VALUATION HIGHLIGHTS

1. International Insurance constitutes 33% of the Trefis price estimate for Prudential Financial's stock.
2. U.S. Individual Solutions (U.S. Life Insurance, U.S. Individual Annuities) constitute 27% of the Trefis price estimate for Prudential Financial's stock.
3. U.S. Workspace Solutions (U.S. Retirement Solutions, U.S. Group Insurance) constitute 26% of the Trefis price estimate for Prudential Financial's stock.

WHAT HAS CHANGED?

Latest Earning

In Q3 2022, Prudential Financial reported Total Revenues of $20.5 billion, which is 5% less than the year-ago period. This could be primarily attributed to a decrease in other income and lower realized investment gains (losses) from $432 million to -$514 million.

Impact of coronavirus outbreak

Prudential Financial has suffered as states and countries were on lockdown due to the Coronavirus pandemic. This resulted in lower premium revenues for the company as businesses and individuals were more focused on the short term. In addition to this, the insurance companies are heavily dependent on income from investment of insurance premiums for their profitability, which slightly suffered in 2020 due to a lower interest rate environment driven by the economic slowdown. While FY2020 revenues were down 12% y-o-y, full-year 2021 revenues increased 24% y-o-y to $70.9 billion.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Prudential’s value that present opportunities for upside or downside to the current Trefis price estimate for Prudential:

International Insurance

• 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 expect the company to maintain a high single-digit growth rate through the decade. There is a near 3% downside, should currency fluctuations deter growth, keeping the growth rate at around 1%. However, there is a near 5% upside to our estimate if the company posts high annual growth of over 5%.

Retirement Solutions

• Prudential’s Retirement Revenues: Prudential’s revenues from retirement services increased at an annual rate of about 10% from 2017 to 2021.
• The growing number of people reaching retirement age will expand the market for retirement products and services.
• 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.

BUSINESS SUMMARY

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.

SOURCES OF VALUE

Prudential’s most valuable businesses are its international operations and retirement solutions and investment management in the U.S. The company offers 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

Prudential managed to grow its individual annuity revenues by over 10% between 2017 and 2021. We expect retiring baby boomers to fuel sustained growth in annuity revenues during our forecast period.

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 boosting the premiums of insurance companies. The long-term prospects for life insurance remain favorable, given the expected global impact that the aging population will have on the demand for life insurance products.

KEY TRENDS

Modest growth in the 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 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, the 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.