Prudential CEO: We’re Clearly Impacted by Low Interest Rates, Market Volatility
November 6, 2015 by Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com
NEWARK, N.J. – Weakening foreign currencies and headwinds from persistent low interest rates suppressed Prudential’s third-quarter revenue, the company’s chairman said, but its net income jumped $1 billion over last year.
“Like others, we’re clearly impacted by headwinds such as persistent low interest rates and the potential for ongoing market volatility, and over the short term by weakening foreign currencies,” said John Strangfeld, chairman and chief executive officer, on a conference call with equity analysts to discuss the results.
But, he added, “we benefited from good core growth in many of our businesses and strong underwriting margins across our domestic and international insurance operations. This helped mitigate the impact of weakening foreign currencies and some pressure on investment spreads. We are well on track to achieve the financial objectives we set out for the year.”
Prudential Financial said its third-quarter net income attributable to the company jumped to $1.46 billion, up from $465 million a year ago.
U.S. individual life and group life saw a dramatic jump in operating income to $227 million, from $24 million. Individual sales went up 53% in the quarter, Strangfeld noted, thanks to new products and better pricing, as well as “favorable mortality experience.” He said the favorable rate has appeared in 10 of the past 12 quarters.
Total revenue fell to $11.07 billion from $11.76 billion. Premium revenue fell to $5.27 billion from $5.92 billion.
Individual annuities generated operating income of $310 million, down from $367 million. Retirement reported operating income of $242 million, down from $256 million, as asset management dropped to $180 million from $200 million.
In group life, operating income hit $44 million after a $73 million loss a year ago. Prudential “has repriced or allowed to lapse over 80% of our group disability business that was on the books three years ago,” according to Mark Grier, vice chairman. He said most policies were priced upward in the “mid to high single digits.”
International businesses, though down to $812 million in operating income from $845 million, “had very strong sales results and the growth was broad-based,” Strangfeld noted.
The company continues to explore opportunities in the pension risk transfer sector, although no transactions were recorded in the quarter. Strangfeld noted activity in the sector is “lumpy” but two large deals will close in the fourth quarter: J.C. Penney and Philips U.S. (Best’s News Service, Oct. 5, 2015). The segment “continues to produce favorable underwriting results and we see good opportunities for long-term growth,” he said.
Stephen Pelletier, chief operating officer of U.S. businesses, said on the call Prudential should realize between $500 million and $1.5 billion from the J.C. Penney transfer. “Regarding Philips U.S., the total transaction is $1.1 billion; our share of that will be $450 million,” he said.
He added Prudential is the account administrator for Philips “for all retirees, and will be receiving additional consideration for providing that service on the entire retiree block.”
Pelletier said the “pipeline” for pension risk transfer business “is quite solid. It’s very healthy going forward.” He noted one driver of business is updated mortality tables, which “are really having an impact in terms of accentuating awareness of longevity risk and the desire to manage it.”
The operating insurance members of Prudential Financial have a current Best’s Financial Strength Rating of A+ (Superior).
In afternoon trading Nov. 5, shares of Prudential (NYSE: PRU) were $84.05, down 0.44% from their previous close.
