Prudential Posts 21% Loss From Annuity Segment In 1Q

By John Hilton

Prudential Financial is moving quickly away from life insurance products that rely on interest rates and equity markets, executives said during the company's first-quarter earnings call.

The company reported adjusted operating income of $373 million from its individual annuities segment, a 21% decline from the first quarter 2019. The individual life segment reported a loss of $20 million in adjusted operating income, compared to income of $105 million in the year-ago quarter.

The life insurer is moving fast to bring its product lineup more in line with the suddenly struggling economy, said Ken Tanji, executive vice president and chief financial officer.

"The products that we are shifting to have a less interest rate sensitivity," he said. "Products like variable life."

On the annuity side, Prudential is moving up the launch of its FlexGuard Indexed Annuity to later this month.

Overall, Prudential posted a 25% fall in adjusted quarterly profit on after-tax adjusted operating income of $939 million, or $2.32 per share. Increased volatility in financial markets due to the COVID-19 pandemic hurt Prudential’s asset management arm, executives said.

The insurer reported a first-quarter 2019 adjusted operating income of $1.26 billion, or $3.00 per share.

Prudential annuity sales were down year over year and quarter over quarter.

"The decrease reflects lower fee income, net of distribution expenses and other associated costs, lower net investment spread results, and a favorable impact from changes in market conditions on estimates of profitability in the year-ago quarter," the company said in a news release.

Prudential term life insurance sales continued a steep decline in recent quarters. The insurer stopped selling 30-year term life insurance last month and, according to Reuters, has also suspended life insurance sales to consumers aged 80 and older.

On the plus side, "sales of $187 million in the current quarter were up 15% from the year-ago quarter, primarily reflecting higher variable life sales," Prudential noted in a news release.

The insurer acquired online insurance startup Assurance IQ in September for $2.35 billion. Assurance gave Prudential an insurtech arm to use data crunching and artificial intelligence to boost revenue and cut costs.

But Assurance IQ recorded a loss of $23 million in the first quarter 2020. Company execs want to leverage the platform to increase distribution opportunities, particularly in Medicare Advantage products, said Andy Sullivan, executive vice president and head of U.S. businesses.

The Assurance loss was “modestly worse than what we expected," Sullivan said. "We learned some lessons from a Medicare Advantage perspective and we are investing ahead of Q4 to make sure we have the proper number of agents and they’re trained and ready to go."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.