaway 2014 is Online
Our sister site I4U News is giving away a brand new iPad Air or if you can wait an iPad Air 2. This is an $499 value.
 
 
Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
 

Latest from the Network

IS-linked group claims French tourist's abduction in Algeria
Algiers, Sep 23 (IANS) An Algerian armed group linked to the Islamic State (IS) Sunni extremist militants Monday claimed responsibility for the abduction of a French tourist in Algeria, according to a video posted on...
Read more on Politics Balla
 
Kris Jenner files for divorce from Bruce
Kris Jenner has filed for divorce from Bruce Jenner. The showbiz matriarch - who separated from Bruce, 64, 11 months ago - has now officially started proceedings to end their 23 year marriage according to documents...
Read more on Celebrity Balla
 
Naomi Watts wishes she had more kids
Naomi Watts wishes she had more kids. The 'Diana' star - who has Sasha, 7, and Kai, 5 with her actor husband Liev Schreiber - has confessed she regrets not having her children earlier in life. She told More magazine...
Read more on Celebrity Balla
 
Barbara Walters' live appearance axed from The View
Barbara Walters' final live appearance was axed from 'The View'. The US-born broadcast journalist - who created and co-hosted the show from 1997 to 2014 - had her live segment on the season 18 premiere of the ABC series...
Read more on Celebrity Balla
 
Iggy Azalea's 'surreal' duet with Jennifer Lopez
Iggy Azalea's collaboration with Jennifer Lopez was ''surreal''. The 'Fancy' hitmaker - who released the video for the pair's new single 'Booty' last week - confessed she found working with the 45-year-old singer hard...
Read more on Celebrity Balla
 
Israel arrests four Gaza fishermen, says official
Gaza, Sep 23 (IANS) The Israeli naval forces late Monday has arrested four Palestinian fishermen in the central Gaza Strip while they were on their fishing boat, an official said. Israeli naval gunboats surrounded and...
Read more on Politics Balla
 
EU, Russia and Ukraine to hold meeting on gas in Berlin
Brussels, Sep 23 (IANS/EFE) The European Union will participate in a trilateral ministerial meeting with Russia and Ukraine Friday in Berlin to address the issue of energy security in the context of the ongoing...
Read more on Politics Balla
 
Elizabeth Hurley has crush on Aaron Paul's TV avatar
Los Angeles, Sep 23 (IANS) Actress Elizabeth Hurley says she has a crush on actor Aaron Paul's character Jesse Pinkman from TV series "Breaking Bad". The 49-year-old star took to Twitter to share her feelings,...
Read more on Celebrity Balla
 
White House beefs up security after intruder incident
Washington, Sep 23 (IANS/EFE) The US Secret Service has ordered stronger White House security after a man climbed over the fence and entered the North Portico door of the executive mansion before being caught, the...
Read more on Politics Balla
 
FIFA member predicts 2022 World Cup will not be held in Qatar
Berlin, Sep 23 (IANS/EFE) A member of the executive committee of international soccer's governing body, FIFA, said Monday that he doubted the 2022 World Cup would be held in Qatar, on account of its high temperatures...
Read more on Sport Balla