Prudential Financial, Inc. (PRU)

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Prudential Financial (PRU)

Q4 2013 Earnings Call

February 06, 2014 11:00 am ET


Eric Durant

John Robert Strangfeld - Chairman, Chief Executive Officer, President and Member of Executive Committee

Mark B. Grier - Vice Chairman

Robert Michael Falzon - Chief Financial Officer and Executive Vice President

Charles Frederick Lowrey - Head of Asset Management Business, Executive Vice President, Chief Operating Officer of US Businesses, Chief Executive Officer of Prudential Investment Management, President of Prudential Investment Management and Executive Vice President of Prudential Financial & Prudential Insurance

Edward P. Baird - Executive Vice President and Chief Operating Officer of International Businesses


Yaron Kinar - Deutsche Bank AG, Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Suneet L. Kamath - UBS Investment Bank, Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Seth Weiss - BofA Merrill Lynch, Research Division

Erik James Bass - Citigroup Inc, Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the Prudential Financial Fourth Quarter 2013 Earnings Teleconference. [Operator Instructions] And as a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Eric Durant

Thank you, Cynthia. Good morning, and thank you for joining our call. Representing Prudential today are John Strangfeld, CEO; Mark Grier, Vice Chairman; Charlie Lowrey, head of our U.S. businesses; Ed Baird, head of our International Businesses; Bob Falzon, Chief Financial Officer; and Peter Sayre, Controller and Principal Accounting Officer.

We'll start with prepared comments and then we'll answer your questions. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the fourth quarter of 2013, which can be found on our website at

In addition, this presentation may include references to adjusted operating income or to earnings per share or EPS or return on equity or ROE, which are determined based on adjusted operating income. Adjusted operating income is a non-GAAP measure of performance of our Financial Services businesses that exclude certain items. Adjusted operating income is not a substitute for an income determined in accordance with Generally Accepted Accounting Principles, GAAP, and the excluded items are important to an understanding of our overall results of operations. For a reconciliation of adjusted operating income to the comparable GAAP measure, please see our earnings press release on our website. Additional historical information relating to the company's financial performance is also included on our website. John?

John Robert Strangfeld

Thank you, Eric. Good morning, everyone. Thank you for joining us. Now that we've closed the books on 2013, I'd like to kick things off with some high-level comments regarding the year as a whole.

First, earnings. Earnings per share were at $9.67 compared to $6.40 per share for 2012 based on adjusted operating income of the Financial Services businesses. This is an increase of 51%. Excluding the significant items we disclose each quarter, such as DAC unlockings and business integration costs, the EPS increase would be 33%. Our results reflect strong organic growth across our businesses, coupled with pricing discipline and effective expense and risk management.

In addition, the successful execution of the Star and Edison acquisitions in Japan, the emerging success of The Hartford Life purchase and the addition of the large pension risk transfer deals we closed in late 2012, all contributed meaningfully to this year's earnings.

And while our businesses are performing exceedingly well, we've also been helped by healthy tailwinds. As we have said recently, the things that tend to fluctuate generally fluctuated in a positive direction in 2013. In particular, we benefited from strong income from non-coupon investments, especially in our Retirement business in the Gibraltar; from favorable mortality, especially in Individual Life; and from good case experience in Retirement.

Turning to return on equity. It was in 2010 that we set out an ROE goal of 13% to 14% for 2013. We believed then, as we do now, that achieving and sustaining the 13% to 14% represents superior performance relative to our peers. As you can see, we exceeded the top end of our stated ROE objective. This reflected our strong underlying business performance, the noteworthy step-function changes made possible by M&A and outsized organic, as well as the tailwinds I mentioned earlier.

That said, 2013 is behind us and we're looking forward. We've never hit our goal as a 1-year, once-and-done objective. On the contrary, our goal is to sustain an ROE of 13% to 14% over a full cycle. And we believe achievability of that is made possible by the quality and mix of businesses, our approach to capital management and most importantly, the quality of our people.

I'll close with a few comments on Prudential's financial strength. The capital position of our U.S. and Japanese insurance companies continue to meet the high standards we managed them to, we believe AA, as you will hear from Rob Falzon shortly. We also have the capacity to remain strongly capitalized even in stressed environments. We've lowered our ratio of capital debt to total capitalization within our targeted range, and diversification of our risk profile has been a priority. The pension risk transfer transactions added significant longevity risk to our profile, other examples include an innovative annuities product that offers retirement income solutions without linkage to equity markets and greater emphasis on non-guaranteed universal life products in Individual Life.

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