Prudential Financial Inc. (
PRU
), the second largest life insurer in the U.S, announced a new
share repurchase program, with an authorization to buy back up to
$1.0 billion of its outstanding common stock through June 30,
2013.
Prior to this, in June last year, Prudential announced the
buyback of up to $1.5 billion of its outstanding common stock
through June 30, 2012. The year marked the resumption of its
suspended share buyback plan in 2008. Owing to the market
conditions in 2007-2008, Prudential suffered huge losses in terms
of its investment in subprime securities and decline in stock
value. As a result, the company suspended its 2008 stock repurchase
program.
However, with a gradual improvement in equity markets and the
overall economy, Prudential consequently benefited from growth in
its International Insurance businesses and stability in its core
U.S. insurance business. Also, strong results of its operations,
focus on retirement solutions and asset management, driven by net
flows and improving market conditions, favored the company and
enabled it to resume its share buyback plan in 2011.
Prudential maintains an exceptional level of balance sheet
strength. With an estimated capital of $4-$4.5 billion for fiscal
2012, we think the company is poised to comfortably execute its
share buyback activity.
In a separate development, A.M. Best Co. reaffirmed
financial strength rating ("FSR") and issuer credit ratings ("ICR")
of Prudential and its subsidiaries. Accordingly, the
company's ICR of "a-"and all the existing debt ratings have been
reiterated. Also, its life and health insurance subsidiaries have
witnessed a reaffirmation of their FSR and ICR at "A+" and "aa-",
respectively.
The rating agency takes into account the group's diversified
operations, spanning the United States, Asia, Europe and Latin
America. Its broad product portfolio includes life insurance,
annuities, mutual funds, pension and retirement related
investments, administration and asset management solutions and
securities brokerage services. The right mix of businesses with
strong fundamentals and superb risk management capabilities have
helped the company to strengthen its market position and achieve
greater business diversification. The rating agency also
acknowledges the company's solid first quarter earnings, which
reflects its strong operating profile.
Prudential's lower exposure to volatility in equity markets due
to a higher mix of variable annuities that automatically rebalance
equity market movement also proves to be a positive for the
company.
Though the rating agency opines that variable annuity businesses
are less rewarding than life insurance businesses, Prudential has
had a successful history of managing the annuity business.
The rating agency also acknowledges the fact that the recent
acquisition of Star Edison will further strengthen the company's
already established presence in Japan thereby boosting its
International business. Japan is the largest business base of
Prudential outside the U.S., contributing approximately 40% of its
revenues. The company has been operating in the country for over a
couple of decades.
Factors, which are likely to thwart Prudential's ratings include
its above-average concentration of investments in subprime
residential mortgage-backed securities and its exposure to
commercial real estate.
The rating agency also noted the above average use of operating
leverage by the company compared with the industry average. Though
the company has tried to bring down the total leverage, it stands
at an elevated level. The financial leverage component of total
leverage, which measures the debt used in total capital, however,
is within reasonable limits.
The company's financial strength and credit ratings, which are
intended to measure its ability to meet policyholder obligations,
are important factors affecting public confidence in most of
Prudential's products, and consequently, its competitiveness. The
ratings affirmation reflects optimism about the company's future
performance.
Peer
MetLife Inc., (
MET
)
carries an ICR of "a-", while its life and health insurance
subsidiaries carry an ICR and FSR of "aa-" and "A+", respectively
by A.M. Best.
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
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