Prudential Financial Execs: Regulation, Strategic Focus Keys to Growth in Changing Environment
June 8, 2017 by David Pilla
NEWARK, N.J. – A strategic focus on protection, retirement and asset management and a changing regulatory environment are driving forces for Prudential Financial Inc., according to the group’s top executives.
The company is operating in a world where risks are being shifted from government and employers to individuals, particularly in longevity and mortality, while Prudential is careful its “strategy is very clear and focused” with a “carefully chosen mix of businesses,” said John Strangfeld, chairman and chief executive officer, in an investors day conference call.
He noted 15 to 20 years ago, Prudential was “a financial services supermarket.” The group is now concentrated on three areas: protection, retirement and asset management, which he said allow Prudential to “focus on what we do best.”
Vice Chairman Mark Grier said in the call Prudential’s strategic themes are heavily influenced by regulation. “We do complicated things that last a long time,” said Grier. “The validation we get from an effective regulatory regime is helpful to us in the market.”
According to Grier, Prudential has to meet federal standards through the Federal Reserve as a group supervisor.
In an earlier conference call, Grier had said Prudential may also shed its federal designation as a systemically important financial institution (Best’s News Service May 4, 2017). Grier said in the first-quarter earnings call that although it’s challenging to predict how things will play out, “we expect that ultimately we may not wind up as a SIFI.”
The company has also been regulated as a group beginning in 2015 by the New Jersey Department of Banking and Insurance, the state where it is headquartered. Grier said New Jersey’s group supervisory structure “is a new one” as the state “is in the formative stages” as a group supervisor. “We have a more expansive approach to group supervision by our state regulator in New Jersey, and we also have the Fed,” he said.
“With respect to supervision, the new element is New Jersey, asserting itself as a group supervisor and taking a more comprehensive view,” said Grier, who added what New Jersey does is within a “broader context of a wide variety of supervisory activities that touch everything that we do.”
On the international level, Grier said Prudential is supervised by a number of regulators worldwide. An important supervisor for Prudential is Japan’s Financial Supervisory Authority, which he said has a “strong and robust” supervisory standard.
Grier noted Prudential and everyone else in the business has an interest in regulatory oversight because when someone fails, “we all pay” through various guaranty fund structures.
Noting there has been a lot of emphasis in the industry on “capital standards,” Grier said not enough attention has been paid to what else is going on in Prudential’s markets.
Looking at capital standards, Grier said U.S. GAAP may not be relied upon as “the primary way to develop capital standards” for an insurer as it is “not a robust, appropriate measure of risk, solvency or financial strength.”
Grier said “we’re not operating in a void with respect to capital standards and risk.” The company is meeting what he said is “a wide range of standards” from a variety of entities on capital.
Stress-testing is another important factor in Prudential’s strategy, While noting “we don’t do what the banks do” in terms of stress tests, Grier said Prudential does an Own Risk and Solvency Assessment, which he said is “extremely comprehensive” in bringing up how risks are found within the company.
The ORSA testing is in addition to Prudential’s own stress tests, which according to Grier are equally comprehensive.
According to Strangfeld, Prudential’s focused strategy allowed it to get through the 2007-2008 financial crisis by, among other things, buying businesses that took federal funds through the Troubled Asset Relief Program and gaining talent from distressed entities.
“As a result, we didn’t just weather the storm, we came out of it a much stronger company,” said Strangfeld.
These characteristics made Prudential a top U.S. life company, a top-five Japan company “from a business that was built from scratch about 30 years ago,” and a top-10 retirement and asset management player, said Strangfeld.
Strangfeld said among other goals, Prudential is focusing on consistency of strategy and execution as well as long-term international growth opportunities.
Prudential Insurance Company of America has a current Best’s Financial Strength Rating of A+ (Superior).
(By David Pilla, news editor, BestWeek: David.Pilla@ambest.com)
