Prudential rides out Assurance IQ struggles with 4th quarter loss

Prudential Financial executives stressed strong financials even as the insurer announced a $558 million loss for the fourth quarter 2022.

The results, announced yesterday, reflect poor performance across most of the segments, lower premiums and net investment income, offset by lower expenses. After-tax adjusted operating income was $907 million in the quarter, compared to $1.23 billion for the fourth quarter of 2021.

Chairman and CEO Charles Lowrey stressed the foundational strength of Prudential.

During 2022, "we made further progress on our transformation to become a higher growth, less market sensitive, and more nimble company," he said. "We reduced the market sensitivity of our business while investing in sustainable, long-term growth. We also exceeded our $750 million cost savings target a year ahead of schedule and maintained our rock solid balance sheet and disciplined approach to capital deployment."

Assurance IQ struggles

The insurer reported good news and bad news with Assurance IQ, an insurance-distribution platform Prudential acquired in a $2.35 billion deal in 2019. Assurance IQ was launched in 2016 as an online marketplace for multiple insurance products, including life, auto, health and Medicare supplement policies.

Assurance IQ has struggled to meet growth targets set by the company, but finally turned a profit in the 4th quarter ($29 million).

However, Prudential was forced to include "a goodwill impairment charge of $713 million" in its quarterly report. In a news release, executives said the charge reflects "a decline in the fair value of Assurance IQ as a result of lower expected earnings growth, a higher discount rate applied to future cash flows, and lower peer valuations."

Prudential held a conference all with stock analysts Wednesday morning. In response to questions about Assurance IQ, Ken Tanji, chief financial officer, said the insurer remains committed to the platform.

"We've maintained Assurance well capitalized and funded its losses as they've been incurred," Tanji said. "Profitability continues to improve and we'll continue to keep it well capitalized going forward."

Lowery refuted a published report that Prudential will lean toward a more conservative merger-and-acquisition policy in light of struggles with Assurance IQ. The insurer will continue seeking deals similar to its acquisition of Montana Capital Partners in 2021 and the 15% minority stake in Johannesburg-based financial services group Alexander Forbes Group, closed in March 2022, he said.

"What we've said is that we won't be investing in early stage companies with less, less proven track records," Lowery added. "What we're focusing on is developing portfolio programmatic acquisitions concentrating in more established businesses, where we can expand the capabilities and scale of our existing businesses."

Business segments

Prudential's U.S. Businesses segment reported adjusted operating income of $864 million, a decrease of 3.5% year over year. The decline was due to lower net investment spread results because of lower variable investment income and lower net fee income. It was partially offset by more favorable underwriting results.

In the Group Insurance business, Prudential reported adjusted operating income of $15 million in the current quarter, compared to a net operating loss of $205 million in the year-ago quarter. The increase "reflects more favorable underwriting results in both group life and disability, partially offset by lower net investment spread results, driven by lower variable investment income, and higher expenses," the insurer said.

Reported earned premiums, policy charges, and fees of $1.4 billion decreased 1% from the year-ago quarter. If a large buyout deal were removed from the year-ago quarter, group sales were actually up 7%, explained Caroline Feeney, head of U.S. Businesses.

"We're very pleased with the momentum that we've seen in our group insurance business," she said.

Prudential's Individual Life business reported adjusted operating income of $18 million in the current quarter, compared to $81 million in the year-ago quarter. The decrease "primarily reflects lower net investment spread results, driven by lower variable investment income, partially offset by lower expenses," the insurer said.

Sales of $154 million in the current quarter decreased 15% from the year-ago quarter, driven by lower variable life sales.

"Our individual life sales were consistent through the year and reflect our earlier productivity strategy," said Rob Falzon, vice chairman, "with variable life products representing approximately 70% of sales for the year."

InsuranceNewsNet Senior Editor John Hilton has 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.

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InsuranceNewsNet Senior Editor John Hilton has 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.