Prudential Financial, Inc. (PRU)

PRU 
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Prudential Financial (PRU)

Q1 2014 Earnings Call

May 08, 2014 11:00 am ET

Executives

Eric Durant -

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

Mark B. Grier - Vice Chairman and Member of Enterprise Risk Committee

Robert Michael Falzon - Chief Financial Officer, Executive Vice President and Member of Enterprise Risk Committee

Charles Frederick Lowrey - Executive Vice President, Chief Operating Officer of International Division and Member of Enterprise Risk Committee

Steve Pelletier -

Analysts

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Nigel P. Dally - Morgan Stanley, Research Division

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

Suneet L. Kamath - UBS Investment Bank, Research Division

Erik James Bass - Citigroup Inc, Research Division

Yaron Kinar - Deutsche Bank AG, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2014 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. Thank you for joining us. Representing Prudential on today's call are John Strangfeld, CEO; Mark Grier, Vice Chairman; Charlie Lowrey, Head of International Businesses; Steve Pelletier, Head of Domestic Businesses; Rob Falzon, Chief Financial Officer; Rob Axel, Controller and Principal Accounting Officer.

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 first quarter of 2014, which can be found on our website at www.investor.prudential.com. 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 excludes certain items. Adjusted operating income is not a substitute for 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 located on our website.

I'll forego the repeat. On to John.

John Robert Strangfeld

Thank you, Eric. Good morning, everyone, thanks for joining us. And we'd like to acknowledge also, today, we have Charlie Lowrey in a different role as Head of International and we welcome Steve Pelletier in his new role as head of the U.S.

Before I hand it over Mark and Rob for more specifics, I'd like to kick things off with some macro comments. We are very pleased with the results for the first quarter and we believe we're off to a good start to achieve our goals for 2014. Our annuities, retirement and asset management businesses have benefited from sustained growth and account values of asset under management. Returns and risk profile in our annuities operation continue to migrate towards our objectives for this business, as the sustained period of favorable equity markets and a gradual shift in the composition of our block have driven improvement. We're very comfortable with the risk profile as it stands today and we're also comfortable with the expected profitability of the products that we are selling.

Our Retirement business had its best ever quarter. Outstanding results were driven by improved investment spreads in both Institutional Investment Products and Full Service retirement, even excluding a higher than expected contribution from non-component investments. Higher fees also contributed to earnings growth this quarter. And although we recorded no pension risk transfer transactions this quarter, we continue to believe that PRT is an attractive opportunity that will develop further over time.

Asset Management achieved its growth in earnings entirely on the strength of growth in asset management fees, reflecting growth in assets under management. Other related revenue was down slightly from a year ago and contributed less than 20% of adjusted operating income for the quarter. So as assets management earnings have increased, we believe it's quality of earnings have improved as well.

In our domestic insurance operations, we see underlying improvement, even though adjusted operating income is lower than a year ago. After 6 consecutive quarters of mortality more favorable than expected, individual insurance had less favorable experience this quarter. Our integration of Hartford continues to progress well and our distribution capabilities are broader and deeper than before as a result. We believe our product portfolio, now fully integrated, is well diversified and poised to achieve appropriate returns.

Lower earnings in Group Insurance reflected a less favorable result to disability, attributable to an adverse fluctuation in claims. Disability remains a work in progress and while the business has improved, its improvement will not be linear. Getting this business right will take more time, but we are confident we will get there.

Finally, International Insurance, excluding the few significant items Mark will review with you, recorded modestly higher earnings with hindrance from currency translation. The Life Planner earnings continue to benefit from business growth but the benefit in that growth was partially offset by less favorable mortality and foreign currency translation. The business itself is still humming along, producing very attractive returns.

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