Prudential falls short of earnings forecasts, execs stress long-term focus

By John Hilton

Prudential Financial continues to make moves to shake off the earnings malaise and reverse a stock decline. As in recent quarters, the first-quarter results are mixed at best.

Led by Chairman and CEO Charlie Lowrey, company executives met with stock analysts Wednesday and touted some significant moves Prudential closed in recent months, including:

1. Acquiring a majority stake in Deerpath Capital Management. It was announced Tuesday that PGIM, Prudential's $1.2 trillion global investment management business, signed a deal to acquire Deerpath Capital Management and its associated affiliates. Deerpath Capital is a private credit and direct lending manager focused primarily on financing private equity sponsor-backed companies in the lower middle market and has more than $5 billion in assets under management.

2. A new indexed variable universal life product known as FlexGuard Life. Introduced in the fourth quarter, FlexGuard Life offers buffered index strategies with potential for cash value accumulation. The new product is "ramping up nicely," said Caroline Feeney, executive vice president and head of Prudential's U.S. Businesses.

3. Pension Risk Transfer success. Prudential's Institutional Retirement Strategies division reported account values of $253 billion, a record high, increased 6% from the year-ago quarter. The insurer's PRT business had its best first quarter in the history of the company, Lowrey said.

Prudential posted revenues of $15.1 billion for the quarter ended March 31, compared to year-ago revenues of $13.30 billion. The insurer pointed to higher premiums, asset management fees, commissions and other income and net investment income for the revenue bump.

However, it translated to adjusted operating income of $2.66 per share, which fell well short of analysts' expectations. Prudential was plagued by declining operating income year over year for all of its segments and rising expenses. The company stock price is down nearly 24% year over year.

Lowrey maintained focus on the long term: "We're investing in long-term sustainable growth by expanding access to our products and services in markets around the world, including through programmatic M&A, and organic growth opportunities, creating the next generation of financial solutions and delivering industry leading customer experience."

Life insurance segment

Prudential delivered stagnant results in its life insurance segment, reporting a loss, on an adjusted operating income basis, of $102 million, compared to a loss of $18 million in the year-ago quarter. The higher loss primarily reflects lower net investment spread results, driven by lower variable investment income, and less favorable underwriting results, Prudential reported.

Sales of $149 million were consistent with the year-ago quarter and "reflect our pivot to less market sensitive products," Prudential said in a news release.

"Our individual life sales reflect our earlier product pivot strategy with variable life products representing about 70% of sales for the quarter," said Rob Falzon, vice chairman.

Prudential includes annuity sales under its Individual Retirement Strategies segment, which reported adjusted operating income of $441 million in the quarter, compared to $431 million in the year-ago quarter. The increase reflects higher net investment spread results, partially offset by lower fee income, net of distribution expenses and other associated costs, driven by a reduction in account values, Prudential reported.

Account values of $124 billion were down 27% from the year-ago quarter, reflecting the sale of a block of legacy variable annuities, market depreciation, and net outflows, the insurer stated. Gross sales of $1.7 billion in the quarter "reflect the continued momentum from our FlexGuard products and increased sales of fixed annuity products," the release said.

"Sales of fixed annuities represented one-third of total individual annuity sales in the first quarter, a significant increase from the year-ago quarter," Lowrey said. "We continue to enhance the ways in which customers engage with our products and solutions to drive more digital experiences and better customer outcomes."

For example, a majority of annuities applications are now submitted with E-signature, Lowrey added, "which has reduced processing time by several days and improved our environmental impact."

Prudential executives all focused on the future, repeating the mantra of long-term stability. Assurance IQ, an insurance-distribution platform Prudential acquired in a $2.35 billion deal in 2019, was not mentioned in either the news release or the call with analysts. Prudential has struggled to make Assurance IQ a profitable venture.

While Assurance IQ finally turned a profit in the fourth quarter, it was negated by a $713 million "impairment charge" related to the fair value of business.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.