This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Prudential Financial (NYSE:PRU)
Below are key drivers of Prudential's value that present opportunities for upside or downside to the current Trefis price estimate for Prudential:
- Prudential's Retirement Revenues: Prudential's revenues from retirement services increased at an annual rate of about 3.5% from 2007 to 2012. We conservatively estimate Prudential's retirement revenue to grow at an annual rate of about 2.5% during the Trefis forecast period. However, Prudential's retirement revenues have the potential grow at a much faster rate because of the growing number of people reaching retirement age and Prudential's aggressive acquisitions which have boosted its retirement business. There could be a 10% upside to our price estimate if Prudential's retirement revenues reach $10 billion by 2018.
- On the other hand, weak economic growth, high unemployment and rising inflation could significantly affect Prudential's ability to grow its retirement revenues. As seen in 2009, Prudential's retirement revenues could decline in the event of a double-dip recession. There could be a 10% downside to our price estimate if Prudential's retirement revenues decline to about $3 billion by 2018.
- Prudential's International Insurance Revenues: Prudential has established its brand in some of the large and growing insurance markets outside of the U.S. and is well positioned to benefit from the growth in these economies. We estimate that Prudential's international insurance revenues will reach $21 billion by the end of the Trefis forecast period, growing at a rate of 7% from its present value. However, there could be a 15% upside to our price estimate if Prudential's international insurance revenues continue to grow at over 13% per year during our forecast period.
- On the other hand, the growth in emerging economies could stall if developed economies slip into recession. There could be a 10% downside to our price estimate if Prudential's international revenues remain flat during our forecast period.
Prudential Financial, Inc. offers a wide array of financial products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services to individual and institutional customers through proprietary and third party distribution networks. It has operations in the United States, Asia, Europe and Latin America.
Prudential's most valuable business is providing retirement solutions and investment management in the U.S. The company's second most valuable business is its international insurance business where it provides individual life insurance, retirement and related products to the mass affluent and affluent markets in Japan, Korea and other countries outside the U.S. through its Life Planner operations.
Over 10% Growth in Individual Annuity Revenues
Despite the global economic slowdown, Prudential managed to grow its individual annuity revenues by over 10% during 2006 to 2012. We expect retiring baby boomers to fuel sustained growth in annuity revenues during our forecast period.
Over 10% Growth in International Insurance Revenues
Insurance penetration outside of the U.S. and Japan remains low and thus provides an opportunity for insurance companies. Global insurance premiums are likely to continue to grow over the long term. The recovery of financial markets will likely stimulate the growth of unit-linked products, thereby pushing up the sales of saving products and in turn boosting the premiums of insurance companies. The long term prospects for life insurance remain favorable in view of the expected global impact that the aging population will have on the demand for life insurance products.
Investment losses are expected to decline
The financial crisis of 2008-09 caused financial services firms to book heavy losses on their invested assets. Insurance companies typically depend on investment income to pay off their liabilities (insurance benefits, claims and dividends). Heavy investment losses during the financial crisis caused operating margins to drop significantly. Going forward, we expect that insurance companies will cut losses with reduced exposure to high-risk securities in the near-term, and an improving economic environment in the long-term.
Modest growth in life and health insurance market in the U.S.
Growth in the life and health insurance business continues to be impacted by the current higher levels of unemployment and it is possible that people may further reduce or eliminate coverage in response to the financial pressures they are experiencing. As a result we do not expect any significant near-term growth in the U.S. life and health insurance market.
Industry Consolidation to Improve Scale and Cost Effectiveness
In the retirement solutions market, Prudential competes with other large, well-established insurance companies, asset managers, and diversified financial institutions based on pricing, variety of investment offerings and investment performance. Since the variety of investment offerings cannot increase indefinitely and investment performance tends to be similar across large insurance companies, industry consolidation will help companies increase scale, improve cost efficiencies, and enter new market segments.
Trefis Forecast Rationale for Prudential's Retirement Revenues
This represents the revenue Prudential earns from providing retirement investment and income products and services to retirement plan sponsors in the public, private, and not-for-profit sector. Prudential provides recordkeeping, plan administration, actuarial advisory services, tailored participant education and communication services, trustee services and institutional and retail investments.
The company services defined contribution, defined benefit and non-qualified plans.
Revenues from Retirement services increased steadily from $1.3 billion in 2009 to $1.95 billion in 2010, falling marginally to $1.69 billion in 2011.
In 2012, Prudential signed pension transfer agreements with General Motors and Verizon, which accounted for $33 billion in retirement sales and deposits. Excluding this premiums dropped significantly due to lower sales of stable value wrap products.
Trefis considered the following factors for its forecast:
Back to Company Overview
- More deals around the corner
- In 2012, Prudential issued a group annuity contract worth approximately $29 billion to General Motors in June and followed it up with another agreement with Verizon covering approximately 41,000 members of Verizon’s pension plan and about $7.5 billion in pension liabilities.
- We believe that there might be similar deals in the pipeline, the Russell 1000 Index of large U.S. companies revealed a $435 billion gap between pension liabilities and assets
- Retiring Baby Boomers will fuel retirement products market growth and increase the premium revenues.
- The US Department of Health & Human Services estimates that by the year 2020 16.1% of the population will be aged 65 and above compared to 13% in 2012.
- The growing number of people reaching retirement age will expand the market for retirement products and services.
Recent acquisitions to help Prudential increase its revenues
- In 2007, Prudential acquired a portion of the retirement business of Union Bank of California for $103 million. This acquisition increased the scale of product and service offerings and expanded sales and distribution capabilities of the company on the west coast of the U.S.
- In 2008, Prudential acquired MullinTBG Insurance Agency Services, a provider of executive benefit solutions and financing strategies, including administration of non-qualified executive benefit plans. This acquisition broadened Prudential's array of product offerings, expanded its sales and distribution capabilities and enhanced our position as a single source servicer of both qualified and non-qualified retirement and deferred compensation plans.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics