Prudential CEO: First-Quarter Operations ‘Buffeted’ by Market Headwinds
May 6, 2016 by Dennis Gorski
NEWARK, N.J. – As its first-quarter net income fell 34.3%, Prudential Financial’s chairman and chief executive officer said the firm had been “buffeted” by headwinds, producing results that were “light due to market conditions.”
International business was “solid” although domestic operations showed “mixed results,” CEO John Strangfeld said during an earnings conference call.
Net income to shareholders fell to $1.34 billion from $2.04 billion a year ago, the company reported. Pretax net realized investment gains dropped to $338 million from $1.05 billion last year. Total revenue declined to $11.29 billion from $11.8 billion, due to 5.6% lower premiums; 2.7% less in policy charges and fee income; and 11% less in asset management fees, commissions and other income.
Strangfeld noted 2015’s first quarter was “particularly favorable.” He said 2016’s decline was also driven by “weaker non-coupon investment results, lower equity markets and foreign currency headwinds.”
“International business had a solid quarter,” he said, “and we continue to see strong underwriting margins and good core growth at both the Life Planner and Gibraltar units. Domestic businesses showed mixed results, also reflecting market factors.” He added annuity sales are under pressure due to “pricing discipline,” plus an industrywide drop in variable annuity sales.
Strangfeld termed the court decision rescinding MetLife’s designation as a systemically important financial institution a “significant development” regarding group supervision and capital standards. Prudential is also designated as a non-bank SIFI by the federal Financial Stability Oversight Council, along with American International Group Inc.
“We will determine an appropriate path for Prudential as this issue develops with respect to our FSOC designation; we have options as we go through our annual redesignation process,” he said.
“The reference is primarily to the ongoing designation process, which involves an annual redesignation, and we retain the option to contest a redesignation decision in court,” added Vice Chairman Mark Grier.
The new U.S. Department of Labor’s fiduciary rule for financial advisers includes several positive changes, Strangfeld said, “and we continue to evaluate the new regulations and potential impacts on our business, which also need to include consideration of how our distribution partners will respond.”
He added, “the final rule gives us a path forward to implement certain changes to our processes and businesses including individual annuities, retirement, asset management and our in-house distribution arm, Prudential Advisors.
“While there will be challenges with the new rule, we have a history of adapting to change.”
The DOL rule was issued early last month (Best’s News Service, April 7, 2016). MetLife’s SIFI designation was removed the same day.
Operating units of Prudential Financial Group have a current Best’s Financial Strength Rating of A+ (Superior).
In late afternoon trading May 5, shares of Prudential Financial (NYSE: PRU) were $75.83, down o.58% from their previous close.
(By Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com)
