Prudential Financial Inc.’s (PRU) fourth quarter core operating income of $1.78 per share was significantly ahead of the Zacks Consensus Estimate of $1.47. Earnings also compared favorably with $1.20 in the year-ago quarter. Results for the quarter benefited from a greater reduction in policy acquisition costs and a higher reduction in minimum guaranteed benefit reserves, coupled with a strong performance in U.S. retirement and international insurance operations.
Prudential, ranked 4th leading life insurer only after American International Group Inc. (AIG), MetLife Inc., (MET),New York Life Insurance Co. reported revenues of $8.1 billion, higher than the Zacks Consensus Estimate of $7.8 billion. Also on a year-over-year basis, revenues jumped 16%, primarily due to higher asset management fees, commissions and other income, net investment income as well as higher premiums. Premiums written escalated 18% to $3.9 billion, net investment income increased 9.0% to $2.2 billion.
Assets under management for the quarterincreased 18% to $784 billion led by increased net new flows and an overall improvement in markets.
Newark, New Jersey-basedPrudential reported the full-year 2010 core operating income of $2.968 billion or $6.27 per share above the Zacks Consensus Estimate of $6.01. Core earnings were also higher 13.7% year over year on a per share basis. Revenues of $30.9 billion was higher 14% year over year and also surpassed the Zacks Consensus Estimate of $30.3 billion .
Adjusted book value, which measures the net asset value of a company, increased to $63.11 per share, up 22.5% year over year.
The U.S. Retirement Solutions and Investment Management divisionhousesIndividual Annuities,Retirement, and Asset Management reportedoperating income of $624 million, which surged 93% year over year. This was due to a substantial increase of 75% in Individual Annuities segment, led by a higher reduction in amortization of deferred policy acquisition costs and reduction in reserves for minimum death and income benefits coupled with increases in customer account values which charged higher asset-based fees.
Also, a turn around in operating income in Asset Management to $132 million from a loss of $6 million last year led by favorable results from commercial mortgage activities contributed to an increase in segment’s operating income. The Retirement segment saw an increase of 11.4% in operating income.
The U.S. Individual Life and Group Insurance division, which houses Individual Life segment and Group Insurance segment reported operating income of $200 million down 4.8% year over year. The decline was led by a lower contribution (7.0%) from Individual Life segment. However, operating income from the other business – Group Insurance segment remained flat year over year.
The International Insurance and Investments division’s operating income of $598 million was up 31% year over year on the back of a 29% increase in contribution from International Insurance coupled with a seven fold increase in operating income from the International Investment segment. The increase in International Insurance was brought about by more favorable results from global commodities operations.
Prudential’sClosed Block Business, which consists of life insurance and annuity policies issued before the company went public in December 2001 but are still in force. This divisionposted $52 million of net loss, contrasting with the year-ago net income of $92 million.
At the start of the month, the life insurer and annuity provider completed the acquisition of two of the Japanese life operations of American International Group for $4.8 billion – mostly in cash. Japan being the largest business base of Prudential outside the U.S. and contributing approximately 40% to its revenues, the company will be able to consolidate its already strong footprint in the country.
Prudential’s results reflect that it is benefiting from strong annuity sales, higher investment income and asset management fees led by a bounce in the equity markets. With its diverse business mix, resilient earnings and a strong management team, the company is well positioned to enhance shareholder value. Prudential’s solid balance sheet, global reach, superior franchise, strong credit ratings and expanding distribution with the addition of AIG Star/Edison will ballast it for a long time.
Though, we are concerned about its potential investment losses, exposure to foreign exchange movement and business link with the volatile equity and credit markets, we think the positives will outweigh the headwinds.
Prudential carries a Zacks #3 Rank which translates in Hold recommendation over the short term (1-3 months). Also, on a long-term basis considering the Prudential’s fundamentals we will recommend investors to stay Neutral on the stock.
AMER INTL GRP (AIG): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
Zacks Investment Research
