Prudential rides U.S. Businesses to Q1 win, but new CEO wants more

Prudential Financial reported a first-quarter profit gain off strong underwriting in the insurer’s U.S. Businesses unit. However, new CEO Andrew Sullivan, who was overseeing his first quarterly report, said it was not enough.

The Prudential board of directors named Sullivan to succeed Charles Lowrey in December and he took over on March 31. In his first call with Wall Street analysts, Sullivan brought the energy of a positive-thinking football coach who nevertheless demands more production from his team.

“I want to be clear, our recent results do not meet our expectations, and we will do better,” Sullivan said. “The underlying capabilities, distribution, strength, brand and product quality of Prudential should allow more value to our stakeholders. We will deliver to a higher performance standard going forward.”

The executive succession represented a changing of the guard for Prudential as Rob Falzon, vice chairman, is retiring in July after 42 years with the insurer. Normally a big presence on earnings calls, Falzon did not participate in Thursday’s session.

Yanela Frias, chief financial officer, took his place and laid out the diverse mix of wins that pushed Prudential’s U.S. Businesses segment to more than a 15% in earnings.

Among the highlights, Institutional Retirement Strategies recorded sales of $7 billion, driven by two longevity reinsurance transactions, and structured settlement had its best quarter ever with $600 million in sales, Frias said.

Individual Retirement Strategies reported sales of $3.5 billion in Q1, reflecting strong demand for both registered index-linked annuities and fixed annuities, the insurer reported.

However, Prudential is experiencing some negative trends impacting U.S. Businesses, Sullivan said.

“We expect lower earnings growth in our U.S. Businesses over the near term, as we continue to run off more volatile blocks of our business, comprised of traditional variable annuities and guaranteed universal life products,” he explained. “Second, we face near-term earnings pressure in our Japan business, driven by elevated surrenders of U.S. dollar-denominated products due to a weaker yen.”

In Other News:

Disappointing results. PGIM, Prudential's global investment management business, reported an adjusted operating income of $156 million in the quarter, down from $169 million a year ago.

Expressing his disappointment with those results, Sullivan added that Prudential expects to hit the 25% to 30% adjusted margin target set for PGIM. Volatility hurt in the first quarter, he said.

“Volatility creates headwinds here in the near term,” Sullivan said. “Whether that's going to last for months or quarters is very hard to tell. It's been a pretty volatile environment. But long term, our path is clear, and I'm confident in it.”

Markets worldwide are unsettled by an ongoing tariff war initiated by President Donald Trump. Data released last week showed the U.S. economy contracted during the first quarter for the first time in three years.

But Sullivan declined to accept volatility as an excuse moving forward.

"As the world is evolving, we’ll adapt to meet the opportunity and prioritize the allocation of capital accordingly," he said. "The areas that present the greatest opportunities for profitable growth will get more capital; those that do not will get less.

Quarterly Snapshot:

• Group insurance sales of $400 million in the quarter increased 6% from the year-ago quarter, primarily driven by growth in group life.
• Life insurance sales of $210 million in the quarter increased 26% from the year-ago quarter, primarily driven by variable life sales.
• Parent company highly liquid assets of $4.9 billion versus $4.2 billion for the year-ago quarter.

Management Perspective:

“I see both significant opportunities and challenges in front of us. With our unique combination of global scale, distribution, power, brand and talent, we're well positioned to address the growing protection and retirement needs of customers and clients around the world, and to meet increasing investor appetite for a broad range of investment products.”

–  CEO Andrew Sullivan

By The Numbers:

• Net Income: $707 million ($1.1 billion in Q1 2024)
• Adjusted Operating Income: $1.2 billion ($1.1 billion in Q1 2024)
• Assets Under Management: $1.52 trillion ($1.50 trillion in Q1 2024)
• Earnings Per Share: $3.29 per share ($3.05 in Q1 2024)
• Share Repurchases: $250 million
• Dividend Declared: $486 million
• Stock Price Movement: Shares declined about 1% by Thursday afternoon to $101.76

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.