Prudential Posts Big 2Q Loss, Accelerates Shift To Variable Products

By John Hilton

Prudential took another beating at the hands of historically low interest rates in the second quarter, and executives said they expect life insurance and annuity sales to drop further.

But the insurer is continuing to shake up its product mix to find the right combination, Vice Chairman Rob Falzon said.

"We've implemented pricing and product actions to simplify and de-risk our business mix, while protecting profitability," he explained.

For example, Prudential took "aggressive pricing actions" to "significantly reduce sales" of its High Daily Income variable annuity, and launched FlexGuard, a buffered annuity product in late May. The moves "support our product mix shift to less sensitive, less interest rate sensitive solutions," Falzon said.

In response to annuity losses, the insurer has "repriced almost our entire product line," said Charlie Lowery, chairman and CEO, and is looking at alternative books of business that are more profitable.

Overall, Prudential posted a net loss of $2.41 billion, compared with net income of $708 million a year earlier. The loss was mainly due to a decline in the value of its derivatives holdings due to tightening credit spreads.

Suspended Sales

On the life side, Prudential suspended sales of its single life guaranteed universal life product in July, Falzon noted.

"This will result in the continued shift to variable life and other less interest rate sensitive products," he said. "We will continue to take product and pricing actions, including steps to diversify our mix of business to maintain profitability in this interest-rate environment.

"As a result, we expect individual annuities and individual life sales to continue to move lower in the near term."

Prudential's individual solutions unit, consisting of annuities and life insurance, reported adjusted operating income of $185 million, down 43.4% mainly due to lower annuity sales.

"We are examining ways to further reduce the sensitivity to interest rates and exploring the potential to generate cost savings on top of our existing 2022 target of $500 million," Lowery said.

PGIM, Prudential’s global investment management business, was a bright spot, reporting record high adjusted operating income of $324 million in the second quarter, compared to $264 million in the year-ago quarter.

The increase reflects an increase in strategic investment earnings, lower expenses, and higher asset management fees, driven by an increase in average account values, the company said.

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.