Prudential Releases 2012 Results


Despite a vast geographic footprint and a diverse distribution platform, Prudential’s new business sales were somewhat mixed. Sales growth in key Asian markets including Indonesia, Malaysia, and Singapore slowed significantly in the fourth quarter, a sharp contrast to the levels seen a year ago, reflecting higher competition in the region and a somewhat lower appetite for protection products among middle-class families.

On the other hand, U.S. variable annuity sales at Jackson National Life increased 14% year over year, at a time when MetLife MET and other annuity writers are retreating from the market. For comparison, MetLife cut its VA sales by half in the fourth quarter. Looking forward, Prudential has guided for lower VA sales to rein in its risk exposure. The company’s pretax profit for 2012 was GBP 2.8 billion, slightly lower than our expectations.

The shortfall was partly attributable to higherthan- expected deferred acquisition cost charges for the U. S. business due to higher sales. The company’s book value increased from GBX 363 per share to GBX 407 per share.

The increase in VA sales did not seem to have any material impact on the company’s statutory risk-based capital ratio, which dropped only marginally from 429% to 423%. That is not to say that the company’s available capital is keeping pace with the increase in required capital driven by the new sales. It simply reflects the fact that management is feeling increasingly comfortable with the hedging results, and that it has increased the issuance of fixed indexed annuities to partly offset the risk.

Additionally, much of the new sales were related to a new product that carries no guaranteed benefits but provides tax-efficient access to alternative investments. As a result, the company was able to lower the reserves associated with the overall annuity portfolio, thereby lowering the required capital while holding the RBC ratio essentially unchanged.

Prudential remains solidly capitalized, with a more than GBP 5 billion capital surplus, or 3 times coverage over the required level. The company announced a full-year dividend of GBX 29 per share, representing a 16% increase from last year.


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